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Posted on: June 14, 2022

Labor Department Launches Rulemaking for Independent Contractors

The Labor Department announced Friday that it will start drafting a rule on determining whether a worker is an employee, or an independent contractor not covered by the federal law that governs minimum wage, overtime pay and other benefits.

The regulation, which could have significant ramifications for independent contractors and the companies that employ them, comes just months after Washington state became the first to successfully enact protections for its Uber and Lyft drivers without reclassifying them as employees.

Unions support classifying more workers as employees, which grants them greater legal protections — including the right to collective bargaining. Employers, on the other hand, say doing so could jeopardize their business models.

What DOL is saying: "For too many workers, misclassification causes lost wages, benefits, unemployment insurance, and workers’ compensation coverage. Even if they recognize that they are misclassified, many employees may be afraid to assert their employment rights because of retaliation."

The division has purportedly identified misclassification in industries including construction and health care. It wants any future rule to ensure "that employees are recognized correctly when they are, in fact, employees so that they receive the protections the [Fair Labor Standards Act] provides."

What's happened so far: Former President Donald Trump's Labor Department issued an independent contractor rule just before he left office in 2021. The Biden administration withdrew it, but a district court vacated the withdrawal in March 2022, ruling that the Trump administration's rule had already taken effect. The department has since appealed the decision. Trump's regulation makes it easier for businesses to classify their workers as independent contractors by way of an "economic realities" test that analyzes how much control workers have over their job duties and their opportunities for profit or loss.

If a worker's status is still unclear after reviewing those factors, employers must then consider the skill required for the job, "the degree of permanence of the working relationship," and whether the work is "part of an integrated unit of production."

What happens next: The Wage and Hour Division will hold two forums later this month to hear from those who would be affected by the regulation.

Employers can testify on June 24 at 2:30 p.m. eastern time. NPELRA will be seeking to testify. If you have information you would like to have considered, please contact NPELRA or register to testify

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