The Department of Labor’s (DOL) 2024 rule regarding the classification of employees/independent contractors recently took effect on March 11, 2024. The rule officially repeals the DOL’s 2021 Independent Contractor Status Rule and returns to a “totality of the circumstances” approach.

The Fair Labor Standards Act (FLSA) establishes minimum standards of employment such as minimum wage, overtime pay, record keeping, and youth employment. These standards extend to employers and employees as defined by the FLSA. However, the FLSA’s standards do not extend to independent contractors. Thus, it is important for employers and employees alike to understand if the FLSA extends to their working relationship.

The Supreme Court established that a worker’s classification is a matter of “economic reality” rather than technical concepts. See Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947). Prior to 2021, the “economic reality” test was considered by examining the totality of the circumstances. However, in 2021, the DOL issued its Independent Contractor Status Rule in an attempt to create a streamlined economic reality test.

The Independent Contractor Status Rule emphasized two core factors: (1) the nature and degree of control over the work and (2) the worker’s opportunity for profit or loss. If these two core factors pointed towards the same classification, then there was a substantial likelihood the classification was correct.

The DOL believed that retaining the Independent Contractor Status Rule would confuse and have a disruptive effect on employers and workers due to the rules’ departure from established case law and application of the totality of circumstances approach. Thus, DOL began the rule making process to publish a new rule on classifying employees/independent contractors under the FLSA.

The 2024 rule officially repeals the 2021 Independent Contractor Status Rule and shifts the focus of the economic reality test back to a totality of the circumstances. The 2024 Rule’s totality approach considers six factors, with no factor given greater weight over the other. The six factors are:

1.   Opportunity for profit or loss. This factor considers whether the worker exercises managerial skill (negotiating price, accepting work, marketing) that affects the worker’s economic success or failure in performing the work.
2.   Investment. This factor considers whether any investments by a worker are capital or entrepreneurial in nature.
3.   Permanency. This factor considers the duration of employment, and whether the work is exclusive, project-based, or sporadic.
4.   Control. This factor considers the employer’s and worker’s control over schedules, supervision of the work, and the ability to work for others.
5.   Whether the work is integral part of the employer’s business. This factor considers whether the work is critical, necessary, or central to the employer’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 is important for employers and workers alike to know how their employment relationship is classified and whether it exists under the FLSA. The attorneys in our Austin and Dallas offices are available to answer your construction or employment related issues. Please contact us at info@gstexlaw.com.

Legal Disclaimers

This blog is made available by Gerstle Snelson, LLP for educational purposes and to provide general information about the law, only.  Neither this document nor the information contained in it is intended to constitute legal advice on any specific matter or of a general nature.  Use of the blog does not create an attorney-client relationship with Gerstle Snelson, LLP where one does not already exist with the firm.  This blog should not be used a substitute for competent legal advice from a licensed attorney.

©Gerstle Snelson, LLP 2024.  All rights reserved.  Any unauthorized reprint or use of this material is prohibited.  No part of this blog may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage or retrieval system without the express written permission of Gerstle Snelson, LLP.