The U.S. Department of Labor (DOL) published 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 (FLSA). While the DOL’s proposed rule may be relevant for businesses with workers outside of the state, California employers are currently subject to a stricter set of rules.
The DOL asserts that its proposed rule is grounded in court decisions that employers have used to classify workers under the FLSA. Specifically, the proposed rule would:
- Reinstate the economic realities test.
- Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
- Require that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
- Revert to the prior 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.
- Rescind the 2021 Independent Contractor Rule.
Keep in mind that the DOL has no statutory authority to define employee classification in a way that is binding on courts, so the proposed rule is more of an interpretation on how the DOL will enforce the FLSA. Plus, the DOL’s proposed rule is essentially the same as the test some courts had previously applied in employee misclassification cases.
Public comment on the DOL’s proposed rule began on October 13 and end on November 28.
What Does This Mean for California Employers?
For the most part, California employers don’t need to concern themselves with this proposed rule, since the much more rigid ABC test is used to determine whether a worker in California is an independent contractor or an employee.
As a reminder, under the ABC test, an individual is presumed to be an employee, unless the company can prove all the following:
- That the worker is free from control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; and
- That the worker performs work that is outside the usual course of the hiring entity’s business; and
- That the worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.
If the hiring entity fails to show that the individual worker satisfies each of the three criteria, the worker is treated as an employee, not an independent contractor.
Remember, public comment on the proposed rule will end on November 28.
Katie Culliton, Editor, CalChamber
CalChamber‘s free white paper, A Roadmap to California’s Worker Classification Law, discusses the ABC test, exceptions to the test and much more (member can read it here). Not a member? See how CalChamber can help you.
