Key Takeaways
- The DOL announced that it will not enforce the 2024 independent contractor rule.
- The pre-2024 multi-factor test will be used for FLSA worker classification disputes.
- This guidance applies only to DOL investigations under the FLSA; it does not bind the courts.
This is Louie. He's 11 weeks old. He has the teeth of a shark. If you play with him and there's no toy in his mouth, your arm is the toy. Or your foot. Or sometimes your face. In my house, we all look like we just played with a blender. But he's awfully cute.
Late last week, the Department of Labor (DOL) made some news that won't bite companies in the face. Rather, this news will land like a soft chew toy or a Kong stuffed with treats.
Remember in 2024, when the Biden DOL adopted a regulation that reinterpreted the test for independent contractor status under the Fair Labor Standards Act (FLSA)? The rule imposed a new multifactor balancing test. The test looked somewhat like the traditional multifactor test, but it was skewed in several ways to make it harder for someone to qualify as an independent contractor.
The 2024 rule is a goner.
On May 1, the DOL issued a Field Assistance Bulletin (FAB) containing new guidance on the FLSA test for independent contractor status. The DOL will no longer apply the 2024 rule and, instead, will revert to the balancing test that was applied before 2024.
The pre-2024 rule was a seven-factor balancing test, memorialized in Fact Sheet #13 (July 2008). Under that test, the factors to be considered include:
1) The extent to which the services rendered are an integral part of the principal's business
2) The permanency of the relationship
3) The amount of the alleged contractor's investment in facilities and equipment
4) The nature and degree of control by the principal
5) The alleged contractor's opportunities for profit and loss
6) The amount of initiative, judgment or foresight in open-market competition with others required for the success of the claimed independent contractor
7) The degree of independent business organization and operation
There is no precise formula for weighing these factors, and not all factors will apply every time. It's a balancing test that is used to help answer the ultimate legal question, which is whether the worker, as a matter of economic reality, is dependent on the business for which he or she is providing services.
The DOL also reinstated Opinion Letter FLSA 2019-6, which had concluded that independent contractors receiving work through a virtual marketplace app were properly classified as independent contractors. The Biden administration had rescinded that opinion letter, but now it is again considered applicable. Although the opinion letter is confined to interpreting a specific set of facts, businesses in the digital marketplace may once again rely on it under the Portal-to-Portal Act. The Portal-to-Portal Act creates a safe harbor from liability when a business has acted in reliance on, and in compliance with, a DOL opinion letter.
As a practical matter, the DOL's interpretation of the independent contractor test has limited applicability for businesses. This revised test applies only to the FLSA, not to any other federal or state law, and the FAB addresses only how the DOL will interpret the rule in its own FLSA investigations. The courts may choose to disregard the DOL's interpretation of the rule, and they likely will. The federal courts of appeal have decades of established case law addressing the proper test for determining independent contractor status under the FLSA. What the DOL says in 2024 or in 2025 is not likely to change how the courts analyze the issue.
But overall, this is good news for businesses that use independent contractors. The release of this FAB should also allay some of the business community's concern that the new Secretary of Labor, Lori Chavez-DeRemer, might be more pro-labor than businesses would have liked. (When she was in Congress, she supported the PRO Act.)
When it comes to independent contractor classification, it seems that the new DOL may be softening its bite, at least a little. The sharp puppy teeth from 2024 are now gone, at least for FLSA investigations conducted by the DOL. And that's as good as a soft chew toy.
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