at 1223. Superior Care, 840 F.2d at 1060 (Though visits to the job sites occurred only once or twice a month, Superior Care unequivocally expressed the right to supervise the nurses' work, and the nurses were well aware that they were subject to such checks as well as to regular review of their nursing notes. 3:13-CV-045-SA-SAA, 2014 WL 3810226, at *4-8 (N.D. Miss. 268. 3121(d)(2) (generally defining the term employee under the Internal Revenue Code as any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee). . 121. Amy DeBisschop, Division of Regulations, Legislation, and Interpretation, Wage and Hour Division (WHD), U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW, Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-free number). does not constitute control that makes the [worker] more or less likely to be an employee.[358] Mid-Atlantic Installation Services, Inc.[366] 484 F. Supp. The Department believes, however, that the examples best serve this explanatory function in preamble text, particularly considering how fact-dependent the analysis of each economic reality factor is. The Department welcomes comments on all aspects of its proposal. Pilgrim Equip., documents in the last year, 84 McFeeley, The Federal Reserve Board's annual Survey of Household Economics and Decisionmaking (SHED) provides measures of the economic well-being of U.S. households. Accordingly, proposed 795.110(b)(1) explains that a worker's decision to work more hours (when paid hourly) or work more jobs (when paid a flat fee per job) where the employer controls assignment of hours or jobs is similar to decisions that employees routinely make and does not reflect managerial skill. Thus, if workers' classifications change from independent contractors to employees, there could be a transfer in Federal tax liabilities from workers to employers. Dynamex Texas Sugars, Inc., The Department's enforcement experience in this area is informative. We agree with the Secretary that the skill and initiative factor points toward employee status.); Thus, workers were not made more economically dependent on the employer because of these safety developer tools pages. Id. And the Eleventh Circuit has explained in a case where the workers were clearly skilled workers that [t]he meaningfulness of this skill as indicating that plaintiffs were in business for themselves or economically independent, however, is undermined by the fact that [the employer] provided most technicians with their skills.[469]. Jackson et al. Both provisions29 CFR 780.330(b) and 788.16(a)remained unchanged until 2021. This concern is premised in part on WHD's role as the agency responsible for enforcing the FLSA and its experience with cases involving the misclassification of employees as independent contractors. All of the circuit courts that have addressed employee or independent contractor status consider five of the same factors. Regulatory familiarization costs may be a function of the number of establishments or the number of firms. See, e.g., Superior Care, Moreover, employers may also exert so much control over the amount or pace of the work as to negate any meaningful scheduling flexibility. Document page views are updated periodically throughout the day and are cumulative counts for this document. Walling Briefly, these factors include the degree of control exercised by the employer over the worker, skill, permanency, opportunity for profit or loss, and investment, although the Second Circuit and the D.C. Only a worker who is instead in business for himself is an independent contractor not covered by the Act. [66] 530. 322 U.S. at 118-20; 29 U.S.C. The same need for a practical, realistic construction of the employment relationship under the FLSA exists today. documents in the last year, 286 Specifically, the Department is not proposing the use of core factors and instead proposes to return to a totality-of-the-circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity. 331 U.S. 722, 729 (1947) (noting that [t]here may be independent contractors who take part in production or distribution who would alone be responsible for the wages and hours of their own employees). Rutherford, v. 2022 WL 1073346, at *18. Numerous commenters responding to the Department's proposed withdrawal of the 2021 IC Rule voiced similar concerns.[148]. Thus, the Department recognizes that the 2021 IC Rule's predetermined and mechanical weighting of factors is not consistent with how courts have, for decades, applied the economic reality analysis.[143]. documents in the last year, by the Fish and Wildlife Service Italian Colors Restaurant, [135] 308 F.3d 580, 592-93 & n.8 (6th Cir. WHD Op. One subsection of the Employment section describes the results of the questions related to The Gig Economy. While the survey questions about work in the gig economy include more types of work . Start Printed Page 62231 Employees who are misclassified as independent contractors generally do not receive employer-sponsored health and retirement benefits, potentially resulting in or contributing to long-term financial insecurity. at 1247 (795.110). 