Aon  |  Financial Services Group

On October 11, the Department of Labor (DOL) proposed a new rule updating its test for determining worker status under the Fair Labor Standards Act (FLSA). The proposed rule reinstates the “totality of the circumstances” analysis of the “economic reality test,” which was used by the courts for more than seven decades. Under the proposed rule, an employee is defined as anyone an employer “suffers, permits, or otherwise employs to work” and who economically depends on their employer. In contrast, an independent contractor is a worker in business for themselves and not economically dependent on an employer.

The distinction and analysis consider six factors: 1) the opportunity for profit or loss depending on managerial skill; 2) investment by the worker and the employer; 3) the degree of permanence of the work relationship; 4) the nature and degree of control; 5) whether work performed is integral to the employer’s business; and 6) skill and initiative. None of the factors has a predetermined weight which may allow courts to weigh and come to differing determinations. The reinstatement of the “totality of the circumstances analysis” supplants the multi-factor “economic realities test” used during the Trump administration that focused on a worker’s control over their work, and a worker’s opportunity for profit or loss. Public comments will be accepted on the proposed rule for 45 days (or until November 28), and will assist the DOL in adoption of its final rule.

Some employment law firms speculate that the proposed rule may materially reduce the circumstances in which a worker will be classified as an independent contractor and could significantly impact industries that engage, for example, janitors, home-care workers, construction workers, and gig drivers. Contact your Aon representative for additional information.