US Department of Labor Withdraws Independent Contractor Rule That Never Went Into Effect

Photo by Karolina Grabowska on Pexels.com

By Kathleen Jennings (kjj@wimlaw.com)

Today, to absolutely no one’s surprise, U.S. the Department of Labor formally withdrew the Independent Contractor Rule that had been implemented by the previous administration. The withdrawal is effective on May 6, 2021. After a long, strange trip, the Rule never went into effect. It should be noted, however, that some employer groups have filed a lawsuit seeking undo the withdrawal of the Rule.

Why does this matter? Because the requirements of the Fair Labor Standard Act (FLSA), such as the payment of a minimum wage and overtime, apply to “employees” and not to “independent contractors.” The misclassification of a worker as an “independent contractor” rather than an “employee” could be a very expensive mistake for an employer, which could be liable for unpaid minimum wages and/or overtime (and double the amount if the violation is deemed “willful”) and attorneys’ fees.

Legal Background

The Fair Labor Standards Act (“FLSA” or “Act”) requires all covered employers to pay nonexempt employees at least the federal minimum wage for every hour worked in a non- overtime workweek. In an overtime workweek, for all hours worked in excess of 40 in a workweek, covered employers must pay a nonexempt employee at least one and one-half times the employee’s regular rate. The FLSA also requires covered employers to make, keep, and preserve certain records regarding employees.


The FLSA’s minimum wage and overtime pay requirements apply only to employees. Section 3(e) generally defines “employee” to mean “any individual employed by an employer.” Section 3(d) of the Act defines “employer” to “include[] any person acting directly or indirectly in the interest of an employer in relation to an employee.” Section 3(g) defines “employ” to “include[] to suffer or permit to work.”

The Economic Realities Test

For decades, The DOL, consistent with case law, has applied a multifactor balancing test to assess whether the worker, as a matter of economic reality, is economically dependent on the employer or is in business for him or herself. The DOL and the U.S. Courts of Appeals generally consider and balance the following economic realities factors: the nature and degree of the employer’s control over the work; the permanency of the worker’s relationship with the employer; the degree of skill, initiative, and judgment required for the work; the worker’s investment in equipment or materials necessary for the work; the worker’s opportunity for profit or loss; whether the service rendered by the worker is an integral part of the employer’s business; and the degree of independent business organization and operation.


In withdrawing the Rule, the DOL stated that it would have set forth a new articulation of the economic realities test, elevating two factors (control and opportunity for profit or loss) as “core” factors above the other factors, and designating them as having greater probative value, likely resulting in the classification of a greater number of workers as independent contractors.

This is a big issue for companies that utilize gig workers, who are overwhelmingly classified as independent contractors. The current Secretary of Labor, however, has taken the position that the majority of gig workers should be classified as employees. We’ll have to see how aggressively the DOL intends to pursue this issue.

Pro Tip: The classification of a worker as an independent contractor takes more than simply issuing a 1099. A company needs to carefully apply the economic reality factors to the actual duties and responsibilities of the worker to make that determination. It is best to rely upon the advice of qualified counsel.

Kathleen J. Jennings is an attorney licensed to practice law in Georgia and New York. She graduated from Cornell University, College of Arts & Sciences, with distinction and New York University School of Law. She is a principal in the Atlanta office of Wimberly, Lawson, Steckel, Schneider, & Stine, P.C. and defends employers in employment matters, such as sexual harassment, discrimination, Wage and Hour, OSHA, restrictive covenants, and other employment litigation and provides training and counseling to employers in employment matters. She can be contacted at kjj@wimlaw.com.

Copyright 2021 Kathleen Jennings

The materials available at this blog site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Kathleen J. Jennings and the user or browser. The opinions expressed at or through this site are the opinions of the individual author.

Employee or Independent Contractor? DOL Issues Proposed Worker Classification Rule

Photo by Karolina Grabowska on Pexels.com

By Kathleen J. Jennings (kjj@wimlaw.com)

Worker classification is a hot issue issue right now. The recent California law that classifies most workers as employees has completely upended the gig economy in that state, so it is no surprise that the law is being challenged by a number of business groups.

Under federal law, whether an employer classifies a worker as an employee or an independent contractor can have major economic consequences, especially if the worker is misclassified. For example, wrongly misclassifying an employee as an independent contractor can result in liability under the Fair Labor Standards Act (FLSA) for unpaid minimum wage and/or overtime compensation. Multiplied by two if the misclassification is considered a willful violation of the FLSA.

Today, the U.S. Department of Labor (DOL) announced a proposed rule offering what it claims to be clarity to determine whether a worker is an employee under the Fair Labor Standards Act (FLSA) or an independent contractor.

 In the proposed rule, the DOL would:

  • Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for themselves (independent contractor) or is economically dependent on a putative employer for work (employee);
  • Identify and explain two “core factors,” specifically: (1) the nature and degree of the worker’s control over the work; and (2) the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for themselves;
  • Identify three other factors that may serve as additional guideposts in the analysis including: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer; and (3) whether the work is part of an integrated unit of production; and
  • Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

As a practical matter, this Proposed Rule is intended to be more employer-friendly than the guidance of the previous administration on the same issue. It is not clear if this Proposed Rule will be enacted as a Final Rule before the election. If enacted before the election, a change in administration after the election likely will result in further change.

Kathleen J. Jennings is an attorney licensed to practice law in Georgia and New York. She graduated from Cornell University, College of Arts & Sciences, with distinction and New York University School of Law. She is a principal in the Atlanta office of Wimberly, Lawson, Steckel, Schneider, & Stine, P.C. and defends employers in employment matters, such as sexual harassment, discrimination, Wage and Hour, OSHA, restrictive covenants, and other employment litigation and provides training and counseling to employers in employment matters. She can be contacted at kjj@wimlaw.com.

©2020 Kathleen J. Jennings

The materials available at this blog site are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an attorney-client relationship between Kathleen J. Jennings and the user or browser. The opinions expressed at or through this site are the opinions of the individual author.