On January 6, 2021, The U.S. Labor Department adopted a rule that created a shorter and simpler test for the question, who is an “employee” and who is an “independent contractor” under the Fair Labor Standards Act?
Under the new rule, if a worker depends on a business or organization for the opportunity to work then the worker is considered an employee. If a worker is essentially in business for himself/herself then the worker is considered an independent contractor. The rule gives five factors on whether a worker is economically dependent on an employer or not. The factors are (1) the nature and degree of the worker’s control over the work; (2) the worker’s opportunity for profit or loss based on personal initiative or investment; (3) amount of skill required in the work; (4) the degree of permanence in the work relationship; and (5) whether the work is part of an integrated unit of production.
Being counted as an “employee” under federal law means you are subject to federal employment laws such as minimum wage and overtime laws. This new rule from the Labor Department is expected to make “gig workers”, such as an Uber or Lyft driver, more likely to be counted as an “independent contractor” under federal law. Because of the simplified rule language, the rule gives employers more tools to defeat class action lawsuits for employees who allege they were misclassified as independent contractors.
The Labor Department’s rule will not go into effect until after President-elect Joe Biden is inaugurated on January 20, 2021. The Biden administration could choose to create a new rule, alter the current rule, or choose to rescind the rule. Additionally, if the senate changes to a democratic majority then the house and senate could use the Congressional Review Act to invalidate the rule. Further, employers should keep in mind that some states, such as Minnesota and California, have more restrictive definitions of who qualifies as an independent contractor. If the new rule is not changed or rescinded after Joe Biden’s inauguration, then the rule will take effect on March 8, 2021.
Virtus Law, PLLC continues to monitor changes in this area and will continue to post relevant updates to this website.