The Haunting Return of the Economic Reality Test: U.S. Department of Labor Proposes Resurrecting the Pre-Trump Era Employee/Independent Contractor Test

On Oct 13, 2022, the U.S. Section of Labor (“DOL”) posted its proposed rule concerning the classification of workforce and independent contractors under the Honest Labor Specifications Act (“FLSA”) in an try to solve inconsistent analyses among the Federal Courts of Appeals. The proposed rule would return to a totality-of-the-conditions evaluation of the “Economic Actuality Test” (with a handful of modifications), which would have the effect of producing it additional hard to classify workers as impartial contractors.

In Might 2021, the DOL withdrew the Trump-Period Unbiased Contractor Rule, which developed tiered aspects in the classification investigation. The first tier, which contained two “core” factors—the worker’s character and diploma of control and the worker’s possibility for earnings and loss—was result-determinative and most probative in the evaluation. The next tier contained three “non-core” factors: (1) the skill needed for the work (2) the degree of permanence of the performing connection in between the worker and employer and (3) irrespective of whether the perform was element of an built-in device of manufacturing. Alone, it was “highly unlikely” that these three non-main elements could skew the investigation in favor of one particular classification, commonly to that of an “employee.”

The DOL’s proposed rule would make it additional difficult to classify personnel as impartial contractors by returning to a “totality-of-the-circumstances” examination less than the “Economic Actuality Take a look at.” Specially, the things beforehand pointed out (and a new, sixth aspect taking into consideration “consideration of investment”[1]) would no for a longer time tumble beneath the Trump-period two-tiered assessment. Instead, all 6 things would carry the very same weight. Also, the DOL’s proposed rule would make clear and expand on current aspects by:

  • Supplying added examination of the “control” component by which includes in depth conversations of how scheduling, supervision, cost-location, and the skill to work for others ought to be considered and
  • Returning to the “longstanding” interpretation of the “integral” component by increasing the investigation to regardless of whether the work is integral to the employer’s enterprise, somewhat than an integrated device of generation.

The DOL justifies the proposed rule change as a defense-mechanism for workers, stating that the past strategy tended to “increase the possibility of misclassification of personnel as impartial contractors.” And the DOL desires, at all costs, to “protect” employees who, if categorised as independent contractors, are not eligible to acquire minimal wages and overtime pay back, and they are not presented with unemployment insurance policy or other staff rewards.

The proposed rule is not but final—the DOL is accepting feedback regarding the rule right until November 28, 2022. Furthermore, a worker’s classification might be unique below the FLSA than it is under numerous state legislation, the Countrywide Labor Relations Act and/or the Internal Profits Code. Hence, employers must continue on to acquire methods to be certain correct classification of their personnel, and remain cognizant of and comply with relevant condition and regional rules, which may be various than federal legislation. Need to you have any inquiries concerning these issues, businesses need to seek advice from counsel for help.

*Alexandria Amerine is a regulation clerk in the firm’s Dallas business office.

FOOTNOTES

[1] The DOL’s sixth component, thought of investment, would contemplate whether or not a worker’s financial commitment is cash or entrepreneurial in mother nature. It would also look at the worker’s investments on a relative foundation with the employer’s investment decision.

Leave a Reply