The long-anticipated final rule regarding the treatment of independent contractors was published in the Federal Register on January 8, 2024, by the United States Department of Labor. This new rule, effective as of March 11, 2024, seeks to realign certain core factors that are part of the process to determine employee classification. This realignment negates the employer-friendly rule put in place by the former administration and better aligns with established judicial precedent.
The rule relates to the treatment of employees under the Fair Labor Standards Act (FLSA) which guarantees a minimum wage and overtime pay for all covered non-exempt employees. Independent contractors are not afforded the same rights under the act. While the FLSA itself established no guidelines to establish whether a worker is an employee or an independent contractor, a six-factor test was established by the U.S. Supreme Court in the 1940s and has been used as a model.
The former Trump Administration established the first formal independent contractor rule, which took effect in 2021 and sought to stress the employer-friendly portions of the test so that more workers would be classified as independent contractors, thus depriving them of any FLSA claims.
The new Final Rule deemphasizes specific factors the former Trump Administration sought to highlight and returns to the “totality of circumstances” approach applied by courts. While the Final Rule does seek to tweak the application of the elements involved in a classification review back to an equal application of all circumstances approach, it does not adopt the “ABC Test” currently in use by several states.
This Final Rule is likely to undergo major challenges in short order, as numerous groups see its changes as unfavorable to them. Specific business interests have already announced plans to challenge the rule and Congressional Republicans in several committees have expressed their desire to repeal the new rule under the Congressional Review Act. Please visit the U.S. Department of Labor’s website for more details which includes FAQs.