The saga continues…
The U.S. Department of Labor (DOL) is again signaling changes in how it will evaluate independent contractor relationships in its enforcement actions. In 2024, the department issued a final rule that revised the standards for classifying workers as employees or independent contractors under the Fair Labor Standards Act (FLSA). The 2024 Independent Contractor Rule took effect on March 11, 2024; however, DOL is now considering whether to rescind and replace it. Last month, by issuing Field Assistance Bulletin No. 2025-1, DOL provided guidance to its field staff of the Wage and Hour Division (the “WHD”) not to rely on the Independent Contractor Rule that it had issued in 2024 in their enforcement actions. This is important because the guidance provided by DOL may indicate more flexibility in how DOL will regard independent contractor characterizations by businesses. Please see Cranfill Sumner’s article reporting on the publication of the 2024.
2024 IC Rule Reverses 2021 Changes
The 2024 Independent Contractor Rule replaced a prior rule issued in 2021 (the “2021 IC Rule”) that many viewed as favoring businesses that relied on independent contractors. The 2024 rule, at least facially, reinstituted prior concepts that emphasized a “totality of the circumstances” test based on six, equally important factors: (1) Opportunity for profit or loss; (2) Investment; (3) Permanency; (4) Control; (5) Integral Part of the employer’s business; and (6) Skill and initiative. As we had reported earlier, the 2021 IC Rule had departed from what had been a somewhat time-tested 6-factor approach by identifying five factors, but then giving two of those five factors (each, a “core factor”) greater weight than the other three. The change brought about by the 2021 rule created more issues than it resolved.
The 2024 rule reversed most of the changes imposed by the 2021 IC Rule and implemented what the DOL referred to as the “totality of circumstances” analysis to evaluate economic dependence. While the 2024 rule restored the six legacy factors, it nevertheless generated concern among some traditional industry groups, particularly in the trucking and construction industries, as to whether DOL’s real intent was to increase its challenges to more independent contractor characterizations.
A number of lawsuits since then have challenged the 2024 rule, and although the 2024 rule is still on the books, DOL is taking the approach of reviewing and reconsidering what the appropriate standard should be for determining the independent contractor versus employee status of workers.
What’s Next for Businesses?
While the 2024 rule is still in effect, DOL will not rely on the 2021 IC Rule, but instead, the WHD will adhere to guidelines from July 2008 in evaluating the characterization of workers as independent contractors versus employees, at least for now. For more details, see the DOL’s Fact Sheet #13: Employment Relationship Under the Fair Labor Standards Act (FLSA). The 2008 guidelines do not appear to significantly conflict with the 2024 rule (though they do contain one additional factor – that of the “degree of independent business organization and operation”), but that aside, DOL is not signalling a return to the 2021 IC Rule, so even though WHD will apply the 2008 guidelines in its enforcement efforts, the 2024 rule is still the current law, and it would be prudent for businesses relying on independent contractors for much of its work force to continue to follow it until DOL initiates further rulemaking.
