Last week the U.S. Department of Labor announced proposed rules to clarify whether a worker is an employee under the Fair Labor Standards Act (FLSA) and other laws the DOL is charged with enforcing.

This new proposed regulation provides criteria for determining whether a worker can be legally treated as an independent contractor. This status is not a full regulation having the force of law though. It is deemed guidance only, giving Courts discretion to interpret it.  It also does not prevent other agencies such as the IRS and states such as California from developing their own definition of employee and independent contractor.

For those employers that engage workers as independent contractors, these rules seek to more firmly clarify what workers are employees and must be paid overtime, who must keep hours worked records, and probably most importantly to the government, who bears responsibility for payroll tax withholding and payment.

As covered in ASE’s previous reporting on joint employment status, Washington’s previous administration had moved both administrative and regulatory determination and opinion toward severely limiting independent contractor status. The criteria for independent contractor status was moved to a point that there are very few legitimate independent contractors out there, as is very well the case in California per new state law. Almost all workers there can only be found employed by one organization or another.

Courts and other federal government agency positions had been trending toward finding the same thing, that most workers were employees and regardless of whether they may work for themselves or work for one employer that is engaged by another (both employers would be the employer – joint employment) they were employees and not separated by contractual agreement.

If the new DOL regulations are finalized, they would be the first formal regulation to be put in place since the whole gig economy took off, and subsequent litigation ensued trying to determine how these workers should be legally treated. Think Uber, Lyft, Gruhub, and so on.

The new rules break down employment status into five criteria with two being given more weight. The two primary factors for independent contractor status are:

• How much control the company exerts on how the worker performs

• Does the worker have the opportunity to profit or suffer a loss from the job, rather than earning a steady wage?

If these two rules are met, then the person is an independent contractor. If they both do not agree, three additional factors may be weighed:

• How much skill the work requires

• Whether the relationship between the worker and the company is permanent or temporary

• Whether the work is part of an integrated unit of production

With publication of these new rules, the public will have 30 days to comment before the DOL can finalize them – possibly before the end of the year. With this being an election year and with the possibility of the Senate majority changing, even this effort to establish a little more clarity around what clarifies an employee may get challenged and changed again going forward.

Sources: Law 360 Breaking: DOL Proposes Making It Easier to Label Workers Contractors 9/22/2020 . Uber and Lyft Could Gain From U.S. Rules Defining Employment New York Times 9/22/2020. Seyfarth DOL Proposes Its First-Ever Interpretation on Independent Contractor vs. Employee 9/22/2020