DOL Again Changes Its Position on What is an “Independent Contractor”

Effective March 11, 2024, the Wage and Hour Division, Department of Labor will once again modify its regulatory guidance and will replace guidance that has been in place since 2021 in regard for determining employee or independent contractor classification under the Fair Labor Standards Act (FLSA). According to the DOL, the analysis will be “more consistent with judicial precedent and the [FLSA’s] text and purpose.” See 89 FR 1638.

The DOL’s guidance spans about 268 pages and 126048 words, all in an effort to once again explain what the DOL believes is and is not an independent contractor for purposes of the FLSA.

Generally speaking, the FLSA provides statutory requirements for minimum wage, overtime, and record keeping requirements for workers that are employees of an employer. The FLSA does not provide and has never provided a definition of “independent contractor.” The FLSA defines “employee” and “employer” in a tail-chasing, circular fashion, which has caused challenges for the courts, the DOL, hiring entities, and workers since the enactment of the FLSA near 100 years ago.

Under the FLSA, The term “employer” “includes any person acting directly or indirectly in the interest of an employer in relation to an employee and includes a public agency, but does not include any labor organization (other than when acting as an employer) or anyone acting in the capacity of officer or agent of such labor organization.” 29 U.S.C. § 209(d). The term “employee” – as applicable to most private hiring entities – is defined as “any individual employed by an employer,” and “employ” is defined to “include[ ] to suffer or permit to work.” Id. at § 209(e)(1), (g). So, if a person is “employed by an employer” and is permitted to work, the person is an employee.

The DOL regulations except from the definition of “employee” any individual who volunteers to perform services for a public agency, provided that “(i) the individual receives no compensation or is paid expenses, reasonable benefits, or a nominal fee to perform the services for which the individual volunteered; and (ii) such services are not the same type of services which the individual is employed to perform for such public agency.” Id. at § 209(d)(4)(A).

Effective March 11, 2024, the DOL final rule (“2024 Rule”) will replace and rescind the understanding of what is an independent contractor as guided by the “Independent Contractor Status Under the Fair Labor Standards Act” that was published in January 2021. See 86 Fed. Register 1168 (2021) (“2021 Rule”). The 2021 Rule provided that the nature and degree of control over the work as well as the opportunity for profit or loss as two core factors to be given “greater weight” in the independent contractor analysis.

However, the 2024 Rule will require that the determination of independent contractor status be made based on a totality-of-the-circumstances analysis of the economic reality test and without any predetermined weight given to any particular factor as was the case in the 2021 Rule. The 2024 Rule will include “investment” as its own separate factor as well as an “integral factor,” being whether the work performed is an integral part of the hiring entity’s business rather than part of an integrated unit of production.

The 2024 Rule stresses that economic dependence is the “ultimate inquiry.” This means that a worker is an independent contractor if the worker “is, as a matter of economic reality, in business for themself.” See 89 FR 1638. This determination is made by analysis of multiple (and non-exclusive) factors to determine economic dependence, and no one factor is controlling. The factors include:

1. the degree of the hiring entity’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 their managerial skill;
3. the worker’s investment in equipment or materials required for their task, or their employment of others to assist with the work;
4. whether the service rendered requires a special skill;
5. the degree of permanence of the working relationship; and
6. the extent to which the service rendered is an integral part of the hiring entity’s business.

See, e.g., Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311–12 (11th Cir. 2013).

The DOL painstakingly – again, in about 126,048 words spanning near 268 pages – attempts to explain how the 2024 Rule should be applied so as to “guide” hiring entities to honor the requirements of the FLSA, being requirements that, if violated, can result in strict and potentially substantial liability to the hiring entity. While some may view the DOL’s rulemaking in this regard as just another example of an inefficient and flip-flopping government at work, Rule 2024 will become effective March 11, 2024 and will likely remain in place, at least unless and until an administration with a different idea of what is an independent contractor is elected.

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