U.S. Department of Labor Clarifies Employees vs. Contractors

The U.S. Department of Labor’s final rule affirms that a worker is not an independent contractor if they are, as matter of economic reality, economically dependent on an employer for work. 

Photo: Canva/Automotive Fleet

The U.S. Department of Labor has laid the ground work to help employers distinguish workers as employees versus independent contractors under the Fair Labor Standards Act.

This can help commercial fleet managers determine which category their drivers fall into. Many larger commercial fleets rely on independent contractors — or owner-operators as they’re often referred to in the fleet industry — for things like last-mile deliveries and other services.

Some fleets also use independent contractors for mechanic work.

Why the Rule is in Place

The final rule provides guidance on proper classification and seeks to combat employee misclassification, which impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft, allows some employers to undercut their law-abiding competition, and hurts the economy at-large, the department stated in a press release.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Acting Secretary of Labor Julie Su said. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”

This final rule rescinds the 2021 Independent Contractor Rule which the department believes is not consistent with the law and precedent. 

The guidance provided by the final rule aligns with longstanding judicial precedent on which employers have previously relied to determine a worker’s status as either an employee or independent contractor.

The new rule will preserve essential worker rights and provide consistency for entities covered by the Fair Labor Standards Act. 

The new “independent contractor” rule restores the multifactor analysis used by courts for decades, ensuring that all relevant factors are analyzed to determine whether a worker is an employee or an independent contractor.

About the Final Rule

This final rule affirms that a worker is not an independent contractor if they are, as matter of economic reality, economically dependent on an employer for work. 

The final rule applies the following six factors to analyze employee or independent contractor status under the Fair Labor Standards Act:

  • Any opportunity for profit or loss a worker might have.
  • The financial stake and nature of any resources a worker has invested in the work.
  • The degree of permanence of the work relationship.
  • The degree of control an employer has over the person’s work.
  • Whether the work the person does is essential to the employer’s business.
  • A factor regarding the worker’s skill and initiative.

The new rules may have a huge effect on the drayage trucking industry. Read about one association’s vow to challenge the rules.

What About State Labor Laws?

Per the U.S. Constitution, federal law supersedes state laws. The exception is when state laws offer more rights and protections. This is often the case with labor laws.

The final rule takes effect on March 11, 2024.

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