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Clarification on DOL’s independent contractor proposed rule

Recently, the Department of Labor (DOL) issued a proposed rule that, if enacted, will affect how a worker can be defined as an employee rather than an independent contractor under the Fair Labor Standards Act (FLSA). NLBMDA has been reviewing the rule and is submitting written comments to the regulatory docket on behalf of the industry.

After reviewing the rule, NLBMDA’s view is that the rule would simplify the criteria for employers to determine whether workers may be classified as independent contractors, who then would not be subject to the minimum wage, overtime and other requirements of the FLSA, which would be different to workers defined as employees who are covered by that law.

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It is worth noting that the rule would affect only states with laws that are less strict with regard to wage. States with strict “ABC” tests, including northeastern states, would not be affected be the proposed rule.

NLBMDA’s concerns as expressed in past regulatory comments, is that over the years, DOL has issued opinion letters and other guidance addressing differing interpretations of the independent contractor analysis. The patchwork currently in effect causes confusion and ambiguity with regard to classifications. The need for a clearly defined standard has been understood for quite some time and NLBMDA is pleased to see this issue being addressed by DOL.

The proposed rule would establish an “economic realities” test which is similar to what the legal system has applied with deciding worker classification issues. The key aspect of these tests generally consider whether a person performing services for a potential employer as an independent contractor truly operates their own independent business that is not economically dependent on the employer. Furthermore, DOL, according to their information, proposes to:

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  • Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee).
  • Identify and explain two “core factors,” specifically: the nature and degree of the worker’s control over the work; and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves.
  • Identify three other factors that may serve as additional guideposts in the analysis including: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production.
  • Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

What remains unclear moving forward is if this proposed rule is enacted as written, what impact it will have beyond DOL decision-making and policy development when it comes to other kinds of policymaking and court judgments. Regardless, NLBMDA is pleased to see DOL’s leadership on finding and applying a common standard. The clarity for dealers across the country will be a welcome change regarding this issue.

Kevin McKenney is director of government affairs for NLBMDA in Washington, D.C. For more information, visit dealer.org.

 

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