Mark Pestronk
Q: In 2022, the U.S. Labor Department issued a proposed rule redefining the difference between employee and independent contractors (ICs) under the Fair Labor Standards Act (FLSA). You wrote a couple of Legal Briefs columns about the proposed rule and predicted that the Labor Department would adopt it as a final rule. Has that happened? And if so, is the rule good or bad for agency/host relationships?
A: Labor finalized the rule and adopted it on Jan. 10, and it becomes effective March 11. The final rule is almost the same as the proposed rule.
For purposes of the FLSA, which governs minimum wage, overtime and record-keeping, Labor will use six criteria to decide whether a given IC relationship is really one of employment:
- Whether the worker has the opportunity for profit or loss depending on managerial skill.
- Whether the worker has made investments in the job.
- Whether the work relationship is temporary (like an IC) or permanent (like an employee).
- Whether the company controls the performance of the work and the economic aspects of the relationship.
- Whether the work is an integral part of the company's business.
- Whether the work requires skill and initiative.
Labor emphasizes that no single criterion is determinative and that all six must be weighed together. In other words, a given relationship can fail some of the criteria but still be a valid IC relationship, depending on passing muster under the other criteria.
Labor also states that these six are not exhaustive, as the department can consider any other factors that "in some way indicate whether the worker is in business for themselves, as opposed to being economically dependent on the potential employer for work."
Is this all pretty vague? You bet it is. For that reason alone, employer groups plan to appeal and ask for an injunction against the rule. Further, if Republicans win the next election, the rule is certain to be repealed.
As ASTA put it in its comments opposing the proposed rule, Labor's "proposal represents a clear, if modest, step backward that would increase uncertainty as to a worker's status as either an employee or an independent contractor."
In the meantime, here a few steps that can help ensure that your agency can pass a Labor Department audit:
- First, consider requiring all your ICs to set up their own corporations or limited liability companies. In that way, the companies (and not your agency) are responsible for FLSA compliance.
- Second, if a given IC has no personal following or is a trainee, make that person an employee -- at least at first, until they have their own following.
- Third, require investments by the IC above and beyond a monthly fee, such as buying subscriptions and equipment.
- Finally, keep in mind that the rule applies to the Department of Labor only, not the IRS or to any state auditing agency, so you may want to consult an employment lawyer in your state before taking action.