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New-ish Test for Worker Classification under the FLSA

In October, the United States Department of Labor’s Wage and Hour Division released a proposed rule to update the test to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FSLA”). The proposed rule is intended to replace the 2021 independent contractor rule advanced under the Trump Administration which was considered more favorable to establishing a worker as independent contractor. The 2021 rule reduced the number of primary factors to consider when determining whether a worker is an independent contractor or an employee to two “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.

The proposed 2022 rule would essentially return to the “economic realities” test and would reinstate guidance similar to that used under the Obama Administration. Under the new proposed rule, an employee is defined as any individual who an employer “suffers, permits, or otherwise employs to work,” and an independent contractor is any worker who, as a matter of economic reality, is “in business for themselves.” Whereas the rule currently in effect emphasizes whether the worker has control over his or her duties and earnings, the proposed rule would place significant weight on a worker’s “economic dependence,” which is evaluated through the following six factors:

  1. Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. Relevant considerations include whether the worker determines or can meaningfully negotiate the charge or pay for the services provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand the business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for profit or loss, the factor suggests that the worker is an employee. The agency notes that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take on more jobs, generally do not reflect the exercise of “managerial skill.” In addition, “[w]orkers who incur little or no costs or expenses, simply provide their labor, and/or are paid an hourly or flat rate are unlikely to possibly experience a loss, and this factor may suggest employee status[.]”

  2. Investment by the worker and the employer. This factor considers whether any investments by a worker are “capital or entrepreneurial” in nature. The proposed rule is not very clear on what types of investments the DOL has in mind, citing only those that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” Notably, “[c]osts borne by a worker to perform their job (tools and equipment to perform specific jobs … ) are not evidence of capital or entrepreneurial investment and indicate employee status.”

  3. Degree of permanence of the work relationship. This factor supports a determination of employment “when the work relationship is indefinite in duration or continuous, which is often the case in exclusive working relationships.” Conversely, the factor supports a finding of independent contractor status “when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.” That said, “[w]here a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

  4. Nature and degree of control. This factor considers both active and reserved control (the right to control) by the entity receiving the services over “the performance of the work and the economic aspects of the working relationship.” Relevant facts include whether the engaging entity:

    • sets the worker’s schedule;

    • supervises the performance of the work, or reserves the right to supervise or discipline the worker;

    • explicitly limits the worker’s ability to work for others, or places demands on the workers’ time that do not allow them to work for others or work when they choose;

    • uses “technological means of supervision (such as by means of a device or electronically)”; and

    • controls the prices or rates for services and the marketing of the services or products provided by the worker.

  5.  Whether work performed is integral to the employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function the worker performs is an integral part—whether it is “critical, necessary, or central to the [engaging entity’s] principal business.”

  6. Skill and initiative. This factor considers “whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.” It supports employee status where the worker does not use specialized skills in performing the work or “where the worker is dependent on training from the employer to perform the work.”

Under the proposed rule, “no one factor or set of factors is presumed to carry more weight,” and additional factors may be considered to determine if the worker is economically dependent on the employer for work. The new rule is intended to help evaluate “modern work arrangements,” such as gig workers, and bring consistency to how courts classify workers. As the Department of Labor concedes, the courts are the ultimate arbiters of whether a particular individual or group of individuals are employees or independent contractors.

The new rule is likely to take effect some time in 2023. In advance of the rule’s adoption, employers should consider auditing their existing independent contractor and employee classifications to ensure compliance under the revised test.

New-ish Test for Worker Classification under the FLSA

In October, the United States Department of Labor’s Wage and Hour Division released a proposed rule to update the test to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FSLA”). The proposed rule is intended to replace the 2021 independent contractor rule advanced under the Trump Administration which was considered more favorable to establishing a worker as independent contractor. The 2021 rule reduced the number of primary factors to consider when determining whether a worker is an independent contractor or an employee to two “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.

