U.S. Labor Department Proposes New Independent Contractor Regulation

On Tuesday, October 11, the U.S. Department of Labor (DOL) announced a proposed new regulation outlining how businesses should assess whether or not individuals are independent contractors or employees. The Labor Department said the rule is necessary because misclassification is a problem in a host of industries, including home care, janitorial services, delivery, trucking, and construction.

While the DOL did not flag the manufacturing or metals sectors as a particular problem, this rule could impact the industries.

As written, the proposed rule largely parallels one adopted by the Obama administration, but later abandoned by the Trump White House. The Biden administration’s proposal was published on October 13 and the public has 60 days from that date to comment on the potential new regulation.

To determine whether a person is appropriately classified as an independent contractor, the proposal centers on concept of “economic dependence” and whether a worker is economically dependent on an employer for work, or is in business for himself. Economic dependence is not defined by income or earnings, but rather whether the individual is dependent on the employer for the work in question.

Some of the questions that businesses will need to consider are:

• Is the work integral to the company’s business?
• What investments do workers make (buying equipment, etc.) to do their jobs?
• How much control do workers have over their hours and responsibilities?

According to the U.S. Chamber of Commerce (USCC), the proposed rule uses a “totality of the circumstances” analysis, but does not provide a pre-determined weight or degree of importance to any of the factors in the economic realities test. In failing to do so, the proposed rule provides little guidance about how workers and businesses should apply those factors when they do not all point in the same direction.

As a result, the USCC said the outline “is problematic because businesses and workers once again will not have clear guideposts as to how to properly classify a worker.” As one business trade publication noted, there was some good news. The DOL acknowledged that it cannot propose an ABC test, which is a strict independent contractor definition used in a controversial California law.

In an ABC test, three factors must be met in order for a worker to be considered an independent contractor rather than an employee, including the requirement that the worker must perform work that is “outside the usual course of the hiring entity’s business.”

Click here to read the USCC’s explanation of the rule.