D.O.L. proposes employee classification rule

The United States Department of Labor is proposing a rule for determining independent contractor or employee classification under the Fair Labor Standards Act (FLSA). The rule would make it easier for workers to be classified as employees rather than independent contractors, a framework more consistent with longstanding judicial precedent.

The proposed rule — which the DOL published on October 13 to create more consistency for employers and reduce intentional employee misclassifications — is unsurprisingly controversial. Practically from the moment it was proposed, opponents were requesting the DOL to double the 45-day comment period, considering the potential impact the 184-page rulemaking could have on industries spanning the economy.

The rule rescinds a 2021 rule in which two key factors — control over the work and opportunity for profit or loss — carried greater weight in determining the status of independent contractors. This rule made it easier for employers to classify workers as independent contractors, rather than employees. Under the FLSA, independent contractors are not entitled to minimum wage, overtime pay, and other benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.

Unions and some workers say that businesses are wrongfully misclassifying their workers as independent contractors to avoid legal liabilities that go along with employment status. Businesses and some contractors argue that their relationships are squarely within the law.

The rule could have an impact on more than 22 million contractors, according to estimates from the DOL. Although the national conversation has centered around gig-companies such as Uber and Lyft, nearly every industry within the economy utilizes independent contractors, from journalism to trucking to construction.

The Pool and Hot Tub Alliance is monitoring this topic due to the potential impact it could have on pool construction and service industries, where many companies rely on independent contractors.

The proposal from the Department of Labor outlines several factors of the working relationship between a worker and an employer to determine whether the worker is economically dependent on the employer or is truly in business for themselves.

The following six factors are considered by the DOL:

• Align the department’s approach with courts’ FLSA interpretation and the economic reality test.

• Restore the multifactor, totalityof- the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.

• Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.

• Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control, and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.

• Assist with the proper classification of employees and independent contractors under the FLSA.

• Rescind the 2021 Independent Contractor Rule.

The DOL says that each of these factors has no greater weight than the other when deciding worker status, and that other factors may be considered if they show that the worker may be in business for themselves. DOL believes the proposed rule will address employee misclassification as this denies workers’ rights and protections.

Comments on the Notice of Proposed Rulemaking (NPRM) can be submitted until November 28, 2022. When the comment period ends, the DOL will review each comment and prepare to finalize the ruling.

The rule is expected to be finalized during the first quarter of 2023, after which opponents may challenge it in court.