2d 569, 581 (D. Md. 603 F.2d at 754-55; As explained in a reasonable jury could conclude that the Club did not exercise significant control over them) (emphasis added). See id. that agencies use to create their documents. Economic reality test. and cert. [506] 757 F.2d at 1386. Opinion Letter FLSA2019-6 was withdrawn on February 19, 2021. 466 F.3d at 308. https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-114.pdf. 8. Id. 10/11/2022 at 8:45 am. 550. The provision also states that, [w]hile the effects of the individual's exercise of initiative and management of investment are both considered under this factor, the individual does not need to have an opportunity for profit or loss based on both for this factor to weigh towards the individual being an independent contractor.[236] Because of this lack of managerial skill affecting opportunity for profit or loss, this factor indicates employee status. Silk, When comparing the median wages of women who worked full-time, year-round to the wages of men who worked full-time, year-round, women were paid 83 cents to every dollar paid to men. Finally, section 3(g) provides that the term `[e]mploy' includes to suffer or permit to work.[16], Interpreting these provisions, the U.S. Supreme Court has stated that [a] broader or more comprehensive coverage of employees within the stated categories would be difficult to frame, and that the term `employee' had been given `the broadest definition that has ever been included in any one act.' n. 467 and accompanying text. Rutherford 83. 499. See Lauritzen, The Department assumes that it will take on average about 30 minutes to review the rule as proposed. It is also consistent with the approach that courts and the Department have used in the decades since to determine whether workers are employees or independent contractors under the FLSA. individual Silk 39 F.4th 1078, 1082 (8th Cir. 551. Multiplying the universe of establishments and governments by 35 percent results in 2.8 million entities. Nature and Degree of Control (Proposed 795.110(b)(4)), d. Setting a Price or Rate for Goods or Services, 5. [541] v. The Department used the generational breakdown used in the MBO Partners 2017 report, The State of Independence in America. Millennials were defined as individuals born 1981-1996, Generation X were defined as individuals born 1965-1980, and Baby Boomers and Matures were defined as individuals born before 1965. Start Printed Page 62246 15. Superior Care, Inc., As the Fifth Circuit stated, [the] purposes [of the FLSA] are not defeated merely because essentially fungible piece workers work from time to time for neighboring competitors.[420], Ultimately, the question [a] court must resolve is whether a [worker's] freedom to work when she wants and for whomever she wants reflects economic independence, or whether those freedoms merely mask the economic reality of dependence.[421] v. The Department is providing a detailed analysis about the application of each factor in this NPRM based on case law and the Department's enforcement experience as a guide for employers and workers in determining whether a worker is an employee or an independent contractor. 946 F.3d at 829; 915 F.3d at 1056 (quoting In its rulemaking last year to withdraw the 2021 IC Rule, the Department declined to propose alternative regulations. See supra 515. 2. Driftwood Elec. Both analyses found similar results. Hello. [192] The RAND ALP,[530] [544] U.S. Department of Labor (May 24, 2022, 10:30 a.m.), See id. e.g., 835 F.2d at 1534 (Certain criteria have been developed to assist in determining the true nature of the relationship, but no criterion is by itself, or by its absence, dispositive or controlling.). 884 F.3d at 1235; Ltr., 2000 WL 34444342, at *5 (Dec. 7, 2000). Moreover, the Supreme Court has stated that the existence of employment relationships under the FLSA does not depend on such isolated factors as the three independently determinative factors in the ABC test, but rather upon the circumstances of the whole activity.[185] the fact that the temporary nurses typically work for several employers, was not dispositive of independent contractor status as employees may work for more than one employer without losing their benefits under the FLSA.[336], Relatedly, courts have also determined that the fact that a worker does not rely on the employer as their exclusive or primary source of income is not indicative of whether an employment relationship exists. 825 F.3d at 244; 840 F.2d at 1060) (withdrawn June 7, 2017). The control factor has its roots in the common law, where the inquiry was whether the employer had the right to control the manner and means by which [work] is accomplished. 