On September 22, 2020, the U.S. Department of Labor (DOL) unveiled its long-awaited proposed independent contractor rule. The new rule sets forth a new standard for determining whether a worker can be classified as an independent contractor rather than an employee for purposes of the Fair Labor Standards Act (FLSA). However, employers will still need to be aware of and comply with state laws that apply stricter standards for independent contractor classification, such as the laws in California and Massachusetts.
Under the FLSA, “employees” are subject to certain protections, such as minimum wage and overtime requirements, while “independent contractors” are not. But neither the FLSA nor current DOL regulations define, as a general rule, what makes a worker an independent contractor, giving rise to a patchwork of tests and rules across states and in federal courts. As questions of classification have grown in salience over the past decade with the rise of the “gig economy,” the DOL has attempted to fill the gap. In 2015, the DOL under President Obama issued an “Administrative Interpretation” (AI) setting forth a six-factor “economic reality” test that was widely seen as setting a demanding standard for classifying workers as independent contractors. Then, in 2017, the Trump DOL withdrew the 2015 AI, signaling a shift to a more forgiving, employer-friendly classification standard. Pressure has been mounting for the DOL to issue the new rule this year in light of the upcoming presidential election, which could bring about another ideological shift within the DOL.
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