With the change of a Presidential administration, there are always changes in policies. This is particularly so when the change involves a different political party and especially in the present contentious environment. When President Trump took office, he quickly withdrew the salary thresholds for exempt workers implemented by the U.S. Department of Labor under the Obama Administration, and the U.S. Department of Labor under his leadership issued a new rule with a much lower salary threshold. Similarly, the Department of Labor under the Biden Administration recently replaced the Trump-era standards for independent contractors with standards which are likely to make it more difficult to prove that a worker is an independent contractor, rather than an employee. In this post, Adrian Castro of the FW Employment Department tells us about the new standards for independent contractors.
On March 11, 2024, the U.S. Department of Labor
("DOL") will reinstate a standard utilized by the agency
prior to 2021 to classify independent contractors, revoking a
clearer rule implemented under the Trump administration. Returning
to this older standard has the potential to increase
misclassification lawsuits, as this standard imposes more factors
on employers with respect to classifying workers.
Starting March 11, 2024, employers will be subject to a
"totality of the circumstances" analysis to determine
whether a worker is an employee or an independent contractor for
purposes of the Fair Labor Standards Act ("FLSA"). This
test focuses on six factors, none of which carry greater
weight:
- An employer's degree control on the work to be performed;
- The worker's opportunity for profit or loss depending on their managerial skill;
- The amount of skill and initiative required by a worker in the performance of the work;
- The degree of permanence of the working relationship;
- The worker's investment in equipment or materials required for the task versus the utilization of the employer's equipment or materials; and
- The extent to which the service rendered is an integral part of the employer's business.
With respect to the control factor, which has historically been
subject to greater focus by Courts and the DOL, the new rule
provides additional commentary on how to analyze this factor,
including a focus on scheduling, supervision, compensation, and the
ability to freelance.
Since no one factor carries greater weight, the DOL and Courts will
look at the totality of all the above factors to determine whether
a worker is an employee or independent contractor. This approach
makes it more difficult for an employer to immediately classify a
worker one, as opposed to the bright line rule presently in effect
that focused on the factors of control and opportunity for profit
and loss. Note the existence of an independent contractor
agreement, or the desire of the parties to work within an
independent contractor, is immaterial to either analysis.
Misclassification carries significant risks. Employees are entitled
to minimum wage, overtime, and a number of other benefits, under
federal and state law. Misclassified employees are entitled to not
only seek payment of any missed benefits associated with
misclassification, but they also may be entitled to penalties and
the payment of their attorney fees under federal and state law.
Significant misclassification across multiple employees may also
result in either state or federal agency action, which carries
additional concerns.
The so-called "gig economy" is particularly threatened,
such as Uber and delivery-based services. In addition, the rule is
expected to impact the construction, transportation, trucking, and
media industries given the high use of independent contractors in
those sectors.
Moving forwards, Employers should put in additional time and effort
to analyze all new worker arrangements to determine whether the
proposed relationship can be classified as an independent
contractor relationship. If not, the worker must be treated as an
employee. In addition, any independent contractor relationships
entered into over the last few years should be reanalyzed to ensure
compliance. To the extent you require any assistance in performing
either analysis, please feel free to contact Fairfield and Woods to
discuss.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.