On September 22, 2020, the U.S. Department of Labor announced a proposed change in how companies would determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).  Historically, the Supreme Court of the United States has relied upon a balancing test of seven criteria in making this determination, with no single rule or test to be controlling.  The DOL seeks to narrow and codify the list in what appears to be an attempt to make it easier to classify workers as independent contractors. 

First, it proposes the inclusion of the “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor.  The test considers whether a worker is in business for themselves, in which case the person would be designated as an “independent contractor”, or whether the person is economically dependent on the company for work, and thus an “employee.”

Secondly, two “core factors” would be identified and explained, including (1) the nature and degree of the worker’s control over the work and (2) the worker’s opportunity for profit or loss based on initiative and/or investment.  The DOL has indicated that these criteria help determine if a worker is economically dependent on someone else’s business or is in business for themselves.

Next, the DOL suggests the additional identification of three other factors that would serve as further “guideposts” in the determination, including (1) the amount of skill required for the work, (2) the degree of permanence of the working relationship between the worker and the potential employer and (3) whether the work is part of an integrated unit of production.

Finally, to date, much of the analysis has been based on the right of a business to control the manner in which the work is performed.  The DOL now indicates that the actual practice is more relevant than that which is theoretically possible based on a contract or agreement.

We will monitor the progress of this proposed regulation and provide additional updates as warranted.  In the meantime, should you have questions regarding classifications under the FLSA or any other employment-related issue, please reach out to one of the attorneys in our Employment Law Group at 1-888-488-2638.