The U.S. Department of Labor's Wage and Hour Division (DOL) recently issued a bulletin announcing that its field staff will no longer utilize the agency's 2024 independent contractor rule in enforcing the Fair Labor Standards Act (FLSA).
The DOL bulletin directs staff to apply a 2008 fact sheet and a 2019 opinion letter in cases where individuals or the agency have received no payments for back pay or civil monetary penalties. Both of these documents direct the use of an "economic reality" test involving factors similar to those included in the 2024 rule. The 2024 rule replaced a previous version of the "economic reality" test established under the first Trump administration. The Biden administration later rescinded that rule, along with the 2019 opinion letter.
The previous "economic reality" test rested on two core factors: opportunity for profit or loss and the nature and degree of workers' control over the performance of their work. The rule also incorporated three additional guideposts.
Although the DOL is not rescinding the Biden administration's independent contractor rule at this time, it noted that it was still considering doing so. As a result, the rule remains in effect as applied in any private litigation despite ongoing litigation challenging the rule.
Should the Trump administration formally rescind the independent contractor rule, the move would continue the drastic shifts on the issue that have been ongoing for several elections. The current rule took effect in March 2024 despite various immediate legal challenges. Federal courts have dismissed many of these challenges over the past year, and one appeal currently pending before the U.S. Court of Appeals for the Fifth Circuit remains on hold.
The independent contractor rule evolved from efforts by the Biden administration to expand federal protections for workers who are allegedly misclassified as independent contractors. The rule directs DOL to adopt a "totality-of-the-circumstances" analysis for evaluating whether a worker is properly classified as an employee or independent contractor. As part of that analytic framework, DOL considers six factors, which include:
- The worker's opportunity for profit or loss;
- Any investments made by the worker and the employer;
- The degree of permanence of the work relationship;
- The nature and degree of control over performance of the work;
- The extent to which the work performed is an integral part of the employer's business; and
- Use of the worker's skill and initiative.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
