The Biden administration has taken action on the definition of “independent contractor” under the federal Fair Labor Standards Act.
Trump’s Department of Labor had announced an employer-friendly five-part test that largely defined an independent contractor’s status based on the level of control and opportunity for profit and loss, which likely would have led to more employees being classified as independent contractors. However, Biden’s DOL announced that this change would not be taking effect and that the federal government would continue to employ with the more restrictive “economic realities” test that courts have traditionally applied.
The Biden administration noted three reasons for the decision:
- The Trump administration’s proposed rule conflicted with the test under the FLSA and its stated purpose, along with court rulings that have interpreted the meaning of the FLSA;
- The way the proposed rule prioritized two “core factors” — the nature and degree of control over the work and the worker’s opportunity for profit or loss — to classify a worker as an independent contractor didn’t align with the way many courts review the totality of the circumstances; and
- The proposed rule would have created a narrower set of factors for analyzing whether a worker should be classified as an independent contractor.
What rule applies right now?
The current test that applies to determine independent contractor status is known as the “economic realities” test. It is based on the totality of the circumstances. Under that test, the DOL determines independent contractor status based on the following factors:
- The extent to which the services rendered are an integral part of the principal’s business;
- The permanency of the relationship between the worker and business;
- The amount of the alleged contractor’s investment in facilities and equipment;
- The nature and degree of control by the principal;
- The alleged contractor’s opportunities for profit and loss;
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor; and
- The degree of independent business organization and operation.
It’s unclear what the future holds for the independent contractor test on the federal level. Although the Biden administration has said that it does not plan to propose a more restrictive test, some observers predict that Biden will seek to further narrow the definition.
In Massachusetts, a more restrictive test known as the “ABC” test, which Biden has been said to support, is already in place.
That test presumes that all workers are employees instead of contractors, and a worker must meet all three of the following factors for a business to classify him or her as an independent contractor:
- The worker is free from the control and direction of the company;
- The worker performs tasks that fall outside of the company’s core service or product; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work they are performing.