DOL Rule on Independent Contractor Classification Delayed Until May 2021

Chicago, Ill. (March 8, 2021) - Today, the United States Department of Labor’s (DOL) newly enacted rule concerning the classification of independent contractors was scheduled to go into effect. However, under direction from the Biden Administration, the DOL recently announced a delay of the effective date until May 7, 2021. The rule consists of a multifactor test intended to clarify the analysis that determines whether individuals are independent contractors or employees. Specifically, the rule sets forth the following relevant factors in determining whether individuals are independent contractors or employees:

1. Economic Reality Test: This factor reaffirms the well-established “economic reality” test to determine whether an individual is running their own business (an independent contractor) or is economically dependent on a potential employer for work (an employee covered by the Fair Labor Standards Act). Substantial case law exists addressing whether individuals are employees or independent contractors for purposes of the “economic realities” of the business.
2. Core Factors Determination: This factor identifies and explains two primary “core factors” the DOL considers in determining whether a worker is economically dependent: the nature and degree of the individual’s control over the work and the individual’s opportunity for profit or loss. The newly enacted rule differentiates actual practice from what may be contractually or theoretically possible.
3. Other Factors Considered: This component identifies three “other factors” that can help when the two core factors point in opposite directions: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer (but not the indefinite or continuous nature of the engagement); and (3) whether the work is part of an “integrated unit of production.”

As it stands, the new rule is expected to favor classification of individuals as independent contractors as opposed to employees. However, the DOL has stated that delaying implementation of the rule will allow the agency additional time to review the multiple issues of law, policy, and fact before it goes into effect, suggesting a potential change of course.

Employers should be cognizant that proper classification of employees and independent contractors remains a hotbed issue nationally, and should carefully review current practices for legal compliance. Employers should also be aware of nuances in state law regarding classification, to ensure compliance on both the state and federal level.

If you have additional questions on these new rules and regulations, or would like advice on compliance at the federal or state level, please contact the author or editors of this post, or visit our Labor & Employment Practice page to find an attorney in your area.

Author:

Kenneth D. Walsh, Associate

Editors:

Mary A. Smigielski, Partner

Thalia S. Rofos, Partner