754 F.3d at 1102-03 (finding in a state wage-and-hour case that direct monitoring techniques used by an employer to monitor its furniture delivery drivers were a form of supervision that made it more likely that the worker was an employee; as the court noted, the employer supervised the drivers by conducting `follow-alongs;' requiring that drivers call their . neither the presence nor the absence of any particular factor is dispositive.); 227. The Department used the number of establishments to estimate the fundamental pool of regulated entitieswhich is larger than the number of firms. v. . Eberline Bartels, and [29] v. 331 U.S. at 712-14. 2019) (codifying the ABC test articulated in Thus, the Department's proposal would not preclude a finding that a worker is an independent contractor where an employer obligates workers, for example, to comply with safety standards, after also considering other relevant factors in the economic reality analysis. the Eleventh Circuit determined that even if the workers were not prohibited from working for others, the workers essentially had an exclusive work relationship with the employer because they were required to work five to seven days a week and could not decline work. In the 2021 IC Rule the Department included an additional 45 percent for benefits and 17 percent for overhead. 979 F.3d 192 (3d Cir. v. v. v. Scantland, [363] FLSA EXEMPTION DETERMINATION CHECKLIST Administrative Exemption Checklist GENERAL SERVICES ADMINISTRATIONGSA 5025 11/2017 Administrative Exemption 7. Lauritzen, [396] These workers' legal status would not change under the 2021 IC Rule or this proposed rulethey would properly be classified as employees under both rules. FLSA Exemption Determination Checklist - Administrative Exemption Current Revision Date: 11/2017 DOWNLOAD THIS FORM: Choose a link below to begin downloading. are advised that uploading text-recognized documents Start Printed Page 62272 In 207(a). 587. [515] Karlson investments on a relative basis with the employer's investment. [157] Silk See, e.g., Parrish See Silk, Similar to the 2021 IC Rule, the proposal states that some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take more jobs, generally do not reflect the exercise of managerial skill indicating independent contractor status under this factor. Circuit treat the worker's opportunity for profit or loss and the worker's investment as a single factor. 838 F. App'x 39, 42 (5th Cir. 59. See Herman Secretary of Labor 757 F.2d 1376, 1382-83 (3d Cir. 313. Id. Wis. 1985), 512. Additionally, a major source of retirement savings is employer-sponsored retirement accounts. Circuit are alone among the circuit courts of appeals in treating the worker's opportunity for profit or loss and the worker's investment as a single factor. Id. In Darden, 190. See https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA 4. [371] Among other categories of workers excluded from FLSA coverage, the Court has recognized that independent contractors fall outside the Act's broad understanding of employment. 137 F.3d at 1443 (finding rig welders' work to be an important, and indeed integral, component of oil and gas pipeline construction work because their work is a critical step on every transmission system construction project); 253 F.3d at 11 (citing While precise and representative estimates of nationwide misclassification are unavailable, multiple studies suggest its prevalence in numerous sectors in the economy. Assuming benefits are paid at a rate of 45 percent of the base wage,[550] of this preamble, that the factors of the economic reality test should not be given a predetermined weight. Lim et al., The Supreme Court agreed, reiterating the breadth and reach of the Act's definitions to work relationships that were not previously considered to constitute employment relationships, and emphasizing that the determination of an employment relationship under the FLSA depends not on isolated factors but rather upon the circumstances of the whole activity.[198] v. Id. Start Printed Page 62273. On May 19, the Sixth Circuit Court of Appeals set a new, substantially more demanding standard for employees to proceed on a collective basis in federal wage and hour lawsuits. The regulation (which has not since been amended) advises that [i]n determining if the farm labor contractor or worker is an employee or an independent contractor, the ultimate question is the economic reality of the relationshipwhether there is economic dependence upon the agricultural employer/association or farm labor contractor, as appropriate.[74] These ratios of small to large establishments were then applied to the more recent 2019 Statistics of United States Businesses (SUSB) data on number of establishments. 