U.S. Department of Labor Sets New Standard for Employers to Determine Independent Contractor Status

Effective March 11, 2024, businesses in all industries are required to follow a new, six-factor test to determine whether workers are properly classified as “independent contractors” under the federal Fair Labor Standards Act (“FLSA”). Oregon and Washington employers must also ensure they properly classify their workers consistent with state law.

The new rule, issued by the U.S. Department of Labor (“DOL”) affirms that a worker is not an independent contractor if they are, as a matter of economic reality, economically dependent on an employer for work. However, the new six-factor test sets a higher bar for businesses to classify workers as independent contractors.

The new test focuses on the “economic realities” of the working relationship based on the “totality of the circumstances” of each individual case. The factors include:

• Worker’s opportunity for profit or loss depending on managerial skill.
• Investments by the worker and the potential employer.
• Degree of permanence of the work relationship.
• Nature and degree of employer’s control over the work.
• Extent to which the work performed is an integral part of the potential employer’s business.
• Worker’s skill and initiative.

The FLSA does not preempt any other laws that protect workers, so businesses must comply with all federal, state, and local laws that apply and ensure that they are meeting whichever standard provides workers with the greatest protection.

Next Steps for Employers

Employers should consider whether they have independent contractor relationships that must be reevaluated under the new rule. Misclassification risks claims for unpaid overtime, unpaid workers’ compensation premiums, unpaid taxes, or denial of other employment-related benefits, and may lead to steep penalties for the employer.

For more guidance from the DOL, see its FAQs and fact sheet on the new rule.

Employers should note that the new rule is already the subject of federal court litigation. Dunn Carney’s Employment Law Team is tracking these cases.

If you have further questions or would like assistance with compliance, please contact a member of Dunn Carney’s Employment Law team.

Allyson S. Krueger, Partner
Phone: 503-417-5461
Email: akrueger@dunncarney.com

Lauren J. Russell, Partner
Phone: 503-306-5346
Email: lrussell@dunncarney.com

Samantha Baker, Attorney
Phone: 503-306-5335
Email: sbaker@dunncarney.com

©2024 Dunn Carney LLP.  This material is provided for informational purposes only. It is not intended to constitute legal advice nor does it create a client-lawyer relationship between Dunn Carney LLP and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.