n of business groups including the Coalition for Workforce Innovation, Associated Builders and Contractors, Inc., Associated Builders and Contractors of Southeast Texas, and the Financial Services Institute, Inc., filed suit, and in March 2022, the Department’s Withdrawal Rule was vacated by the U.S. District Court for the Eastern District of Texas, which found DOL’s rulemaking failed to comply with certain statutorily required administrative procedures. Coal. for Workforce Innovation v. Walsh, No. 1:21-CV-130, 2022 WL 1073346 (E.D. Tex. Mar. 14, 2022).Following an appeal by DOL, the United States Court of Appeals for the Fifth Circuit stayed the litigation, pending the Department’s completion of new rulemaking on the issue. Coal. for Workforce Innovation v. Walsh, Docket No. 22-40316 (5th Cir. May 16, 2022). The most recent stay expires February 6, 2024.Now, DOL has issued its Final Rule, entitled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” 89 Fed. Reg. 1638-01. The new rule rescinds the 2021 Trump administration rule and establishes a six-factor economic realities test for determining whether workers should be properly classified as “independent contractors” or as “employees” entitled to minimum wage, overtime pay, and other protections under the FLSA. The six non-exhaustive factors include:Opportunity for Profit or Loss Depending on Managerial SkillInvestments by the Worker and the Potential EmployerThe Degree of Permanence of the Work RelationshipThe Nature and Degree of ControlThe Extent to Which the Work Performed is an Integral Part of the Potential Employer’s BusinessSkill and InitiativeThese economic realities factors are not new and have been utilized, in various forms, by the Department and courts for over seventy-five years. However, until 2021, DOL had not issued any formal rule addressing the proper test for determining worker classification. And because the FLSA offers no statutory guidance for determining whether an individ

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.” 2

Like my Grandma always used to say, a vitamin is always better than a pain killer. Businesses should carefully consider the factors in the Rule and compare the factors to their current workforce. The issuance of the new Rule is an opportunity for businesses to review their current practices and take proactive steps if out of compliance.Talk with experienced counsel.There are many steps that businesses can take to reduce their risk profile for potential misclassification claims and other agency scrutiny. When in doubt, call experienced labor and employment counsel to discuss your business practices.Worker misclassification can result in expensive penalties and fines, such as unpaid overtime and minimum wage, liquidated damages, and attorneys’ fees. The IRS can also levy additional penalties for misclassification, including criminal charges, when it suspects that a misclassification was intentional.[1] Employee or Independent Contractor Classification under the Fair Labor Standards Act, 89 Fed. Reg. 1638, 1638-1743 (Jan. 10, 2024) (to be codified at 29 C.F.R. 780, 788, and 795).[2] 29 C.F.R. § 795.100.[3] Prior to 2021, the DOL had never defined the term “independent contractor” by regulation. Instead, it issued informal guidance on the topic, publishing fact sheets and other interpretive guidance, that made clear that the factors listed in them were merely guidelines. In an attempt at simplifying and clarifying the test in 2020, the DOL proposed a five factor test that focused on two core factors – right to control and the worker’s opportunity for profit or loss. That rule, finalized in January 2021, met immediate resistance when the Biden administration took office. Days after the 2021 rule was finalized, the new administration sought to delay its implementation and sought to withdraw it entirely. In the ensuing battle, a Federal Court in the Eastern District of Texas ruled that the DOL violated the Administrative Procedure Act when it withdrew the rule. The ruling was appealed to the Fifth Circuit. In respon