In a stunning development, the U.S. Department of Labor (DOL) has unleashed its highly anticipated final rule, sending shockwaves through the employment landscape. The rule, officially titled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” marks a significant shift in how workers can be classified and is poised to disrupt the status quo.
A Game-Changer Six-Factor Test
The crux of the matter lies in the establishment of a groundbreaking six-factor test aimed at determining whether a worker should be classified as an employee or an independent contractor. This seismic shift is expected to redefine the boundaries between employer and employee relationships. The DOL has set the stage for a radical departure from the previous administration’s narrow focus, introducing factors like opportunity for profit or loss, investments, permanence of the work relationship, control exerted by the employer, the integral nature of the work to the employer’s business, and the worker’s skill and initiative.
March 11: The D-Day for the Rule
Set to be published in the Federal Register on Wednesday, the rule is slated to take effect on March 11, 2024, adding urgency to its implications. Acting Labor Secretary Julie Su, anticipating the impact, emphasized the rule’s role in aligning with the economic realities test developed by courts over decades. Su asserted that the rule would bring much-needed clarity and consistency to the determination of a worker’s status, benefiting both workers and businesses navigating the complexities of the Fair Labor Standards Act.
DOL Final Independent Contractor Rule: Repealing the Trump-Era Narrow Vision
In a bold move, the final rule rescinds the previous administration’s independent contractor rule issued under former President Donald Trump. That earlier rule, which narrowly focused on just two factors of the economic realities test, never saw the light of day. The DOL’s course correction aligns with a broader vision, echoing the sentiments of more than 54,000 comments received during the rulemaking process.
Addressing Concerns about Legitimate Independent Contractors
Acting Labor Secretary Su, keenly aware of concerns raised in public discourse, addressed the rule’s impact on legitimate independent contractors. Assuring that the rule won’t hinder those truly in business for themselves, Su highlighted the essential role played by independent contractors in the economy.
DOL Final Independent Contractor Rule: No ABC Test, No California-style Classification
Dousing speculation, the DOL clarified that the final rule does not adopt an ABC test akin to the one used in California. Wage and Hour Division Administrator Jessica Looman underscored this point, distinguishing the rule from other jurisdictional tests under different statutory frameworks.
A Rocky Road to Finalization
The journey to this final rule has been fraught with delays and legal entanglements. Originally slated for May 2022, the rule’s arrival was repeatedly pushed back in subsequent regulatory agendas. The DOL’s attempt at rulemaking in May 2021 faced setbacks when a Texas federal court invalidated the withdrawal of the Trump-era rule, citing procedural lapses. The subsequent appeal, currently on hold in the Fifth Circuit, adds a layer of uncertainty.
Ready for Battle: DOL’s Confidence Amidst Anticipated Challenges
Amidst speculation of potential legal challenges, Solicitor of Labor Seema Nanda expressed confidence in the rule’s robustness. Nanda highlighted the careful consideration of relevant case law under the Fair Labor Standards Act during the rule’s development and asserted the DOL’s readiness to defend it against any challenges.
