U.S. Dept. Of Labor Releases Final Rule To Clarify Worker Status Under The FLSA

On Wednesday, the Department of Labor announced a final rule clarifying the standard for employee versus independent contractor under the Fair Labor Standards Act (FLSA). The effective date of the final rule is March 8, 2021.

Independent contractors are not entitled to the federal minimum wage and overtime pay that covered employees receive under the FLSA.

According to the DOL Wage and Hour Division, the final rule:

— Reaffirms an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).

— Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:

     — The nature and degree of control over the work.

     — The worker’s opportunity for profit or loss based on initiative and/or investment.

— Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:

     — The amount of skill required for the work.

     — The degree of permanence of the working relationship between the worker and the potential employer.

     — Whether the work is part of an integrated unit of production.

— The actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.

— Provides six fact-specific examples applying the factors.

This “midnight” rule could be frozen from taking effect in a memo on Inauguration Day by the incoming Administration. If so, the DOL could allow the rule to take effect, at least temporarily, or rely on an outside party to challenge it in court. The Department could also reopen the rulemaking.

The Small Business Legislative Council (SBLC), of which the Energy Marketers of America (EMA) is a contributing board member, plans to release a more detailed outline of the rule next week, and EMA will include the information in next week’s report.

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