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Labor Department Releases Proposal on Independent Contractor v Employee Classification


Last Tuesday, the Labor Department released its proposal on how workers should be classified in regard to being independent contractors or employees.

The proposal, which marks a stark contract from prior proposals from the Labor Department during President Donald Trump’s term, would dramatically shift things as currently set.  Under the proposal, a multi factor “economic realities” test would be utilized to determine whether a worker was an independent contractor or employee.  This new test, which would examine the totality of the circumstances, would involve equal consideration of a wide range of factors including investment by the worker and the employer, the degree of permanence of the working relationship, the extent to which the work performed is an integral part of the employer’s business, the degree of skill and initiate exhibited by the worker, the worker’s degree of control over their work, and the “opportunity for profit or loss” based on personal investment or initiative.  Notably, the proposal would allow for additional factors to be considered beyond these six if they indicate the worker may be in business for themselves.

(President Trump’s Labor Department had identified five factors to consider when examining whether a worker was an independent contractor or employee but emphasized two in particular:  1) A worker’s degree of control over their work and 2) “opportunity for profit or loss” based on personal investment or initiative as the two paramount factors to consider.)

Following the release of this proposal, employers such as Uber & Lyft criticized the new standard and argued it would lead to a rash of litigation and an overwhelming rise in labor cost to cover the workers being reclassified as employees rather than independent contractors.

Currently, the general public has time to comment on this proposal before it is amended or adopted.  If I were a betting man, I would expect this proposal to take effect as is (or with minimal changes.)


For a copy of the Labor Department’s proposed rule:  https://public-inspection.federalregister.gov/2022-21454.pdf

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