Department of Labor announces final rule to combat misclassification of independent contractors

WASHINGTON – The U.S. Department of Labor (DOL) has issued a final rule to help employers and workers better understand when a worker qualifies as an employee and when they may be considered an independent contractor under the Fair Labor Standards Act.

The rule provides guidance on proper classification and seeks to combat employee misclassification, a serious problem that impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition and hurts the economy at-large.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” explained Acting Secretary of Labor Julie Su.

“This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”

PROTECTS WORKER RIGHTS
The Economic Policy Institute (EPI), a think tank based in Washington, D.C. that conducts economic research and analyzes the economic impact of policies and proposals, welcomed the new rule to combat employer misclassification of workers as independent contractors and ensure more workers can enjoy the rights and protections they are already legally entitled to.

“Employer misclassification of workers as independent contractors robs workers of Labor rights and threatens their economic security,” EPI President Heidi Shierholz noted. “Many workers are harmed by employer misclassification — particularly those in the lowest-wage and most difficult jobs, such as nail salon workers, truck drivers, and construction workers.”

COMBATS WAGE THEFT
Brent Booker, general president of the Laborers’ International Union of North America (LIUNA), applauded the final rule as helping combat wage theft and better protect construction workers by restoring the multi-factor test used to properly identify a worker’s status.  

“The misclassification of workers allows irresponsible contractors to evade their legal and financial obligations to workers and is a particular problem in the construction industry,” he said. “This rule will help in the enforcement and identification of bad actors.”

MULTIFACTOR ANALYSIS
The new independent contractor rule restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor. The rule addresses six factors that guide the analysis of a worker’s relationship with an employer, including:

• Any opportunity for profit or loss a worker might have.
• The financial stake and nature of any resources a worker has invested in the work.
• The degree of permanence of the work relationship.
• The degree of control an employer has over the person’s work.
• Whether the work the person does is essential to the employer’s business.
• A factor regarding the worker’s skill and initiative.

The rule separately rescinds the 2021 Independent Contractor Rule which the department believes is not consistent with the law and longstanding judicial precedent. The final rule takes effect on March 11, 2024.