29 CFR 500.20(h)(4). Accordingly, setting a price or rate for goods provided or services rendered is a form of control that must be carefully considered when undertaking an economic realities analysis. the right 516. The Rule states that this factor indicates independent contractor status to the extent the worker has an opportunity to earn profits or incur losses based on either (1) their exercise of initiative (such as managerial skill or business acumen or judgment) or (2) their management of investment in or capital expenditure on, for example, helpers or equipment or material to further the work. [12] include independent contractors on all jobs. 951 F.3d at 145-46 (discussing disputed facts regarding the control factor, including whether drivers could drive for other services); That is, for workers who are properly classified as independent contractors, the Department does not, for the most part, anticipate that this rule would result in these workers being reclassified as employees. Thus, although a worker's investment need not be on par with the employer's investment, it should support an independent business for this factor to indicate independent contractor status. The Department notes that sources cited in this analysis may use other definitions of independent contractors that may not align fully with the Department's use of the term. see also Nelson Twyeffort, e.g., To answer this ultimate inquiry of economic dependence, the courts and the Department have historically conducted a totality-of-the-circumstances analysis, considering multiple factors to determine whether a worker is an employee or an independent contractor under the FLSA. [384] Ask 4 Realty & Mgmt., Inc., 840 F.2d at 1061 (citing Thus, scheduling flexibility is not necessarily indicative of independent contractor status where other aspects of control are present, such as where an employer asserts that workers can work when and where they want but retains authority to discipline workers for declining work or imposes other methods of control that limit flexibility. Start Printed Page 62256 [348] v. Labeling employees as independent contractors does not make these protections inapplicable. Razak, It identified six economic realities factors that followed the six factors used by most Federal courts of appeals: (1) the extent to which the work performed is an integral part of the employer's business; (2) the worker's opportunity for profit or loss depending on his or her managerial skill; (3) the extent of the relative investments of the employer and the worker; (4) whether the work performed requires special skills and initiative; (5) the permanency of the relationship; and (6) the degree of control exercised or retained by the employer. documents in the last year, by the Coast Guard 429. the current document as it appeared on Public Inspection on the need to comply with the regulations of federal and state agencies do not persuade us before affirming the conclusion that workers were employees under the FLSA). investment to that of the alleged employer. outside experts to evaluate the rule and relay the relevant information to their organization ( Id. 299. They found that 28 percent of respondents reported doing informal work for money over the past month.[524]. See, e.g., Thibault See, e.g., Scantland, see also McComb 656 F.2d at 1371 (circumstances of the whole activity show that laundry company exercises control over the meaningful aspects of the cleaning [work] despite the fact that workers could set their own hours). 366 U.S. at 33 (quoting from 189. 470. The Department believes that this return to considering whether the work is critical, necessary, or central to the employer's business better reflects the economic reality case law and is more consistent with the totality-of-the-circumstances approach to determining whether a worker is an employee or an independent contractor. at *7-10. See86 FR 1177. Generally, employers are only required to contribute to unemployment insurance, disability insurance, or worker's compensation on behalf of employees therefore independent contractors do not have access to those benefits. 280. 86 FR 1246-48. Advantages include large sample sizes, the ability to link information reported on different records, the reduction in certain biases such as reporting bias, records of all activity throughout the calendar year (the CWS only references one week), and inclusion of both primary and secondary independent contractors. BTM Corp., June 10, 2022). The same trend in education attainment holds for workers who participate in informal work. Businesses operating nationwide will have had to familiarize themselves with multiple standards for determining who is an employee under the FLSA across different jurisdictions. 884 F.3d 1225, 1235 (10th Cir. 603 F.2d at 754. U.S. It identified and discussedbut did not quantifynumerous other costs, transfers, and benefits possibly resulting from the 2021 IC Rule, including possible transfers among workers and between workers and businesses.