Breaking News – DOL Issues Long-Awaited Proposed Rule on Employee or Independent Contractor Classification

• DOL states: “Misclassification continues to deny workers’ rightful wages; hurt businesses, economy”
• Seeks to return to longstanding interpretation
• 118-page guidance is similar to Obama administration’s and generally considered to make it harder to classify workers as independent contractors
• Will not codify ABC test

Déjà vu all over again, as the DOL looks reaches back to the Obama era to develop the proposed rule on determining employee or independent contractor status.  For a detailed overview and a link to the full Notice, please continue to our blog.

WASHINGTON – The U.S. Department of Labor will publish a Notice of Proposed Rulemaking on Oct. 13 to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

The proposed rule would provide guidance on classifying workers and seeks to combat employee misclassification. Misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.

The NPRM proposes a framework more consistent with longstanding judicial precedent on which employers have relied to classify workers as employees or independent contractors under the FLSA. The department believes the new rule would preserve essential worker rights and provide consistency for regulated entities.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Specifically, the proposed rule would do the following:

• Align the department’s approach with courts’ FLSA interpretation and the economic reality test.
• Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
• Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
• Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
• Assist with the proper classification of employees and independent contractors under the FLSA.
• Rescind the 2021 Independent Contractor Rule.

The department is responsible for ensuring that employers do not misclassify FLSA-covered workers as independent contractors and deprive them of their legal wage and hour protections. Misclassification denies basic worker protections such as minimum wage and overtime pay and affects a wide range of workers in the home care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others.

Before publication of today’s proposed rulemaking, the department’s Wage and Hour Division considered feedback shared by stakeholders in forums during the summer of 2022 and will now solicit comments on the proposed rule from interested parties. The division encourages all stakeholders to participate in the regulatory process. Comments, which must be submitted from Oct. 13 to Nov. 28, 2022, should be submitted online or in writing to the Division of Regulations, Legislation and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Ave. NW, Washington, DC 20210.

DOL Says “No” to ABC Test

Rumors had surfaced that the DOL might be leaning toward a federal version of the three-pronged ABC test which, to its full extent, requires that a worker be classified as an employee unless the meet all three of the following requirements:

(A) the worker is free from the employer’s control and direction over their work; and

(B) the worker is providing services outside the employer’s usual course of business; and

(C) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

All three prongs of the ABC test are currently required in the following 27 states:

Alaska, Arkansas, California, Connecticut, Delaware, Georgia, Hawaii, Illinois, Indiana, Kansas, Louisiana, Maine, Maryland, Massachusetts, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, Ohio, Oregon, Rhode Island, Tennessee, Utah, Vermont, Washington and West Virginia.

A recent decision, by the U.S. Court of Appeals for the 3rd Circuit (which covers employers in Delaware, New Jersey, Pennsylvania, and the U.S. Virgin Islands) confirmed that the ABC test (long used by the New Jersey DOL) sets forth the proper analysis for determining whether a worker is an employee or an independent contractor under the state’s wage and hour laws.

However, the October 11 proposed rule states that it had considered codifying an ABC test to determine independent contractor status under the FLSA similar to the ABC test adopted under California’s AB5 requirements; but, in its findings states “…the department believes it is legally constrained from adopting an ABC test because the Supreme Court has held that the economic reality test is the applicable standard for determining workers’ classification under the FLSA as an employee or independent contractor.”

“Because the ABC test is inconsistent with Supreme Court precedent interpreting the FLSA, the department believes that it could only implement an ABC test if the Supreme Court revisits its precedent or if Congress passes legislation that alters the applicable analysis under the FLSA.”

Learn More at Our Workplace & Employment Law Update

Learn more about the DOL’s Proposed Rule at our annual employment law update.  For over 40 years, employers have relied on our Workplace & Employment Law Update (WELU) to get prepared for the coming year. In this full-day virtual event via Zoom, participants receive valuable insights they need the new laws, trends and best practices organizations must implement to protect itself and develop employees.

For more information and registration, visit our website:

Workplace & Employment Law Update 2022