Independent Contractor Misclassification and Compliance News November 2024

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we bring you the latest news stories from around the web.

With the Election of Donald Trump, What happens to the Department of Labor’s Independent Contractor Rule?

With the election of Donald Trump in November, companies that engage independent contractors should expect a return to the first Trump administration’s independent contractor rule but should not be worried about the impact of the change.  

In March 2024 the Department of Labor (DOL), under the Biden administration, issued its Independent Contractor Rule (the “Biden Administration Rule”) which said that the classification of a worker was based on the economic realities test that a worker is an independent contractor, as distinguished from an employee, if the worker is, as a matter of economic reality, in business for themself. To determine if a worker was in business for themselves, the Biden Administration Rule identified six factors to determine if a worker was an employee or independent contractor. The six factors are: 

1. Opportunity for profit or loss depending on managerial skill: Evaluates if the worker’s managerial decisions can lead to profit or loss, suggesting independent contractor status.  
2. Investments by the worker and the employer: Considers the nature and extent of the worker’s investment in their business relative to the employer’s investment.  
3. Degree of permanence of the work relationship: Assesses whether the work relationship is indefinite or project-based. A permanent relationship leans toward employee status, while a temporary or project-based relationship suggests independent contractor status.  
4. Nature and degree of control: Looks at the level of control the employer has over the worker’s performance, including work schedules and conditions.  
5. Extent to which the work performed is an integral part of the employer’s business: Determines if the worker’s tasks are central to the employer’s business. Work integral to the business suggests employee status.  
6. Skill and initiative: Considers the worker’s specialized skills and whether they exercise business initiative.  

The Biden rule replaced the Independent Contractor Rule which was issued by the Trump administration DOL (“Trump Administration Rule”) in the waning days of the Trump administration. The Trump Administration Rule also said that the test for the status of a worker was the economic realities test and that whether a worker is an independent contractor or employee depends on if the worker is, as a matter of economic reality, in business for themself. The Trump Administration Rule said that two core factors would determine employee status and three additional factors would be considered if the core factors were not determinative. The core factors were:  

1. The nature and degree of control over the work. 
2. The worker’s opportunity for profit or loss based on initiative and/or investment.

The Trump Administration Rule states that these are the most probative factors to determine if a worker is economically dependent on someone else’s business or is in business for themselves. If the two core factors do not point to the same classification, the following three factors may serve as additional guideposts. The factors are: 

(i) The amount of skill required for the work. 

(ii) The degree of permanence of the working relationship between the worker and the potential employer. 

(iii) Whether the work is part of an integrated unit of production 

Does changing the rule make a difference?

Generally speaking, no. Both the Trump Administration Rule and Biden Administration Rule state that the test is the economic realities test and that a worker is an independent contractor, as distinguished from an employee, if the worker as a matter of economic reality is in business for themself. Both rules have the same standard, but they have slightly different emphases. The Biden Administration Rule considers the totality of the circumstances while the Trump Administration Rule focuses on two factors. In most cases, the determination will be the same. There may be some cases in which the change in emphasis results in a different classification, but none come to mind.  

In addition, both rules are advisory and set forth the DOL’s interpretation of the statute. Courts are not required to adopt the Department of Labor’s interpretation—they are not even required to give deference to the DOL’s interpretation. Courts have considered the classification of workers and developed their own case law, some of which was the basis for the rules. Courts are more likely make decisions in line with their own precedents than either rule. 

Finally, many states have more stringent independent contractor classification statutes, and companies that engage with independent contractors should not expect any less enforcement of state laws.  

For more information, check out our resources page on misclassification and compliance. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.