What makes a worker an employee versus an independent contractor?  How you classify an individual may change, depending on whether proposed revisions to the Fair Labor Standards Act (FLSA) by the Department of Labor are accepted and enacted. The proposed revisions were posted on the Federal Register’s website on October 13, 2022 and will be available for public comment until November 28, 2022.

The proposal seeks to broaden the factors used to determine whether a worker is an employee, allowing more workers to be classified as employees who would then be entitled to the minimum wage and overtime protections of the FLSA. The Department of Labor contends that misclassification affects a wide range of workers in industries such as home health care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others.

Although the proposed revision would continue to define independent contractors as workers who are in business for themselves, or employees who are afforded the full minimum wage, overtime, a key factor in classifying workers under the proposed revisions would be a new litmus test of “economic dependence”.  Under the proposed revisions to the FLSA, that test would examine the following factors.

a. the definition of an independent contractor is only a worker who is, as a matter of economic reality, “in business for themselves.”
b. the factor involving “economic dependence” of worker does not focus on the amount of income earned by a worker, or whether that worker has other income streams.  It sets forth a six-factor test for determining whether a worker is “economically dependent” on an employer under the totality of the circumstances.  These factors include: opportunity for profit or loss depending on managerial skill, investment by the worker and the employer, degree of permanence of the work relationship, nature and degree of control, whether work performed is an “integral” part of the employer’s business, and skill and initiative of worker.

The “economic dependence” test would be in addition to the current factors the FLSA advocated employers should consider using, including the following:

a. Do they [the workers] work for someone else’s business or work for themselves?
b. Are they paid hourly, salary or by piece rate vs paid by project?
c. Do they use their own materials, tools and equipment to complete the project or their own?
d. Do they typically work for one employer or have multiple clients?
e. Do they have a continuing or temporary relationship with the employer?
f. Who decides how and when the work will be performed – the employer or the worker?
g. Who assigns the work – the employer vs the worker decides for themselves what they do?

The proposed rule is meant to undo the narrower definitions implemented under the Trump Administration. The proposed rule concentrates again on a worker’s investment in a business as a standalone factor; provides additional analysis of the control factor (including detailed discussions of how scheduling, supervision, price-setting, and the ability to work for others should be considered); and restores the Department of Labor’s prior interpretation of the “integral” factor, which considers whether the work is integral to the employer’s business.

It is possible that he scope of the final rule may change as a result of the public comment period.  The likely result, however, is that the revision will dramatically limit the circumstances under which a worker may be properly classified as an independent contractor. We can expect numerous legal challenges to stay enforcement of the revised FLSA, if and when it takes effect.

The attorneys in our Austin and Dallas offices are available to answer any employment questions you have.  Please contact us at info@gstexlaw.com.

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