The proposed 2022 rule would essentially return to the “economic realities” test and would reinstate guidance similar to that used under the Obama Administration. Under the new proposed rule, an employee is defined as any individual who an employer “suffers, permits, or otherwise employs to work,” and an independent contractor is any worker who, as a matter of economic reality, is “in business for themselves.” Whereas the rule currently in effect emphasizes whether the worker has control over his or her duties and earnings, the proposed rule would place significant weight on a worker’s “economic dependence,” which is evaluated through the following six factors:

  1. Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. Relevant considerations include whether the worker determines or can meaningfully negotiate the charge or pay for the services provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand the business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for profit or loss, the factor suggests that the worker is an employee. The agency notes that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take on more jobs, generally do not reflect the exercise of “managerial skill.” In addition, “[w]orkers who incur little or no costs or expenses, simply provide their labor, and/or are paid an hourly or flat rate are unlikely to possibly experience a loss, and this factor may suggest employee status[.]”

  2. Investment by the worker and the employer. This factor considers whether any investments by a worker are “capital or entrepreneurial” in nature. The proposed rule is not very clear on what types of investments the DOL has in mind, citing only those that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” Notably, “[c]osts borne by a worker to perform their job (tools and equipment to perform specific jobs … ) are not evidence of capital or entrepreneurial investment and indicate employee status.”

  3. Degree of permanence of the work relationship. This factor supports a determination of employment “when the work relationship is indefinite in duration or continuous, which is often the case in exclusive working relationships.” Conversely, the factor supports a finding of independent contractor status “when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.” That said, “[w]here a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

  4. Nature and degree of control. This factor considers both active and reserved control (the right to control) by the entity receiving the services over “the performance of the work and the economic aspects of the working relationship.” Relevant facts include whether the engaging entity:

    • sets the worker’s schedule;

    • supervises the performance of the work, or reserves the right to supervise or discipline the worker;

    • explicitly limits the worker’s ability to work for others, or places demands on the workers’ time that do not allow them to work for others or work when they choose;

    • uses “technological means of supervision (such as by means of a device or electronically)”; and

    • controls the prices or rates for services and the marketing of the services or products provided by the worker.

  5.  Whether work performed is integral to the employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function the worker performs is an integral part—whether it is “critical, necessary, or central to the [engaging entity’s] principal business.”

  6. Skill and initiative. This factor considers “whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.” It supports employee status where the worker does not use specialized skills in performing the work or “where the worker is dependent on training from the employer to perform the work.”

Under the proposed rule, “no one factor or set of factors is presumed to carry more weight,” and additional factors may be considered to determine if the worker is economically dependent on the employer for work. The new rule is intended to help evaluate “modern work arrangements,” such as gig workers, and bring consistency to how courts classify workers. As the Department of Labor concedes, the courts are the ultimate arbiters of whether a particular individual or group of individuals are employees or independent contractors.

The new rule is likely to take effect some time in 2023. In advance of the rule’s adoption, employers should consider auditing their existing independent contractor and employee classifications to ensure compliance under the revised test.

New-ish Test for Worker Classification under the FLSA

In October, the United States Department of Labor’s Wage and Hour Division released a proposed rule to update the test to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FSLA”). The proposed rule is intended to replace the 2021 independent contractor rule advanced under the Trump Administration which was considered more favorable to establishing a worker as independent contractor. The 2021 rule reduced the number of primary factors to consider when determining whether a worker is an independent contractor or an employee to two “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.

The proposed 2022 rule would essentially return to the “economic realities” test and would reinstate guidance similar to that used under the Obama Administration. Under the new proposed rule, an employee is defined as any individual who an employer “suffers, permits, or otherwise employs to work,” and an independent contractor is any worker who, as a matter of economic reality, is “in business for themselves.” Whereas the rule currently in effect emphasizes whether the worker has control over his or her duties and earnings, the proposed rule would place significant weight on a worker’s “economic dependence,” which is evaluated through the following six factors:

  1. Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. Relevant considerations include whether the worker determines or can meaningfully negotiate the charge or pay for the services provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand the business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for profit or loss, the factor suggests that the worker is an employee. The agency notes that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take on more jobs, generally do not reflect the exercise of “managerial skill.” In addition, “[w]orkers who incur little or no costs or expenses, simply provide their labor, and/or are paid an hourly or flat rate are unlikely to possibly experience a loss, and this factor may suggest employee status[.]”

