‘Totality of the circumstances’ test for independent contractor status returns

On October 11, the U.S. Department of Labor (DOL) released a long-anticipated proposed rule that seeks to reinstate the “totality of the circumstances” test used to determine whether an individual is an employee or independent contractor under the Fair Labor Standards Act (FLSA).

Background

To understand the context of the proposed rule, it’s important to provide a quick and exciting review of the governmental rulemaking that got us to this point.

For more than seven decades, the DOL and federal courts across the nation have applied an economic realities test to determine whether a worker is “economically dependent on the employer for work” and, thus, an employee under the FLSA. In determining whether a worker is economically dependent, the DOL and federal courts have historically applied a multifactor “totality of the circumstances test.” While federal courts have differed on the exact factors to be weighed, they have largely settled on six, with no single factor being determinative.

Then, in January 2021, the outgoing Trump administration published a new rule stating that two “core factors”—the nature and degree of the worker’s control over the work and the worker’s opportunity for profit and loss—should be given greater weight than the remaining factors.