The United States Department of Labor (DOL) recently published a proposed rule that may impact whether workers are considered to be employees or independent contractors.
Importance of Worker Classification
How a worker is classified impacts such workers’ legal rights and protections, including whether the individual is afforded rights under the Fair Labor Standards Act (FLSA). The FLSA guarantees a federal minimum wage and provides for the payment of overtime to nonexempt workers. Certain Minnesota laws also apply to employees and not independent contractors, such as the Minnesota Human Rights Act.
Historical Context Regarding the Classification of Workers
The proposed rule would reinstate the “totality-of-the-circumstances” analysis to determine whether a worker is an employee or independent contractor under the FLSA. Under this analysis, the DOL (and courts) generally look at six factors, of equal weight, to determine whether a worker is an employee or independent contractor:
· The degree of control the company has over the manner in which work is performed
· The worker’s opportunity for profit or loss depending on managerial skill
· The worker’s investment in equipment or materials required for their task;
· Whether the service rendered requires a special skill;
· The degree of permanence of the working relationship; and
· The extent to which the service rendered is an integral part of the company’s business.
This obligation to consider these factors was generally the law of the land until the outgoing Trump administration imposed a rule—after a winding road through the courts—that went into effect on March 8, 2021. That rule required that the DOL that (1) degree of control and (2) a worker’s opportunity for profit or loss were the two “core factors.”
The Reinstatement of the “Totality-of-the-Circumstances” Test
The proposed rule would eliminate any special treatment ascribed to these two factors, and reinstate the prior “totality-of-the-circumstances” analysis. The proposed rule also provides further detail on how each of these six factors are applied in practice, as well as definitively states that other factors may be considered.