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New DOL Rule on Independent Contractors Vulnerable to Challenge

October 5, 2020 by in "Two Minute Takeaway"

On September 22, 2020, the Department of Labor issued an anticipated new proposed rule governing when a worker is an independent contractor exempt from the minimum wage, overtime, and record-keeping requirements of the Fair Labor Standards Act. 

The new rule proposes a simplified two factor inquiry focusing on whether (1) the worker controls the key aspects of his or her work (hours, method of work, selection and ordering of projects, etc.) and (2) stands to earn a profit or experience a loss from the project.  To the extent either of these factors is present, the worker is more likely an exempt independent contractor than an employee.  See summary here

For any employer with a non-traditional workforce including remote workers, field workers, temporary workers, contract workers, consultants, etc. the new rule is a very welcome development.  The rule provides clarity in an area that is difficult to navigate and in which sanctions are severe.  Further, the existence of the rule provides an invaluable “good faith” defense under the FLSA’s provision protecting conduct taken in good faith reliance upon written regulatory direction. 

However, employers should tread carefully.  A federal court recently struck down the DOL’s regulations limiting the scope of “joint employer” liability under the FLSA.  The Court there held that the DOL’s limited application of the joint employer doctrine conflicted with the broad definitions of “employer” and “employee” under the FLSA.  See decision here.     

Given the vulnerability of the DOL’s regulation relating to joint-employer liability under the FLSA, the DOL’s new proposed rule in the closely related context of employee-independent contractor classification under the FLSA will surely be challenged in the same way.  Consequently, it is likely that employees will challenge employment classifications that clearly comply with the new DOL rule until this issue is settled.