It’s been more than 80 years since the Fair Labor Standards Act, or the FLSA, was enacted. In that time, the Department of Labor has not adopted a rule defining an independent contractor. This changed last Tuesday when the Department of Labor published a new proposed rule providing clarity for millions of workers across the country. Independent contractors serve a vital role in this economy for entrepreneurs and businesses while also providing necessary flexibility for the workers themselves. In Secretary of Labor Eugene Scalia’s official announcement, he said “The Department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility.”
For years, the Obama administration declined on publishing a regulation, instead choosing to issue rigid guidance without the important notice and comment period required under the Administrative Procedures Act. The Department of Labor under the Trump Administration took the more transparent approach of a formal rule.
Inconsistencies between the various federal courts in this country have created uncertainty for business owners. Complicated interpretations of FLSA and a patchwork of anti-business legislation in a few states is resolved with this important proposed rule. The proposed rule concerns five factors, but focuses on two core factors—a worker’s control over her work and the opportunity for profit or loss resulting from the worker’s own investment or initiative. The American way.
Common sense tells us that there is a difference between a worker economically dependent on someone else’s business and a worker who is in business for themselves and sets their own schedule. This is called an “economic reality” test and explains the “inquiry into economic dependence is conducted through application of several factors, with no one factor being dispositive, and that actual practices are entitled to greater weight than what may be contractually or theoretically possible.” It’s important to give greater weight to the control a worker has over their work and their opportunity for profit or loss because these factors best demonstrate whether a worker is economically dependent or their own boss. And this is a smart rule because people like being their own boss.
Overwhelming, the majority of independent contractors prefer their work arrangements. Flexible work schedules allow independent contractors the opportunity to spend more time with their families and loved ones. Workers with additional health care needs that may prevent participation in the workforce can generate income that would normally be unavailable. A constant struggle for single parents is finding the right balance between work and parenting – something remedied with much more ease as an independent contractor.
With the rise of rideshare apps and the exponential explosion of “gig” economy workers, questions about the status of these workers emerged. Are they employees or self-employed independent contractors that get to choose when to work and for how long? These questions are answered by this important proposed rule.
Setting aside the enormous value to individuals, their families, and the economy by allowing workers to engage in work as an independent contractor, it’s important to recognize the need for enhanced flexibility during the COVID-19 pandemic. The ability for workers to be confident in their self-employed earning capabilities is now more important than ever. The proposed rule empowers entrepreneurs, making it easier for people to engage in flexible work and ultimately helps people from all walks of life to become their own boss.