Department of Labor Announces Stricter Rules for Independent Contractors

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The landscape for businesses relying on the gig economy is undergoing a significant shift, as the U.S. Labor Department unveiled a final rule on Tuesday, amending its interpretation of a critical provision in the Fair Labor Standards Act. The revision focuses on determining the status of workers as independent contractors and is set to take effect on March 11.

Changes to Independent Contractor Classification

The revised rule introduces a comprehensive six-factor analysis to assess a worker’s status, including factors such as the permanence of work, the level of employer control, and the essential nature of the work to the business. This adjustment marks a departure from changes made during President Donald Trump’s administration, which some management-side labor lawyers argue were too lenient and prompted concerns about potential legal consequences.

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Industries Affected

Industries expected to feel the impact of these changes encompass home health care, construction, trucking, ride-share, and delivery services. The revision addresses concerns raised by employment lawyers who argue that some businesses were exploiting the previous rules to classify workers as contractors, sidestepping regulations designed to protect employees.

Legal Implications

The updated rule is anticipated to slow down businesses’ efforts to classify workers as contractors, providing employees with greater legal protections. John C. Cook, a partner at Cook Craig & Francuzenko, specializing in employee-side employment law, emphasizes the significance of this shift. Meanwhile, Angelo Spinola from Polsinelli predicts an increased focus on the gig economy, with the Labor Department expected to pursue companies that misclassify their employees actively.

Advice for Businesses

Spinola advises businesses to carefully assess their workforce composition, mainly if employees and independent contractors are engaged in similar work. Non-compliance could lead to investigations, potentially resulting in unpaid wages and compelling companies to reevaluate their business models.

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Historical Context

The determination of whether a worker is an employee or a contractor has been a contentious issue, with successive administrations implementing different tests. According to the Labor Department, the latest revision reinstates a multifactor analysis employed by courts for decades. Factors include the worker’s opportunity for profit or loss and the financial stake invested in the work.

Impact on Workers

Kathleen Cahill, an employment advisor from Towson, Maryland, highlights the potential benefits of the rule change for lower-wage workers. She believes it will help curb misclassifications that deprive workers of fair compensation, including overtime, health care benefits, and protection against discrimination.

Potential Challenges and Adjustments

While Cahill is optimistic about the positive impact of the rule, she acknowledges potential pushback from businesses, leading to litigation that could delay the intended effects. Gerald T. Hathaway from Faegre Drinker Biddle & Reath suggests that this back-and-forth in policy is becoming a regular challenge for employers, emphasizing the need for constant recalibration.

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