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Posted on October 17, 2022
The US Department of Labor (DOL) proposes to rescind a rule proposed last year and replace it with a rule that will more narrowly define the term “independent contractor” as used in the federal Fair Labor Standards Act. The proposed rule employs the “economic realities” test to establish a worker’s classification, and is expected to make it more difficult to designate workers as independent contractors.
The proposed economic realities test is not considered to be as stringent as the three-factor “ABC test” used in Massachusetts and in more than 30 other states. However, it is sure to cause concern for industries such as ride sharing that rely on independent contractors for delivery of services.
Under the proposed rule, an employee is any individual whom an employer “suffers, permits, or otherwise employs to work” and is intended to encompass all workers who “as a matter of economic reality, are economically dependent on an employer for work.” To determine whether a worker is economically dependent upon an employer, a six-factor test will be used:
None of these factors will be given more weight than others, and all factors will be considered in view of the economic reality of the relationship. Additional factors may be relevant if they indicate whether the workers are in business for themselves, as opposed to being economically dependent on the employer for work.
This “totality of the circumstances” approach is a departure from the 2021 rule, which provided a similar list of factors but required that two “core” factors were to be given more weight than others. The earlier proposed rule stressed that a worker’s control over his or her work and the opportunity for profit or loss were paramount in making an independent contractor determination.
Compare this with the Massachusetts Independent Contractor Law (MGL c.149, § 148B), which uses the “ABC test” to determine whether a worker is an employee or an independent contractor. A worker is presumed to be an employee unless all three of the following conditions are met:
The DOL invites comments on its proposed rule through November 28, 2022.
AIM members with questions about the classification of workers may call the AIM Employer Hotline at 1-800-470-6277.