Final independent contractor rule rejects ‘core factor’ test

On January 9, 2024, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) released a final rule—going into effect beginning March 11—that will determine whether a worker can be classified as an independent contractor as opposed to an employee under the Fair Labor Standards Act (FLSA). The 2024 rule modifies regulations by adopting an analysis the agency claims is more consistent with judicial precedent and the FLSA’s text and purpose than the 2021 rule issued by the agency during the final days of the Trump administration.

Background

Under the FLSA, independent contractors in business for themselves don’t qualify for the minimum wage and overtime pay protections that apply to employees. Although the Act doesn’t define the term “independent contractor,” the DOL and the courts have applied the economic reality test since the 1940s to determine whether a worker is an employee or an independent contractor, the ultimate inquiry being whether, as a matter of economic reality, the worker is economically dependent on the employer for work (an employee) or is in business for themselves (an independent contractor).

To assess economic dependence, the DOL and the courts have historically conducted a totality-of-the-circumstances analysis that considers six factors, with no single factor being dispositive or having more weight. The six factors considered include: