On March 11, 2024, the 2021 Independent Contractor Rule ends and the FLSA Rules Change, making it more difficult to classify individuals as contractors. In sum, since the 1940s, federal courts have analyzed the question of employee or independent contractor status under the FLSA using a multifactor, totality-of-the-circumstances economic reality test, with no factor or factors being dispositive. The courts have examined the economic realities of the employment relationship to determine whether the worker is economically dependent on the employer for work or is in business for themself, even if they have varied slightly in their articulations of the factors. Despite such variation, all courts have looked to the factors first articulated in Silk as useful guideposts while acknowledging that those factors are not exhaustive and should not be applied mechanically.
Employers who have willfully violated the law may be subject to criminal penalties, including fines and imprisonment. The FLSA allows the Department of Labor (“Department”) or an employee to recover back wages and an equal amount in liquidated damages where minimum wage and overtime violations exist. Generally, a 2-year statute of limitations applies to the recovery of back wages and liquidated damages. A 3-year statute of limitations applies in cases involving willful violations.
March 11, 2024 and Beyond:
Learn more about the 6-point Department of Labor’s Application of the Economic Reality Test. The official website and “final rule” information can be found at this website https://www.federalregister.gov/documents/2024/01/10/2024-00067/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act
PS: the first federal lawsuit against this change was filed on Jan 16, 2024. Stay tuned!
The Department of Labor’s Application of the Economic Reality Test
The Department has applied a multifactor economic reality test since the Supreme Court’s opinions in Rutherford and Silk. For example, on June 23, 1949, the Wage and Hour Division (WHD) issued an opinion letter distilling six “primary factors which the Court considered significant” in Rutherford and Silk:
“(1) the extent to which the services in question are an integral part of the `employer’s’ business;
(2) the amount of the so-called `contractor’s’ investment in facilities and equipment;
(3) the nature and degree of control by the principal;
(4) opportunities for profit and loss;
(5) the amount of initiative judgment or foresight required for the success of the claimed independent enterprise; and
(6) permanency of the relation.”
The guidance cautioned that no single factor is controlling, and “ordinarily a definite decision as to whether one is an employee or an independent contractor under the [FLSA] cannot be made in the absence of evidence as to [the worker’s] actual day-to-day working relationship with [their] principal. Clearly a written contract does not always reflect the true situation.”
A brief YouTube can be found here.
