By: Rachael Jeanfreau and Kenneth Nilsson
In an effort to roll back more restrictive Biden-era rules affecting employers, the U.S. Department of Labor is seeking to update the test for determining when a worker may be properly classified as an independent contractor under the Federal wage and hour rules.
Under the Biden rule for determining independent contractor status, the Department of Labor considered the worker’s opportunity to make or lose money based on the worker’s own management and initiative, the relative investments by the worker and the company, the length of time of the work relationship, the nature and amount of control over the work exercised by the worker vs. the company, whether the work performed is an integral part of the company’s business, and the worker’s own skill and initiative. This Biden rule gave all factors equal weight.
However, under Trump’s new proposed rule which seeks to offer more flexibility to employers, the Department of Labor would focus on two main factors — the nature and degree of control over the worker and the worker’s opportunity for profit and loss based on his or her own initiative and investment. Although other factors — including the skill needed to perform the work, the degree of permanency of the working relationship, and whether the work is integral to the company’s business – would still be considered, they would be given less weight than under the Biden rule.
Although the new proposed rule shows the current Administration’s efforts to broaden the definition of an independent contractor, businesses must remain cautious when making these determinations. Correctly categorizing a worker as an independent contractor or an employee can be challenging for even the most sophisticated employers, and potential misclassification carries significant risk. Businesses should consult with labor and employment counsel to reduce the risk of claims, charges, and lawsuits under wage and hour laws seeking unpaid wages (including unpaid overtime), liquidated damages, and attorneys’ fees, as well as claims/charges/lawsuits under other laws such as immigration and workers’ and unemployment compensation.
BSW Labor and Employment Law Blog 