On September 25, 2020, the U.S. Department of Labor published a Notice of Proposed Rulemaking seeking comments on new regulations that would use a five-factor test to determine who is an employee and who is an independent contractor under the Fair Labor Standards Act. Under the proposed regulations, the issue would be determined by using an inquiry into whether a worker is “economically dependent” on the employer or in business for herself.
The proposed regulations use five factors, but two of those factors are deemed “core factors” that should be given more weight that the remaining three factors. The Department advises that if both of the core factors point in one way, it is unlikely that the remaining three factors, even taken together, would outweigh the combined weight of the core factors. If generally accepted by the federal courts, which currently utilize a range of overlapping and differently interpreted factors to determine independent contractor status, the new regulations will at the very least offer businesses more clarity on this legally fraught area of employment law.
The “core factors” are:
The nature and degree of the individual’s control over the work – this factor looks at whether the worker exercises substantial control over key aspects of the performance of the work, such setting his/her own schedule, selecting his/her own projects, and ability to work for others. Workers with this kind of control are more likely to be independent contractors. AND
The individual’s opportunity for profit and loss – this factor looks to whether the worker has an opportunity to earn profits or incur losses based on his/her exercise of initiative or management of his/her investment in or capital expenditure on helpers, equipment or material to further his/her work. If the worker is only able to affect his/her earnings by working more hours or working more efficiently, this factor weighs towards the worker being an employee.
The other three "non-core” factors are:
- The amount of skill required for the work;
- The degree of permanence of the working relationship between the individual and the potential employer; and
- Whether the work is part of an integrated unit of production.
The regulations also state that the actual practice between a worker and a company is more important than what may be contractually or theoretically possible. So, for example, it may be theoretically possible for a worker to negotiate price, but the more relevant inquiry is whether she actually can in practice.
Politics, like virtually everything else these days, will play a major part in whether this regulation goes into effect as written, is substantially modified, or is killed altogether. The comment period ends October 21, 2020, and the Department of Labor hopes to issue the final regulation before President Trump’s term ends on January 20, 2021, which is an usually short period of time to consider a regulation of this import. Moreover, if the Senate flips to Democratic control after the election, the regulation could be invalidated under the Congressional Review Act, which allows the incoming Congress to invalidate a regulation issued in the final 60 working days of the previous Congress.
Look to the Burch, Porter & Johnson employment team to keep you up to date on the latest developments.
If you have any questions about this topic, please contact:
lkrupicka [at] bpjlaw [dot] com