On Tuesday, the federal Department of Labor (DOL) released proposed rules intended to clarify when workers are employees as opposed to independent contractors under the Fair Labor Standards Act (FLSA). The FLSA governs overtime and minimum wage requirements, and these rules are important because they could result in a significant number of workers considered contractors being entitled to additional wages.
The contractor classification rules have a long history within DOL. The Trump administration proposed rules that would have focused on whether the workers have control over their job duties and have the opportunity for profit or loss through their work. The Biden administration withdrew these rules before they took effect. DOL then issued a new proposal that included a multi-factor “economic realities” test that looks at the totality of the circumstances to determine whether the worker is really in business for themselves.
A federal court enjoined these regulations on the basis that DOL had not followed statutory rulemaking procedures when issuing them. DOL appealed this decision but ultimately decided to withdraw the contested rulemaking proposal in favor of this new one. According to DOL, the current proposal is similar to the withdrawn rules, with changes to comply with recent federal court interpretations.
If finalized, these regulations will likely result in more U.S. workers being considered employees instead of contractors for FLSA purposes. These changes may especially impact gig industry employers such as Uber and Lyft if the final rules consider their independent contractor workers to qualify for overtime and minimum wage payments.