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The Department of Labor announced a final rule on independent contractors Tuesday, as the agency rescinded the Trump-era interpretation that loosened who qualified as an independent contractor.
The final rule closely resembles the one the agency first proposed in October 2022.
“A century of labor protections for working people is premised on the employer-employee relationship,” acting Labor Secretary Julie Su told reporters on Monday. “These labor protections are a promise of a floor beneath which no one should be forced to live and work. Misclassification—the practice of calling someone an independent contractor when they are actually an employee—is a breach of that promise.”
The new independent contractor rule restores the multifactor economic reality test, considering “a totality of circumstances” wherein no circumstance is factored greater than another. Agency officials contend it’s the analysis used by courts for decades.
The six factors that guide the worker’s relationship with an employer:
- Opportunity for profit or loss a worker might have
- Investments in the equipment made by the worker
- The degree of permanence of the work relationship
- The degree of control an employer has over the work
- Whether the work is essential to the employer’s business
- The worker’s skill and initiative
The DOL contends that the previous rule, which largely considered two factors—the worker’s opportunity for profit or loss, and their control over how the work is done—was out of step with “longstanding judicial precedent.”
While officials say it’s not designed to address specific jobs or sectors, the rule may make it harder for companies like Uber, Lyft, and DoorDash to categorize drivers and delivery workers as independent contractors.
“This rule provides broad guidance across many industries and is not focused on one sector of the economy or one type of worker. It provides a fact-based analysis that does need to be applied in each circumstance to determine whether a worker is an employee or an independent contractor in business for themselves,” Jessica Looman, DOL’s administrator of the Wage and Hour Division, said.
What’s HR to do? The new rule will be published on Jan. 10, and will take effect on March 11.
Agency officials told reporters on the Monday press call that the agency would issue “extensive guidance” to help employers understand the changes and how to comply with the new regulations.