Employee vs. independent contractor rule change up for debate

By Jenny LescohierOctober 12, 2022

Some say the proposed rule will disrupt legitimate independent contractors, which are an essential component of the construction industry

The question of whether construction subcontractors are “employees” is in question once again, sparking debate among industry stakeholders over what that classification means and whether it’s necessary to ensure workers’ rights.

On Oct. 13, the U.S. Department of Labor (DOL) will publish a Notice of Proposed Rulemaking to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

The proposed rule would provide guidance on classifying workers and seeks to combat employee misclassification. According to a release from the DOL, misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses and hurts the economy at-large.

Not everyone agrees. Associated Builders and Contractors (ABC), for example, has issued a statement opposing any change to the rule.

“ABC is deeply disappointed that the Biden DOL is moving forward with a proposed rule that will disrupt legitimate independent contractors, which are an essential component of the construction industry,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs. “Independent contractors provide specialized skills, entrepreneurial opportunities and stability during fluctuations of work common to construction.

“Rescinding the commonsense 2021 final rule will increase the confusion and litigation chaos that has bedeviled the regulated community for years,” Brubeck

Ben Brubeck is vice president of regulatory, labor and state affairs at the Associated Builders and Contractors

continued. “Any effort by DOL to undermine the use of independent contractors in the rulemaking will likely be challenged by ABC and other stakeholders.”

The DOL release states the NPRM proposes a framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA. The department believes the new rule would preserve essential worker rights and provide consistency for regulated entities.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Specifically, the proposed rule would do the following:

  • Align the department’s approach with courts’ FLSA interpretation and the economic reality test.
  • Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
  • Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
  • Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
  • Assist with the proper classification of employees and independent contractors under the FLSA.
  • Rescind the 2021 Independent Contractor Rule.

Before publication of the proposed rulemaking, the department’s Wage and Hour Division considered feedback shared by stakeholders in forums during the summer of 2022 and will now solicit comments on the proposed rule from interested parties.

Comments, which must be submitted from Oct. 13 to Nov. 28, 2022, should be submitted online or in writing to the Division of Regulations, Legislation and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Ave. NW, Washington, DC 20210.

ABC is one of the co-plaintiffs that successfully sued the Biden administration’s DOL for attempting to delay and rescind the 2021 independent contractor final rule. Under the March 2022 decision issued by the U.S. District Court for the Eastern District of Texas, the 2021 final rule went into effect as scheduled on March 8, 2021, and is currently in effect.

ABC stated it will request an extension to DOL’s Nov. 28, 2022, comment deadline.

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