The final rule reshapes the test for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act, creating a complex analysis more likely to support a finding of employee over independent contractor status than the previous test.

On January 9, the U.S. Department of Labor (DOL) announced a final rule, effective March 11, revising DOL’s guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). This final rule rescinds the Trump administration final rule (2021) and replaces it with a more complex analysis for determining employee or independent contractor status.

The Department, with this new final rule, upends previous clarity under the 2021 rule with a new test that includes vague concepts and undefined terms that could jeopardize legitimate independent contractor relationships in the industry. The only certainty to avoid an enforcement action an employer has under this new test is when it classifies, or misclassifies, a worker as an employee instead of as an independent contractor, in spite of economic realities for the employer or worker.

Specifically, the final rule does the following, but not limited to:

• Restores the multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the FLSA;
• Ensures that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors;
• Uses the longstanding interpretation of the economic reality factors. These factors include opportunity for profit or loss depending on managerial skill, investments by the worker and the potential employer, the degree of permanence of the work relationship, the nature and degree of control, the extent to which the work performed is an integral part of the potential employer’s business, and the worker’s skill and initiative; and
• Rescinds the 2021 Independent Contractor Rule.

DOL also provided a set of FAQs to better understand the changes to the independent contractor standard.

AGC previously submitted comments on the U.S. Department of Labor (DOL) Wage and Hour Division’s (WHD) proposed rule opposing the creation of this new standard for independent contractor classification and urged the DOL to withdraw the proposal.

AGC has long called for federal clarification of the independent contractor status and preservation of legitimate independent contractor relationships, such as those that have historically existed in the construction industry. 

AGC supported the Trump administration’s rule that adopted a consistent, clear and common-sense standard for determining independent contractor status under the FLSA and filed comments opposing the DOL move to withdraw the rule.

For more information, contact Claiborne Guy at [email protected] or 703-837-5382.