DOL finalizes new standard for independent contractor status

The final rule strives ‘to simplify the compliance landscape for businesses and to improve conditions for workers.’

While the rule is not a federal mandate, one Department of Labor official told the Journal that it is intended to be a model for states. (Photo: Shutterstock)

The Department of Labor on Jan. 6 delivered its eagerly anticipated final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA).

“Streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility,” Wage and Hour Division Administrator Cheryl Stanton said in a statement. “The rule … continues our work to simplify the compliance landscape for businesses and to improve conditions for workers. The real-life examples included in the rule provide even greater clarity for the workforce.”

Related: The independent workforce: 6 trends to know

Litigation over worker misclassification has increased, coinciding with the rise of the gig economy — especially in the wake of the coronavirus pandemic — and amplifying the need for clarification.

As The Wall Street Journal notes, the clarification makes it more difficult for such workers as Uber, Lyft, and DoorDash drivers to be considered employees who are “covered by federal minimum-wage and overtime laws,” adding that “they could be responsible for paying the employer portion of Social Security taxes.”

The final rule goes into effect March 8 and includes the following clarifications:

While the rule is not a federal mandate, one Department of Labor official told the Journal that it is intended to be a model for states.

The need for clarification stemmed from a California law passed in September 2019 that made it more difficult for companies to label workers as independent contractors — thus giving those individuals access to the state’s minimum wage and overtime laws, workers’ compensation coverage, and paid sick days. Two months later, Uber, Lyft, and DoorDash won their fight to be exempted from reclassifying gig workers as employees.

Deputy Secretary of Labor Patrick Pizzella told the Journal that California’s law had skewed the definition of an independent contractor, adding that the Department of Labor’s rule “respects the time-honored American tradition of being your own boss.”

Catherine Ruckelshaus, general counsel at the National Employment Law Project, doesn’t see it that way. “This rule gives license to employers to call most of their workers independent contractors,” she told the newspaper. “That would dramatically narrow worker protections … in the jobs that particularly need them, including construction, agriculture, janitorial, and delivery jobs.”

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