As published on January 10, 2024 and effective as of March 11, 2024, the U.S. Department of Labor (“DOL”) abandoned the two-factor test used from 2021 to 2024 to determine if a worker should be classified as an employee or independent contractor of an employer and reinstated the totality-of-the-circumstances test that the DOL used to such determination prior to 2021 (the “totality test”). The totality test requires every aspect of an employer’s relationship with a worker be considered when determining whether such worker is serving an employer as an employee or an independent contractor. The totality test focuses on the following six factors that were first described in U.S. v. Silk (the “Silk factors”):
1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and potential employer;
3. Degree of permanence of the work relationship;
4. Nature of degree of control;
4. Extent to which the work performed is an integral part of the potential employer’s business; and
6. Skill and initiative.
From 2021 to 2024, the DOL rejected the totality test in favor of a test dependent on what the DOL considered to be the “core factors” – the nature and degree of control over the work and the worker’s opportunity for profit or loss. In applying this two-factor test, the core factors were determinative of a worker’s classification. The DOL indicated that even if other factors contradicted the core factors, it would be “highly unlikely” that these non-core factors would outweigh the core factors. In application, the two-factor test typically resulted in less workers being classified as “employee” than under the totality test.
The Fair Labor Standards Act (“FLSA”) defines an employee as “any individual employed by an employer.” In its most recent publication, the DOL justified its reinstatement of the totality test by noting that the FLSA’s definition of “employee” is meant to be broader than what is traditionally found in common law. Historically, under the totality test, courts consistently held that the Silk factors are not exhaustive, and there could be other considerations that may weigh heavily on worker classification. By reinstating the totality test, the DOL will re-emphasize the Silk factors in favor of considering the totality of the circumstances in determining whether a worker should be classified as an employee or independent contractor.
Understanding the applicable test is important for employers because the FLSA provides broad protections for workers defined as employees, such as the Federal minimum wage, mandatory overtime wages, and protections for workers that file complaints regarding unfair labor practices. The FLSA does not provide those protections, however, for independent contractors. Employers should consider all of the Silk factors when structuring their relationships with workers and understand the impact of its workers being classified as an employee rather than independent contractor under the FLSA.
Sources:
89 FR 1638, 86 FR 1168
29 CFR 795.110, 29 CFR 795.105
United States v. Silk, 331 U.S. 704 (1947)
The information provided in this article does not, and is not intended to, constitute legal advice; instead, all information, content, and materials are for general informational purposes only.
