DOL's Proposed Rule on Independent Contractor/Employee Classification

By Lehr Middlebrooks Vreeland & Thompson, P.C.

November 4, 2020

The gig economy has resulted in state and federal oversight and regulation regarding whether an individual is an independent contractor or an employee. Although Uber, Lyft, Doordash, and similar companies have been at the forefront of these challenges, employers generally face these considerations when determining the status of an individual who is not hired as a regular employee.

Currently, the Department of Labor uses an “economic realities” test to determine independent contractor status. This test involves seven factors, with no factor given more weight than any other. This has led to great confusion – if the worker tests just slightly more on the employee side of the scale for four out of the seven factors, but tests strongly as an independent contractor on the remaining three factors, does that mean the employer breaks the law if it classifies him as an independent contractor? On September 22, the DOL issued a Notice of Proposed Rulemaking that would change the “economic realities” test to consider the individual’s two core factors: the nature and degree of the individual’s control of the work and the individual’s opportunity for profit or loss based upon the individual’s initiative and/or investment. If both factors are met, the individual is an independent contractor. If the answer to one of those two core questions is yes, then the analysis includes the amount of skill that is required, the continuity of the working relationship (is it permanent, or does it end on a fixed date or upon completion of the project?), and whether the work is part of an employer’s overall process and production. If the answer to the two core factors questions is no, the individual is an employee.

This change to the configuration and emphasis of the independent contractor test would apply to the Wage and Hour Division of the DOL and would not displace common law tests used to determine if workers are entitled to protection under other laws, like Title VII or the NLRA, nor would it replace classification tests applied by taxation authorities.