[166] Similarly, if an employer requires workers to provide proof of insurance required by state law, that is less probative of control; if an employer mandates what insurance carrier workers must use, that is more probative of control. D & S Farms, does not constitute control for purposes of the economic reality test. 1976) (quoting Parrish, [159] (b) that the worker performs work that is outside the usual course of the hiring entity's business; by Employer Pass, on Apr 15, 2022 6:05:58 PM The Fair Labor Standards Act (FLSA) is the backbone of federal labor law. 603 F.2d 748, 754 (9th Cir. e.g., No. U.S. Gov't Accountability Off., GAO-09-717, The Second Circuit and the D.C. Investments that are capital or entrepreneurial in nature and thus indicate independent contractor status generally support an independent business and serve a business-like function, such as increasing the worker's ability to do different types of or more work, reducing costs, or extending market reach. As in the 2021 IC Rule, the Department is proposing to include cross-references to the interpretations set forth in this proposed rule in 29 CFR 780.330(b) and 788.16(a); these provisions contain industry-specific guidance. 781 F.3d at 807; the unloaders came to the coal yard when and as they please[d] . 85. In response to a request by the Department informing the court of this rulemaking, the Fifth Circuit Court of Appeals entered an order staying the appeal until December 7, 2022 (subject to considering a further stay at that time). Driscoll, 86 FR 1195. see also Flint Eng'g, The Department notes that sources cited in this in this analysis may use other misclassification standards which may not align fully with the Department's use of the term. Razak Despite these areas of agreement, the governing principle of the 2021 IC Rule is that two of the economic reality factors are predetermined to be more probative and therefore carry more weight, which may obviate the need to meaningfully consider the remaining factors. Aug. 28, 2012) (The driver's ability to make more money by driving additional routes is akin to a waiter making more money by taking another shift.); . 825 F.3d at 241; 917 F.3d at 380 (quoting In The total number of establishments and governments in the universe used for this analysis is 8,049,229. However, the FLSA provides certain exemptions from the minimum wage and overtime requirements. Rule). .). In Tennessee, from September 2017 to October 2018, the Uninsured Employers Fund unit assessed 234 penalties against employers for not maintaining workers' compensation insurance, for a total assessment amount of $2,730,269.60.[566] Covering topics such as employee classification, minimum wage, overtime, child labor, and more. 490 U.S. at 751 (applying principles of general common law of agency to determine whether . Tenn. Nov. 4, 2009) (finding a state law that required licensed practical nurses to work under the supervision and direction of doctors or registered nurses was strong evidence of control by the employer under the FLSA and rejecting defendants' argument that because a certain amount of supervision is mandated by the state or by the home health agencies with which they contract, it . 88 F.3d 925, 929 n.5 (11th Cir. 490 U.S. at 751. The D.C. With these general principles in mind, the next sections address the Department's proposals regarding several aspects of control to be considered in determining whether the nature and degree of control indicates that the worker is an employee or an independent contractor. 339. 86 FR 1247. 1467. However, consistent with an economic reality analysis, it is important to inquire into whether the worker's license or incorporation are reflective of the worker being in business for themselves as a matter of economic reality. 27 FR 8033-34 (29 CFR 788.16(a)). 937 F.3d 221, 229 (3d Cir. 1802(5) (The term `employ' has the meaning given such term under section 3(g) of the [FLSA]). v. Fla. Dec. 19, 2007) (construction worker's work was integral to remodeling business, but economic reality factors as a whole indicated independent contractor status). Rakeen Mabud, N.J. Stat. Herman see also Amponsah The 2021 IC Rule stated that it is highly unlikely that these three non-core factors can outweigh the combined probative value of the two core factors. [194], The Department is proposing to simplify paragraph (a) and make additional clarifying edits to paragraph (b). 482. Silk, 721 F.3d at 1312 n.2 (the relative weight of each factor depends on the facts of the case) (quoting [543], Table 2Characteristics of Workers, All Workers and Independent Contractors. at 1247. 289. The Department is proposing to modify the regulations addressing whether workers are employees or independent contractors under the FLSA. 27 FR 8033 (29 CFR 788.16(a)). High incidence of misclassification of employees as independent contractors has been documented in agriculture, construction, trucking, housecleaning, in-home care, stagecraft, and `sharing economy' companies.[556]. Id. Executive Order 12866, Regulatory Planning and Review; B. In this NPRM, the Department is proposing to modify the regulations addressing the classification of workers as employees or independent contractors under the Fair Labor Standards Act (FLSA or Act) to be more consistent with judicial precedent and the Act's text and purpose as interpreted by the courts. Neither the Second Circuit nor the Eleventh Circuit have expressly rejected comparing the investments, and as explained herein, the Department believes that comparing investments is consistent with the totality-of-the-circumstances analysis and is helpful in distinguishing between a worker's economic dependence and independence. Molina There is little basis for an approach that always considers the worker's investment within the worker's opportunity for profit or loss factor, which can have the effect in some cases of preventing investment from affecting the analysis. Morrison, Mr. W Fireworks, Keller, [453], As these cases make clear, the worker's lack of specialized skills when performing the work generally indicates employee status. Paragon, Courts have thus recognized a need to delineate between employees, who fall under the protections of the FLSA, and independent contractors, who do not. Ltr. Pilgrim Equip., 422. and Section 795.105(d)(1)(ii) of the 2021 IC Rule states that the opportunity for profit or loss factor indicates independent contractor status if the worker exercises initiative Matthew Finnegan, See, e.g., Superior Care, Co., 33. 507. Overtime pay, minimum wage, record requirements, age restrictions, and hours worked are some of the standards for employees outlined in this law. Pilgrim Equip. 541. [141] documents in the last year, by the Land Management Bureau 331 U.S. at 729). 51. The rate fell to 25.7 percent for 45- to 54-year-olds, and 13.4 percent for those 75 years and older. 11090, subd. In light of this directive, the Department remains concerned that the outsized role of control under the 2021 IC Rule's analysis is contrary to the Act's text and case law interpreting the Act's definitions of employment. [170] 173. Silk ) (quoting Secretary of Labor's Amicus Br. A simple comparison of mean hourly wages showed that independent contractors tend to earn more per hour than employees ( Rosenwasser, 757 F.2d at 1382; Goldberg at 1201 (advising that other factors would only outweigh the two core factors in rare cases). [397] 206. RESTATEMENT (THIRD) OF AGENCY sec. ABC tests are not the same as the FLSA economic realities test. Other elements may also be included in this examination of control, such as those identified by the Supreme Court in 379, 408-11 (2019) (discussing the origins and recent expansion of the ABC test). Id. Forbes (Jan. 22, 2019, 9:28 a.m.), common law control test is the hiring party's right to control the manner and means by which [work] is accomplished,[177] WHD Op. [592] . The Fifth Circuit reached a similar conclusion when it rejected an insurance sales company's argument that it exerted little control beyond what insurance-industry regulations required. The Court explained that instead, such exemptions should be given a fair reading, stating [b]ecause the FLSA gives no textual indication that its exemptions should be construed narrowly, there is no reason to give [them] anything other than a fair (rather than a narrow) interpretation. Why does this matter? Information about this document as published in the Federal Register. 31. . 55 F. Supp. https://www.computerworld.com/article/3642712/rise-in-employee-monitoring-prompts-calls-for-new-rules-to-protect-workers.html; and 346. A thorough review can confirm whether the employees primary duties are sufficient for exempt status. and overhead costs are 17 percent of the base wage, the reviewer's effective hourly rate is $49.94. The Department believes that this proposed rule's approach offers a better framework for understanding and applying the concept of economic dependence by explaining how the touchstone of whether an individual is in business for themself is analyzed within each of the six economic realities factors. The following facts, among others, can be relevant: whether the worker determines or can meaningfully negotiate the charge or pay for the work provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. 331 U.S. at 727. Silk: [519] FLSA Exemption Classification Determining who must be paid overtime under the Fair Labor Standards Act (FLSA) is critical to wage and hour compliance. 