On September 25, 2020, the US Department of Labor (DOL) published a Notice of Proposed Rulemaking (NPRM) to develop a consistent test for determining independent contractor (IC) status under the Fair Labor Standards Act (FLSA). In the NPRM, the DOL proposes to apply a more formalized “economic realities” test in which a court must evaluate whether a worker is economically dependent on a putative employer or is in business for him/herself. To accomplish this, a court would examine two “core” factors: (1) the nature and degree of control the worker has over the work; and (2) the opportunity for profit or loss based on initiative and/or investment. If both core factors indicate either independent contractor status or employee status, no further inquiry would be needed.

If both core factors do not lead to the same result, the proposed rule provides three additional “guideposts” for consideration. These are: (1) the amount of skill required; (2) the degree of permanence of the working relationship; and (3) whether the work is part of an integrated unit of production. As proposed, this factual inquiry will weigh the actual practice between the parties more heavily than what is possible or contractually required.

This proposal marks a more significant stake in the ground for the DOL than is typical in the IC context because any formal rulemaking will be given additional deference in future rulemaking efforts and should be insulated from immediate reinterpretation by a new or opposing administration. The DOL has indicated that it will move quickly in an effort to complete the rulemaking prior to the end of the year. The deadline for submitting comments regarding the rule was October 26, 2020.