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Department of Labor’s Controversial Rule to Determine Independent Contractor Status
Jan 11, 2024

Department of Labor’s Controversial Rule to Determine Independent Contractor Status

Topics: Court Decisions, New Laws & Legislation, Wage & Hour Issues

On January 10, 2024, the U.S. Department of Labor (“Department”) changed the test as to whether a worker is an employee or independent contractor under the Fair Labor Standards Act (“FLSA”). This final rule rescinds the Independent Contractor Status test from two years ago. The final rule, effective on March 11, 2024, did not adopt California’s “ABC” rule, but relies on a six-factor “economic reality” test. 

The Department’s final rule identifies a six-factor, totality-of-circumstances test to determine whether a worker is an employee or independent contractor: 

  1. The opportunity for profit or loss depending on managerial skill;
  2. Investments by the worker and potential employer;
  3. The degree of permanence of the work relationship;
  4. The nature and degree of control over performance of the work and working relationship;
  5. The extent to which the work performed is an integral part of the potential employer’s business; and
  6. 6The skill and initiative of the worker.

The new rule states that no single factor expressly carries more weight than another. However, the circumstances may lead to giving one factor more weight than other factors. In addition, the new rule also allows for the consideration of additional factors outside of the core six factors that may be relevant to the overall question of economic dependence. Simply put, no single factor should be dispositive. 

Employers must be mindful that simply labeling a relationship as an independent contractor does not, in fact, make a worker an independent contractor under the FLSA. The determination between an employee and independent contractor will be determined by the totality of the circumstances under Federal law. Employers of California workers need to continue to adhere to California’s ABC test, as the Department’s new rule does not supersede California’s wage and hour laws for California workers. Improper classification can lead to liability and penalties for the employer.   

If you have any further questions on the final rule, please consult either author of this article, CJ Singh or Dan Forman, or your favorite CDF lawyer

About CDF

For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

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About the Editor in Chief

Sacramento Office Managing Partner and Chair of CDF’s Traditional Labor Law Practice Group. Mark has been practicing labor and employment law in California for thirty years. His practice has a special emphasis on the representation of California employers in union-management relations and handling federal and state court litigation and administrative matters triggered by all types of employment-related disputes. He is also adept at providing creative and practical legal advice to help minimize the risks inherent in employing workers in California. He recently named “Sacramento Lawyer of the Year” in Employment Law-Management for 2021 by Best Lawyers®.
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