Department of Labor Sets Forth Own Change to Independent Contractor Classification

As California pushes forward with AB5, subjecting many employers to a stringent test when attempting to classify their workers as independent contractors rather than employees, the US Department of Labor (“DOL”) recently proposed its own change to how workers should be classified. While the California law makes it much more difficult for employers, particularly in the gig economy, to deem their workers to be independent contractors, the proposed DOL change would make independent contractor designations by employers, gig and otherwise, easier.

The new DOL rule, if adopted, would use an “economic reality” test to decide if a worker is an employee or an independent contractor. “The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee).” Unlike California’s new AB5 requirements, the new rule would be more in line with California’s prior Borello test and apply and consider multiple factors, rather than requiring specific stringent requirements be met. The DOL did however provide two factors that would be determinative: “the nature and degree of the employer’s control over the work and the worker’s opportunity for profit or loss based on personal initiative or investment.” The current aim is for the rule to be adopted prior to the end of President Trump’s current term.

The proposed rule represents a clear shift by the federal government away from the types of requirements being put in place by states like California. The federal rule would likely make it far easier for gig economy industries to continue operating as they are, to the extent they are governed by this federal rule, as opposed to state law requirements.

With ever-changing requirements for employers in designating their workers, both federally on the state level, an experienced legal team can help navigate a potentially confusing and ever-evolving time for businesses, particularly with the ever-changing landscape for companies during the current pandemic.