  2. Investment by the worker and the employer. This factor considers whether any investments by a worker are “capital or entrepreneurial” in nature. The proposed rule is not very clear on what types of investments the DOL has in mind, citing only those that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” Notably, “[c]osts borne by a worker to perform their job (tools and equipment to perform specific jobs … ) are not evidence of capital or entrepreneurial investment and indicate employee status.”

  3. Degree of permanence of the work relationship. This factor supports a determination of employment “when the work relationship is indefinite in duration or continuous, which is often the case in exclusive working relationships.” Conversely, the factor supports a finding of independent contractor status “when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.” That said, “[w]here a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

  4. Nature and degree of control. This factor considers both active and reserved control (the right to control) by the entity receiving the services over “the performance of the work and the economic aspects of the working relationship.” Relevant facts include whether the engaging entity:

    • sets the worker’s schedule;

    • supervises the performance of the work, or reserves the right to supervise or discipline the worker;

    • explicitly limits the worker’s ability to work for others, or places demands on the workers’ time that do not allow them to work for others or work when they choose;

    • uses “technological means of supervision (such as by means of a device or electronically)”; and

    • controls the prices or rates for services and the marketing of the services or products provided by the worker.

  5.  Whether work performed is integral to the employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function the worker performs is an integral part—whether it is “critical, necessary, or central to the [engaging entity’s] principal business.”

  6. Skill and initiative. This factor considers “whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.” It supports employee status where the worker does not use specialized skills in performing the work or “where the worker is dependent on training from the employer to perform the work.”

Under the proposed rule, “no one factor or set of factors is presumed to carry more weight,” and additional factors may be considered to determine if the worker is economically dependent on the employer for work. The new rule is intended to help evaluate “modern work arrangements,” such as gig workers, and bring consistency to how courts classify workers. As the Department of Labor concedes, the courts are the ultimate arbiters of whether a particular individual or group of individuals are employees or independent contractors.

The new rule is likely to take effect some time in 2023. In advance of the rule’s adoption, employers should consider auditing their existing independent contractor and employee classifications to ensure compliance under the revised test.

New-ish Test for Worker Classification under the FLSA

In October, the United States Department of Labor’s Wage and Hour Division released a proposed rule to update the test to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FSLA”). The proposed rule is intended to replace the 2021 independent contractor rule advanced under the Trump Administration which was considered more favorable to establishing a worker as independent contractor. The 2021 rule reduced the number of primary factors to consider when determining whether a worker is an independent contractor or an employee to two “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.

The proposed 2022 rule would essentially return to the “economic realities” test and would reinstate guidance similar to that used under the Obama Administration. Under the new proposed rule, an employee is defined as any individual who an employer “suffers, permits, or otherwise employs to work,” and an independent contractor is any worker who, as a matter of economic reality, is “in business for themselves.” Whereas the rule currently in effect emphasizes whether the worker has control over his or her duties and earnings, the proposed rule would place significant weight on a worker’s “economic dependence,” which is evaluated through the following six factors:

  1. Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. Relevant considerations include whether the worker determines or can meaningfully negotiate the charge or pay for the services provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand the business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for profit or loss, the factor suggests that the worker is an employee. The agency notes that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take on more jobs, generally do not reflect the exercise of “managerial skill.” In addition, “[w]orkers who incur little or no costs or expenses, simply provide their labor, and/or are paid an hourly or flat rate are unlikely to possibly experience a loss, and this factor may suggest employee status[.]”

  2. Investment by the worker and the employer. This factor considers whether any investments by a worker are “capital or entrepreneurial” in nature. The proposed rule is not very clear on what types of investments the DOL has in mind, citing only those that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” Notably, “[c]osts borne by a worker to perform their job (tools and equipment to perform specific jobs … ) are not evidence of capital or entrepreneurial investment and indicate employee status.”

  3. Degree of permanence of the work relationship. This factor supports a determination of employment “when the work relationship is indefinite in duration or continuous, which is often the case in exclusive working relationships.” Conversely, the factor supports a finding of independent contractor status “when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.” That said, “[w]here a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

  4. Nature and degree of control. This factor considers both active and reserved control (the right to control) by the entity receiving the services over “the performance of the work and the economic aspects of the working relationship.” Relevant facts include whether the engaging entity:

    • sets the worker’s schedule;

    • supervises the performance of the work, or reserves the right to supervise or discipline the worker;

    • explicitly limits the worker’s ability to work for others, or places demands on the workers’ time that do not allow them to work for others or work when they choose;

    • uses “technological means of supervision (such as by means of a device or electronically)”; and

    • controls the prices or rates for services and the marketing of the services or products provided by the worker.

