On September 22, 2020, the U.S. Department of Labor (DOL) proposed a rule to clarify the definition of employee under the Fair Labor Standards Act (FLSA) as compared to independent contractors. The DOL’s goal with the proposed rule is to clarify the independent contractor test in order to reduce the incorrect classification of workers and limit the litigation of such matters.
The proposed rule would include an “economic reality” test, which determines whether an individual is dependent on an employer for work. If an individual is dependent on an employer for work, that individual is likely an employee, but if the individual is in business for himself or herself, the individual would likely be considered an independent contractor. The rule also outlines two factors that demonstrate whether a worker is dependent on an employer or is in business for himself or herself: (1) the nature and extent of the individual’s control over the work; and (2) the individual’s profit or loss based on their work and investment.
The rule provides three additional factors that may be used in determining whether a worker is an employee or an independent contractor. These factors are as follows:
- the skill required to conduct the work;
- the permanent or impermanent nature of the relationship between the individual and the employer;
- and, whether the work is connected to an integrated unit of production.
Once it is published in the Federal Register, the proposed rule will be available for public comment for 30 days. The full text of the proposed rule can be located here.
We will continue to monitor the progress of the proposed rule and provide relevant employer updates. In the meantime, if you need additional interpretation or guidance, please contact Matthew R. Plain or Rita E. Nerney at 401-273-7171.
Barton Gilman’s employment law team provides comprehensive legal guidance to a wide variety of employers on all aspects of the employment cycle—from hiring through separation—including personnel policies and handbooks, non-compete agreements, and representation before state and federal courts and agencies. To learn more, please visit www.bglaw.com/services/labor-employment/.