US enacts new labor law designed to prevent worker misclassification – JURIST

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The US Department of Labor enacted a final rule Tuesday designed to safeguard workers from misclassification as “independent contractors” rather than “employees.” The new labor rule provides greater clarity for classification under the Fair Labor Standards Act (FLSA).

Generally, the FLSA guarantees employees minimum wage compensation, time-and-a-half for any overtime hours worked, and protections against workplace discrimination or employer retaliation. However, the FLSA does not extend these securities to independent contractors. As such, improper classification of employees as “independent contractors” can strip a worker of essential rights and expose them to exploitation.

The new rule reestablishes a previously used “totality-of-the-circumstances analysis.” More specifically, it outlines six factors useful to gauge economic reality and describes how these factors should be considered in worker classification. The six factors are: (1) 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) skill and initiative.

The new rule annuls the 2021 Independent Contractor Rule, which heavily prioritized considering only two factors – the nature and degree of control over the work and the worker’s opportunity for profit or loss – in determining whether a worker is an independent contractor. Under the new rule, all six factors should be considered equally. According to the US Department of Labor, the new 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.” It will take effect on March 11, 2024.

Acting Secretary of Labor Julie A. Su said in a post on X that the rule “will help create a level playing field for businesses, protect workers from wage theft caused by classification, and affirm the vital role true independent contractors play in our economy by allowing them to thrive.” She also described labor protections as “a promise of a floor beneath which no one should be forced to live and work.”

In the past year, greater worker protections have also been afforded at the state level. For example, the Washington Supreme Court ruled in December 2023 that immigration detainees employed in private facilities are entitled to minimum wage compensation. Additionally, Maine Governor Janet Mills enacted a law granting most workers 12 weeks of paid time off (PTO) for family or medical reasons.

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