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On January 10, 2024, the U.S. Division of Labor (“DOL”) revealed its last rule that revises its steering concerning the usual for assessing whether or not a employee is an worker or impartial contractor underneath the Truthful Labor Requirements Act (“FLSA”). The ultimate rule rescinds the DOL’s earlier last rule that was revealed on the finish of President Trump’s time period of workplace in January 2021. As we beforehand reported within the wake of the issuance of the Division of Labor’s October 13, 2022 proposed rule, the ultimate rule returns to a totality-of-the-circumstances evaluation akin to the “Financial Actuality Check.” This new last rule in the end has the impact of constructing it tougher to categorise employees as impartial contractors. The brand new last rule goes into impact on March 11, 2024.

The Ultimate Rule

The ultimate rule, which applies to employees in any business, units forth six equally-applied elements for assessing whether or not a employee is an worker or impartial contractor: (1) alternative for revenue or loss relying on managerial ability; (2) investments by the employee and the potential employer; (3) diploma of permanence of the work relationship; (4) nature and diploma of management; (5) extent to which the work carried out is an integral a part of the potential employer’s enterprise; and (6) ability and initiative. This commonplace can be utilized underneath the FLSA no matter whether or not a employee needs and agrees to be categorized as an impartial contractor as a result of employees, who in any other case qualify as staff underneath this last rule, are barred from voluntarily waiving worker standing. The DOL states such waiver “would hurt different staff and undermine the Act’s aim of eliminating unfair strategies of competitors and commerce.”

The DOL touts its up to date last rule as “extra in keeping with the FLSA as interpreted by longstanding judicial precedent,” and states it’ll “cut back the chance that staff are misclassified as impartial contractors, whereas on the identical time offering higher consistency for companies that interact (or want to interact) with people who’re in enterprise for themselves.”

This up to date last rule marks the fruits of the DOL’s withdrawal of the Trump-era impartial contractor rule that occurred shortly after President Biden was sworn into workplace in January 2021. The Trump-era rule created a tiered issue evaluation. The primary tier, which contained two “core” elements—the employee’s nature and diploma of management and the employee’s alternative for revenue and loss—was outcome-determinative and most probative within the evaluation. The second tier contained three “non-core” elements: (1) the ability required for the job; (2) the diploma of permanence of the working relationship between the employee and employer; and (3) whether or not the work was a part of an built-in unit of manufacturing. It was extremely unlikely that these three non-core elements may skew the evaluation in favor of 1 classification over the opposite. 

Implications for Employers

The DOL’s up to date last rule has severe implications for employers, particularly those that relied on the earlier last rule issued on the finish of President Trump’s time period of workplace. The up to date last rule skews in favor of classifying employees as staff over impartial contractors, and the misclassification of staff as impartial contractors can carry important legal responsibility underneath the FLSA, together with unpaid minimal wages, time beyond regulation, liquidated damages, and attorneys’ charges and prices. Whereas this last rule is going through a number of authorized challenges, employers topic to the FLSA ought to heed this transformation to the classification commonplace given the potential legal responsibility. Moreover, whereas the DOL’s last rule constitutes a big shift within the classification evaluation underneath the FLSA, this rule doesn’t have an effect on state worker classification requirements, such because the ABC take a look at underneath California regulation. Employers can be well-served to seek the advice of with their labor and employment counsel concerning their classification practices given the brand new last rule underneath the FLSA, the number of classification requirements utilized by state governments, and the potential for substantial class motion legal responsibility for employee misclassification.

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