On September 22, the U.S. Department of Labor (“DOL”) issued a proposed rule to determine whether a worker is an independent contractor or employee under the federal Fair Labor Standards Act (“FLSA”). The proposed rule adopts an “economic reality” test – meaning the ultimate inquiry is whether workers, as a matter of economic reality, are in business for themselves as opposed to being economically dependent on the potential employer for work. The proposed rule would look at five distinct factors (instead of five or more overlapping factors used by most courts and the Department previously):

1. The nature and degree of the worker’s control over the work;
2. The worker’s opportunity for profit or loss based on initiative and/or investment;
3. The amount of skill required for the work;
4. The degree of permanence of the working relationship between the worker and the potential employer; and
5. Whether the work is part of an integrated unit of production.

Although no one factor is dispositive, the first two are “core factors” that are “afforded greater weight in the analysis than any others.” The other three factors serve as “additional guideposts” in the analysis.

The proposed rule further states that actual practices are entitled to greater weight than what may be contractually or theoretically possible.

The proposed rule is available for review and public comment for 30 days after it is posted in the Federal Register.