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Worker classification just got as complicated as Ross and Rachel’s relationship status on ‘Friends’! Last month, the U.S. Department of Labor (DOL) issued a new rule on how to classify employees and independent contractors under the Fair Labor Standards Act (FLSA).

Moving forward, the DOL will use a multifactor, “totality-of-the-circumstances” test to determine whether a worker classifies as an employee or independent contractor. Under the new rule, employers must weigh the following six factors, without giving greater weight to any individual factor:

  1. the worker’s opportunity for profit or loss depending on managerial skill;
  2. investments by the worker and the potential employer;
  3. the degree of permanence of the work relationship;
  4. the nature and degree of control;
  5. the extent to which the work performed is an integral part of the potential employer’s business; and
  6. the worker’s skill and initiative.

The new rule goes into effect on March 11, 2024 and rescinds the 2021 Independent Contractor Rule, which streamlined the classification process by prioritizing two key factors instead of six: the nature and degree of control over the worker and the worker’s opportunity for profit or loss.

Predictably, critics have already challenged the new rule as vague and amorphous. A group of freelancer writers and editors recently launched a federal lawsuit against the DOL in the Northern District of Georgia, claiming that the new rule provides “no useful guidance” to businesses for purposes of complying with the FLSA and enables the DOL to “label anyone performing services for another company to be deemed an ‘employee’ under essentially any circumstance.”

Employers can expect to see more of these worker misclassification claims moving forward and should consider taking proactive steps to mitigate any claims. Specifically, employers should ensure their agreements with workers clearly establish their status and comply with all applicable federal, state, and local laws regarding worker classification. While the DOL’s new rule is not binding, many states may have their own classification tests that employers may need to follow.

If you have any questions regarding worker classification and the DOL’s new standard, reach out to counsel for assistance.