Interpreting the DOL’s New Final Rule on Worker Classification
May 14, 2024
By Anthony Cammarata Jr.
It is no secret that dealing with human resources and related concerns and the complexities of employment law are a critical aspect of running an effective business. Small business owners in particular benefit greatly from the guidance of legal professionals to ensure compliance with regulations governing their employees and independent contractors, including worker classification guidelines.
Recently, the U.S. Department of Labor (“DOL”) introduced a new final rule that could significantly impact how businesses classify their workers, and it is imperative that business owners and other members of management understand this new rule to avoid issues with non-compliance.
The DOL’s new final rule, effective as of March 11, 2024, revises the criteria for determining whether a worker should be classified as an independent contractor or an employee under the Fair Labor Standards Act (“FLSA”). Unlike the previous, more employer-friendly test, the DOL’s new final rule takes a more employee-centric approach, emphasizing economic dependence as a key factor. Although not binding on the courts, the new rule is expected to carry weight in legal proceedings as persuasive authority and will certainly influence DOL audits and enforcement actions.
The previous test for determining whether a worker should be classified as an independent contractor or an employee focused primarily on the nature and degree of the employer’s control over the work and the worker’s opportunity for profit and loss. In contrast, the DOL’s new rule emphasizes that a worker would not be classified as an independent contractor if the worker is “economically dependent” on the employer for work.
Under the new rule, the DOL has established the following six factors that will guide its analysis of worker classification under the FLSA:
- Opportunity for Profit or Loss: The worker’s opportunity to enjoy profits or incur losses based on the worker’s managerial skill.
- Investments by the Worker and Employer: Both the investments by the worker and the employer with regard to the work relationship between the two parties.
- Permanence of the Work Relationship: The duration and exclusivity of the working arrangement between the worker and the employer.
- Degree of Control: The degree of control exerted by the employer over the worker.
- Integral Nature of the Work: The extent to which the work performed by the worker is integral to the employer’s business.
- Worker’s Skill and Initiative: The worker’s specialized skills and business-like initiative.
Unlike the previous rule, all of the factors above are weighed equally, with no single factor being determinative of worker classification.
The new DOL rule carries noteworthy implications for employers, who may face increased scrutiny and potential liabilities for misclassification. If workers are improperly classified as independent contractors, business owners may be liable for overtime, back pay, and other penalties for non-compliance.
The attorneys at FCW understand the challenges business owners face in navigating complex employment and labor laws and are available to provide guidance and assistance in ensuring compliance with the DOL’s new final rule. FCW regularly assists its clients in assessing their current worker classifications, implementing changes where necessary, and developing strategies to mitigate risks of improper worker classification moving forward.
Anthony Cammarata Jr. is a partner with Flint, Connolly & Walker, LLP currently assisting clients in various corporate and other civil matters. He is experienced in a range of legal issues affecting business owners, including worker classification and other regulatory/compliance concerns regarding labor and employment.