  5.  Whether work performed is integral to the employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function the worker performs is an integral part—whether it is “critical, necessary, or central to the [engaging entity’s] principal business.”

  6. Skill and initiative. This factor considers “whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.” It supports employee status where the worker does not use specialized skills in performing the work or “where the worker is dependent on training from the employer to perform the work.”

Under the proposed rule, “no one factor or set of factors is presumed to carry more weight,” and additional factors may be considered to determine if the worker is economically dependent on the employer for work. The new rule is intended to help evaluate “modern work arrangements,” such as gig workers, and bring consistency to how courts classify workers. As the Department of Labor concedes, the courts are the ultimate arbiters of whether a particular individual or group of individuals are employees or independent contractors.

The new rule is likely to take effect some time in 2023. In advance of the rule’s adoption, employers should consider auditing their existing independent contractor and employee classifications to ensure compliance under the revised test.

New-ish Test for Worker Classification under the FLSA

In October, the United States Department of Labor’s Wage and Hour Division released a proposed rule to update the test to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FSLA”). The proposed rule is intended to replace the 2021 independent contractor rule advanced under the Trump Administration which was considered more favorable to establishing a worker as independent contractor. The 2021 rule reduced the number of primary factors to consider when determining whether a worker is an independent contractor or an employee to two “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.

The proposed 2022 rule would essentially return to the “economic realities” test and would reinstate guidance similar to that used under the Obama Administration. Under the new proposed rule, an employee is defined as any individual who an employer “suffers, permits, or otherwise employs to work,” and an independent contractor is any worker who, as a matter of economic reality, is “in business for themselves.” Whereas the rule currently in effect emphasizes whether the worker has control over his or her duties and earnings, the proposed rule would place significant weight on a worker’s “economic dependence,” which is evaluated through the following six factors:

  1. Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. Relevant considerations include whether the worker determines or can meaningfully negotiate the charge or pay for the services provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand the business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for profit or loss, the factor suggests that the worker is an employee. The agency notes that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take on more jobs, generally do not reflect the exercise of “managerial skill.” In addition, “[w]orkers who incur little or no costs or expenses, simply provide their labor, and/or are paid an hourly or flat rate are unlikely to possibly experience a loss, and this factor may suggest employee status[.]”

  2. Investment by the worker and the employer. This factor considers whether any investments by a worker are “capital or entrepreneurial” in nature. The proposed rule is not very clear on what types of investments the DOL has in mind, citing only those that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” Notably, “[c]osts borne by a worker to perform their job (tools and equipment to perform specific jobs … ) are not evidence of capital or entrepreneurial investment and indicate employee status.”

  3. Degree of permanence of the work relationship. This factor supports a determination of employment “when the work relationship is indefinite in duration or continuous, which is often the case in exclusive working relationships.” Conversely, the factor supports a finding of independent contractor status “when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.” That said, “[w]here a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

  4. Nature and degree of control. This factor considers both active and reserved control (the right to control) by the entity receiving the services over “the performance of the work and the economic aspects of the working relationship.” Relevant facts include whether the engaging entity:

    • sets the worker’s schedule;

    • supervises the performance of the work, or reserves the right to supervise or discipline the worker;

    • explicitly limits the worker’s ability to work for others, or places demands on the workers’ time that do not allow them to work for others or work when they choose;

    • uses “technological means of supervision (such as by means of a device or electronically)”; and

    • controls the prices or rates for services and the marketing of the services or products provided by the worker.

  5.  Whether work performed is integral to the employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function the worker performs is an integral part—whether it is “critical, necessary, or central to the [engaging entity’s] principal business.”

  6. Skill and initiative. This factor considers “whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.” It supports employee status where the worker does not use specialized skills in performing the work or “where the worker is dependent on training from the employer to perform the work.”

