Earlier this year, the Department of Labor issued a final rule that went into effect on March 11, 2024, and it has left many attorneys handling labor and employment cases wondering how this rule will affect their practice area. More specifically, how this final rule would affect workers compensation laws regarding misclassifying an individual as an independent contractor as opposed to an employee. However, before we dive into the answer, let’s get into what the final rule is all about.
Department of Labor’s Final Rule
The Department of Labor’s final rule provides guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA). Specifically, the final rule rescinds the 2021 Independent Contractor Rule that was established under the Trump administration and replaces it with guidance for how to analyze employee or independent contractor classification that is more consistent with the FLSA as interpreted by longstanding judicial precedent. Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 89 Fed. Reg. 1639 (Jan. 24, 2024).
In 2021, the Trump administration designated two “core factors” in determining whether someone could be classified as an independent contractor. The Independent Contractor Rule considered worker’s investments and initiative only as part of the opportunity for profit or loss factor and prohibited considering whether the work performed was central or important to the potential employer’s business. Id. at 1638. The factors sought to focus on the level of control the individual had in the relationship and the opportunity for profit or loss.
Currently, under the final rule, the Department of Labor instead relies on the multifactor “economic reality” test used by courts, like the court in Shaw v. Set Enters., Inc., 241 F. Supp. 3d 1318, to determine whether a worker is an employee or independent contractor. The “economic reality” test looks at the relationship between the alleged employee and alleged employer and whether that relationship demonstrates dependence. This test relies on the totality of the circumstances where no one factor is determinative:
(1) opportunity for profit or loss depending on managerial skill;
(2) investments by the worker and the potential employer;
(3) degree of permanence of the work relationship;
(4) nature and degree of control;
(5) extent to which the work performed is an integral part of the potential employer’s business; and
(6) skill and initiative.
Does this final rule affect the analysis for determining worker classification under other laws?
No, the Department of Labor is clear on this as well. The final rule only revises the Department’s interpretation under the FLSA. It has no effect on other laws—federal, state, or local—that use different standards for employee classification. The Department has instructed that the FLSA does not preempt any other laws that protect workers and mandate businesses to comply with all federal, state, and local laws that apply. In Florida, The Florida Workers’ Compensation Act requires most Florida employers to purchase workers’ compensation insurance that covers their employees. Under Chapter 440 of the Florida Statutes, employers who are required to purchase benefits for their employees, are not required to provide coverage for independent contractors unless the employees are construction workers. Hence, in order to succeed in an argument that an individual was misclassified as an independent contractor, four of seven factors provided by the statute must apply. Thus, pursuant to Florida Law someone classified as an independent contractor is not entitled to workers compensation benefits unless the court has determined that the individual is indeed an independent contractor as defined by Chapter 440 of the Florida Statutes. The Department of Labor’s final rule has no effect on this analysis.
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