733 F.2d 720, 723 (10th Cir. Lauritzen, In addition, as described in more detail below, and after taking relevant case law into account, an employer's compliance with legal obligations, safety or health standards, or requirements to meet contractual or quality control obligations, for example, may in some cases indicate that the employer is exerting control, suggesting that the worker is economically dependent on the employer. v. The workers could also turn down work and negotiate their pay. See, e.g., Franze, Id. work was prepared by an employee or an independent contractor under the Copyright Act of 1976). investment to that of the alleged employer and determining that the employer's greater overall investment in the business scheme convinces us that the relative-investment factor weighs in favor of employee status) (emphasis in original). v. In other words, the standard was designed to ensure that an employer could be covered under the labor law even if they did not directly control a worker or used an agent to provide supervision. Presumably, the headquarters of a firm will conduct the regulatory review for businesses with multiple locations and may require some locations to familiarize themselves with the regulation at the establishment level. 384. Ltr., 1995 WL 1032489, at *1 (June 5, 1995); WHD Op. [520521], Another potential source of bias in the CWS is that some respondents may not self-identify as independent contractors. factors). 204. 371. WHD Op. . 518. Mr. W Fireworks . 14, 2022). Start Printed Page 62241 223. If finalized, the proposed rule would formally rescind the 2021 IC Rule. WHD Fact Sheet #13 (July 2008). [473], The 2021 IC Rule does not consider initiative in the context of this factor. Capital Int'l, See at 1312 n.2. 2017). The agency was going to announce its plans in April but it has been delayed. $27.29 per hour for all independent contractors versus $24.07 per hour for employees using the 2017 CWS). As shown in Table 2 of the regulatory impact analysis, the industries with the highest number of independent contractors are the professional and business services and construction industries. Consistent with a totality-of-the-circumstances analysis, no one factor or subset of factors is necessarily dispositive, and the weight to give each factor may depend on the facts and circumstances of the particular case. The Act's definitions envision a broad range of potential employment relationshipsdefining employer as including any person acting directly or indirectly in the interest of an employer in relation to an employee and using the suffer or permit standardand the test needs to be applicable to all of those potential relationships. and [356] 161 F.3d at 304 (opportunity for profit or loss factor indicated independent contractor status because the drivers could choose among which jobs were most profitable). 195. Scantland, The 2021 IC Rule also errs in bringing the test closer to the common law test, which is inconsistent with the plain text of the Act and the case law interpreting it. For this reason, adopting an ABC test may eliminate some of the uncertainty related to independent contracting under laws which apply different standards, and substantially reduce the risk of worker misclassification. 203(e)(1), (g). 814 F.2d at 1060; Ltr., 2000 WL 34444342, at *4 (Dec. 7, 2000) (comparing the relative investments of the worker and the employer is the correct approach). Because COVID-19 has had a substantial impact on the labor market, it is possible that this estimate is not currently appropriate. [c] Summation of (1) 2,132,800 filers with earnings from both wages and sole proprietorships and expenses less than $5,000, (2) 4,125,200 primarily sole proprietorships and with less than $5,000 in expenses, and (3) 3,416,300 primarily wage earners. Paragon, Adjusting the threshold for inflation using the GDP deflator, using the most recent annual result (2021), yields a threshold of $165 million. Id. 142. In many cases, the state criteria are harder to meet than the federal criteria. 1984) (Since plaintiffs could wait tables only during the restaurant's business hours, [the employer] essentially established plaintiffs' work schedules.). Many small and even medium-sized employers may struggle to afford such a dramatic increase, with as many as 10 million workers becoming entitled to overtime pay if the FLSAs salary threshold doubles. the Tenth Circuit determined that temporary rig welders who worked no more than two months at a time for a gas pipeline contractor exhibited sufficient permanency in their work relationship to indicate employee status because such temporary work was intrinsic in the industry rather than a choice or decision by the workers. 2013) (noting that countless workers . K. Lim, A. Miller, M. Risch, and E. Wilking, Independent Contractors in the U.S.: New Trends from 15 years of Administrative Tax Data, Department of Treasury, p. 61 (Jul. (citing https://www.regulations.gov, and Lim et al. Indeed, this has been the perspective of the Department for almost six decades. Darden, 490 U.S. at 751. 