The Trump DOL's Latest Twist on Independent Contractor Classification

The proposal would allow employers to rely upon two key factors when evaluating a worker's status: (1) the nature and degree of control over the work that's being performed and (2) the worker's opportunity for profit or loss. Three additional factors would be relevant but would carry less weight than these two core issues.

Those three factors include: the amount of skill required to complete the work, the permanence of the parties' working relationship and whether the work is a part of an integrated unit of production.

The proposal emphasizes the importance of the reality of the circumstances. The amount of control that an employer could theoretically exercise over the work product is less important than the amount of control that the employer actually exercises in practice. In other words, when applying the test, any contractual terms will not dictate the outcome.

The DOL's proposed rule change deviates from the 2021 rule in an important way. The 2021 standard applied only for purposes of wage and hour claims under the Fair Labor Standards Act (FLSA). The proposed rule would apply for FLSA purposes, but would also dictate whether the worker has leave rights under the Family and Medical Leave Act (FMLA) or is entitled to protections under the federal Migrant and Seasonal Agricultural Worker Protection Act.

Changes from the Current Rule

The primary question to be answered has not changed with the new proposal. The key factor remains whether the worker is in business for themselves or economically depends upon the business/potential employer.

Under the current rule, however, no factors are deemed to be more important than the others. A totality of the circumstances approach is used to evaluate whether the worker is an employee or an independent contractor. All factors are to be weighed equally in the analysis.

Under the newly proposed rule, only a worker's own investment in their business is important to the analysis. The Biden-era rule compares the worker's investment with the employer's investment when determining whether the worker is economically dependent on the business owner.

The proposal also shifts in terms of how to evaluate the employer's dependence on the contractor. Under the Biden-era rule, the question is whether the work performed is an integral part of the employer's business—whether it is critical, necessary or central to the business operations. The new proposal is narrower in scope, focusing instead on whether the work is a part of an "integrated unit of production"—or whether the individual's work can be segregated from the business' production process.

In terms of red flags, they remain largely the same. Businesses should continue to pay attention to whether they're using non-compete agreements, imposing exclusivity requirements or even giving independent contractors business email addresses.

State laws on worker classification will not be changed if the proposal becomes finalized. Several states impose their own worker classification standards that are more restrictive in terms of classifying individuals as independent contractors—including the ABC test that several states have adopted. Employers must consider both the federal standard and any applicable state standard when classifying workers.

Conclusion

Obviously, the DOL proposal is just that—a proposal. Future changes remain possible and legal challenges seem inevitable. Employers should carefully review their employment practices and continue monitoring new developments in the worker classification arena to avoid possible challenges in the future.