The Wage and Hour Division of the U.S. Department of Labor is proposing to withdraw a Trump Administration final rule on Independent Contractor Status under the Fair Labor Standards Act, which was published on January 7, 2021 and the effective date of which is currently May 7, 2021.  86 Fed. Reg. 14027 (March 12, 2021).

The FLSA requires employers to pay non-exempt employees at least the minimum wage and overtime for all hours worked over 40 hours per week.  Workers who are independent contractors are exempt from these requirements.  (Drivers of commercial motor vehicles who are subject to the Department of Transportation’s hours of service rules are separately exempt from the overtime requirements, but not the minimum wage requirements, of the FLSA.)

The FLSA does not define who is an independent contractor, however.  Over the years courts and the DOL have developed a multifactor test to determine whether, as a matter of economic reality, the worker is dependent on a particular individual, business, or organization for work (and is thus an employee) or is in business for him- or herself (and is thus an independent contractor).

The new rule would use a five-part test, with the first two parts considered the most important in determining the worker’s status: the nature and degree of the worker’s control over the work; and the worker’s opportunity for profit or loss based on initiative, investment, or both.

The other three parts of the test are: the amount of skill required for the work, the degree of permanence of the working relationship between the individual and the potential employer, and whether the work is part of an integrated unit of production.  Also, the actual practice between the parties is more important that the terms of any contract between them.

In proposing to withdraw the final rule, the Wage and Hour Division would revert to an “economic realities” test first enunciated by the U.S. Supreme Court in 1947 in United States v. Silk, 331 U.S. 704, which says that “employees are those who as a matter of economic realities are dependent upon the business to which they render service.”

The factors to be considered under this test include:
(1) The degree of the employer’s right to control the manner in which the work is to be performed;
(2) the worker’s opportunity for profit or loss depending upon his or her managerial skill;
(3) the worker’s investment in equipment or materials required for his or her task, or employment of helpers;
(4) whether the service rendered requires a special skill;
(5) the degree of permanence of the working relationship; and (6) whether the service rendered is an integral part of the employer’s business.