917 F.3d at 386-87 (noting that one of the relevant considerations under the permanency factor is the total length of the working relationship between the parties); The Department acknowledges that it is changing the approach taken in the 2021 IC Rule, and that this warrants further discussion of the rationale used in that rule and why the Department has carefully reconsidered that reasoning and determined that modifications are necessary. 249 F. App'x 441 (6th Cir. See, e.g., Parrish, The 2021 IC Rule provides that requiring the worker to comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses (as opposed to employment relationships) does not constitute control. In explaining its decision to withdraw the 2021 IC Rule, the Department stated that the Rule was inconsistent with the FLSA's text and purpose and would have had a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent. 3. 247. et seq., v. [73] As noted above, an employer's direct control over a worker's schedule can be evidence of employee status. The discussion of data on the differences in earnings between employees and independent contractors in the 2021 IC Rule was potentially confusing and included some evidence that was not statistically significant, so the findings and methodology are discussed again here. [352] See 860 F.3d 1089, 1095 (8th Cir. C14-4091-LTS, 2017 WL 151401, at *17 (N.D. Iowa Jan. 13, 2017) (rejecting argument that plaintiffs' purchase and/or use of personal vehicles [weighs] in favor of finding plaintiffs were independent contractors because the vehicles had been purchased prior to taking DIRECTV work orders and the record does not indicate that the vehicles were purchased for any business purpose). 302. Proposed 795.110(b)(6) states that where the worker brings specialized skills to the work relationship, it is the worker's use of those specialized skills in connection with business-like initiative that indicates that the worker is an independent contractor instead of an employee. . failed to show good cause for making the [Delay Rule] effective immediately upon publication,[117] 274. 203(e)(1). 3d 1362, 1370 (N.D. Ga. 2019) (finding relevant to the control analysis that the plaintiff was not free to set the prices she charged customers and had no ability to waive or alter cover charges for her customers). 445. Although the Court identified these specific factors as relevant to the analysis, it explained that [i]t is the total situation that controls the worker's classification under the SSA. 594. 53. Circuits vary in that they treat the employee's opportunity for profit or loss and the employee's investment as a single factor, but they still use the same considerations as the other circuits to inform their economic realities analysis. In addition to increased compliance with minimum wage and overtime requirements, potential transfers may also result from this rulemaking as a consequence of differences in earnings between employees and independent contractors. The 2021 IC Rule set forth regulations to be added to a new part (part 795) in title 29 of the Code of Federal Regulations titled Employee or Independent Contractor Classification under the Fair Labor Standards Act, providing guidance on the classification of independent contractors under the FLSA applicable to workers and businesses in any industry. v. For the reasons explained above, the worker's use of initiative in connection with any specialized skills is more probative of the ultimate inquiry of whether the worker is economically dependent on the employer or is an independent business. The prevalence of lower annual earnings implies that most workers who received a 1099 did not work as an independent contractor every week. Wellfleet Commc'ns, 884 F.3d at 1235 (permanence factor favored employee status because the worker was hired temporarily for the harvest season [b]ut his employment was permanent for the duration of each harvest season); [287] Cobb, (Sept. 12, 1969); WHD Op. (1) In order to determine economic dependence, multiple factors assessing the economic realities of the working relationship are used. The Department believes that the way in which 2021 IC Rule 795.105(d)(1)(ii) considers investment as part of the opportunity for profit or loss factor may incorrectly tilt the analysis in favor of independent contractor outcomes. 86 FR 1247-48. [568] See Creating an exemption from coverage of this proposed rule for businesses with as many as 500 employees, those defined as small businesses under SBA's size standards, would be inconsistent with the FLSA, which applies to all employers that satisfy the enterprise coverage threshold or employ individually covered employees, regardless of the employer's number of employees. 1970) (noting that arguments that an independent contractor relationship is shown by . Id. K. Abraham, and S. 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