U.S. Department of Labor reviews independent contractor rule

In recent years, many employers have decided to misclassify certain workers as independent contractors, rather than employees. Doing so allows companies to save significant expenses such as payroll taxes, unemployment insurance, workers’ compensation insurance, and other expenses typically paid by employers.  Additionally, misclassifying workers as independent contractors enables the employers to avoid various obligations they would have to employees in terms of compliance with minimum wage and overtime laws (both the federal Fair Labor Standards Act (“FLSA”) and similar state laws) or providing benefits such as health insurance or paid vacation time.  

The practice of misclassifying workers as independent contractors became particularly widespread after Uber and Lyft paved the way by using app-based platforms to hire and assign workers. Other industries have seized upon the app-based model, reclassifying workers who had always been considered employees as independent contractors, such as:

  • Nurses employed through staffing agencies;
  • Other employees hired through employment agencies;
  • Technicians;
  • Agricultural workers;
  • Security guards; and
  • Janitors/Cleaning staff.

Along with the expansion of the misclassification practice came more complaints from workers about their pay and working conditions, generating more lawsuits.  In light of the frequency of challenges to whether workers are truly independent contractors, courts and government regulators have been reviewing the standards used to make the determination of who is properly classified as an independent contractor and who is an employee.  

In federal courts, for approximately 75 years, the overall analysis was designed to look at the “economic realities” of the arrangement between the employer and worker.  The courts set out a number of criteria to consider:

  • Whether person performing the services is engaged in their own business or practice from which they can profit from their own managerial skill (and face risk of loss if the business does not succeed);
  • The worker’s investment in equipment, tools, and materials required to perform the work;
  • The extent of permanence of the work relationship; 
  • The nature and degree of control by the employer over the worker (including the extent of direct supervision; control over schedule and pricing; and quality control);
  • Whether the work that is done is an important part of the employer’s regular business; and
  • The degree of skill and independent initiative required to perform the work.

In early January 2021, in the waning days of the Trump administration, the United States Department of Labor (“DOL”), which oversees enforcement of federal wage and hour laws (i.e., the FLSA), issued a rule intended to narrow the application of the factors above as to who is an employee, resulting in a more favorable set of rules for employers. The current DOL Secretary is now seeking to reverse the impact of that letter, issuing a proposed rule in October 2022, which would keep in place the traditional criteria outlined above. In response to the proposed rule, parties on either side of the issue were able to submit comments to the DOL through December 15, 2022.  

Trief & Olk represents employees in actions under the FLSA and state laws in individual as well as collective or class actions challenging unlawful wage and hour practices, including misclassification of employees as independent contractors or as exempt from minimum wage and overtime requirements. We will continue to monitor the status of the DOL’s rule regarding independent contractor classification and provide updates as applicable.  If you believe your employer has incorrectly classified you as an independent contractor, please contact us.