The US Department of Labor today announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act.

It’s set to come into force on March 8. However, President-elect Joe Biden has signaled he will block regulations that have not yet taken effect; incoming White House Press Secretary Jen Psaki said the move will curb “midnight” regulations and actions and cited the independent contractor rule as an example.

The National Retail Federation lauded the rule. “These rules provide much-needed legal certainty for employers, employees and independent contractors nationwide,” said David French, senior VP for government relations at the National Retail Federation. “The complexities of the modern workplace, especially when combined with substantial ongoing technological changes, demand absolute clarity in this important area of employment law.”

On the flip side, the Economic Policy Institute argues the new rule will cost workers $3.7 billion annually.

The Department of Labor proposed the rule in September to clarify who is an employee and who is an independent contractor under the Fair Labor Standards Act. It allotted a 30-day window for public comments rather than the usual 60-day period given. The agency received 1,500 comments on the proposal and in October a group of 24 attorneys general wrote a letter to Labor Secretary Eugene Scalia opposing the rule, saying it would increase the misclassification of workers.

The final rule includes the following clarifications:

• Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (an employee under the Fair Labor Standards Act).
• Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
  • The nature and degree of control over the work.
  • The worker’s opportunity for profit or loss based on initiative and/or investment.
• Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production.
• The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
• Provides six fact-specific examples applying the factors.