Under the proposed rule, “no one factor or set of factors is presumed to carry more weight,” and additional factors may be considered to determine if the worker is economically dependent on the employer for work. The new rule is intended to help evaluate “modern work arrangements,” such as gig workers, and bring consistency to how courts classify workers. As the Department of Labor concedes, the courts are the ultimate arbiters of whether a particular individual or group of individuals are employees or independent contractors.

The new rule is likely to take effect some time in 2023. In advance of the rule’s adoption, employers should consider auditing their existing independent contractor and employee classifications to ensure compliance under the revised test.

New-ish Test for Worker Classification under the FLSA

In October, the United States Department of Labor’s Wage and Hour Division released a proposed rule to update the test to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FSLA”). The proposed rule is intended to replace the 2021 independent contractor rule advanced under the Trump Administration which was considered more favorable to establishing a worker as independent contractor. The 2021 rule reduced the number of primary factors to consider when determining whether a worker is an independent contractor or an employee to two “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.

The proposed 2022 rule would essentially return to the “economic realities” test and would reinstate guidance similar to that used under the Obama Administration. Under the new proposed rule, an employee is defined as any individual who an employer “suffers, permits, or otherwise employs to work,” and an independent contractor is any worker who, as a matter of economic reality, is “in business for themselves.” Whereas the rule currently in effect emphasizes whether the worker has control over his or her duties and earnings, the proposed rule would place significant weight on a worker’s “economic dependence,” which is evaluated through the following six factors:

  1. Opportunity for profit or loss depending on managerial skill. This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. Relevant considerations include whether the worker determines or can meaningfully negotiate the charge or pay for the services provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand the business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for profit or loss, the factor suggests that the worker is an employee. The agency notes that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take on more jobs, generally do not reflect the exercise of “managerial skill.” In addition, “[w]orkers who incur little or no costs or expenses, simply provide their labor, and/or are paid an hourly or flat rate are unlikely to possibly experience a loss, and this factor may suggest employee status[.]”

  2. Investment by the worker and the employer. This factor considers whether any investments by a worker are “capital or entrepreneurial” in nature. The proposed rule is not very clear on what types of investments the DOL has in mind, citing only those that “generally support an independent business and serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach.” Notably, “[c]osts borne by a worker to perform their job (tools and equipment to perform specific jobs … ) are not evidence of capital or entrepreneurial investment and indicate employee status.”

  3. Degree of permanence of the work relationship. This factor supports a determination of employment “when the work relationship is indefinite in duration or continuous, which is often the case in exclusive working relationships.” Conversely, the factor supports a finding of independent contractor status “when the work relationship is definite in duration, non-exclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities.” That said, “[w]here a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers they employ, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

  4. Nature and degree of control. This factor considers both active and reserved control (the right to control) by the entity receiving the services over “the performance of the work and the economic aspects of the working relationship.” Relevant facts include whether the engaging entity:

    • sets the worker’s schedule;

    • supervises the performance of the work, or reserves the right to supervise or discipline the worker;

    • explicitly limits the worker’s ability to work for others, or places demands on the workers’ time that do not allow them to work for others or work when they choose;

    • uses “technological means of supervision (such as by means of a device or electronically)”; and

    • controls the prices or rates for services and the marketing of the services or products provided by the worker.

  5.  Whether work performed is integral to the employer’s business. This factor does not depend on whether any individual worker in particular is an integral part of the business, but rather whether the function the worker performs is an integral part—whether it is “critical, necessary, or central to the [engaging entity’s] principal business.”

  6. Skill and initiative. This factor considers “whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative.” It supports employee status where the worker does not use specialized skills in performing the work or “where the worker is dependent on training from the employer to perform the work.”

Under the proposed rule, “no one factor or set of factors is presumed to carry more weight,” and additional factors may be considered to determine if the worker is economically dependent on the employer for work. The new rule is intended to help evaluate “modern work arrangements,” such as gig workers, and bring consistency to how courts classify workers. As the Department of Labor concedes, the courts are the ultimate arbiters of whether a particular individual or group of individuals are employees or independent contractors.

The new rule is likely to take effect some time in 2023. In advance of the rule’s adoption, employers should consider auditing their existing independent contractor and employee classifications to ensure compliance under the revised test.