Independent Contractor Status Under the Fair Labor Standards Act

CourtLabor Department,Wage And Hour Division
Citation86 FR 1168
Published date07 January 2021
Record Number2020-29274
1168
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 780, 788 and 795
RIN 1235–AA34
Independent Contractor Status Under
the Fair Labor Standards Act
AGENCY
: Wage and Hour Division,
Department of Labor.
ACTION
: Final rule.
SUMMARY
: The U.S. Department of Labor
(the Department) is revising its
interpretation of independent contractor
status under the Fair Labor Standards
Act (FLSA or the Act) to promote
certainty for stakeholders, reduce
litigation, and encourage innovation in
the economy.
DATES
: This final rule is effective on
March 8, 2021.
FOR FURTHER INFORMATION CONTACT
:
Amy DeBisschop, Division of
Regulations, Legislation, and
Interpretation, Wage and Hour Division
(WHD), U.S. Department of Labor, Room
S–3502, 200 Constitution Avenue NW,
Washington, DC 20210; telephone: (202)
693–0406 (this is not a toll-free
number). Copies of this final rule may
be obtained in alternative formats (Large
Print, Braille, Audio Tape, or Disc),
upon request, by calling (202) 693–0675
(this is not a toll-free number). TTY/
TDD callers may dial toll-free 1–877–
889–5627 to obtain information or
request materials in alternative formats.
Questions of interpretation and/or
enforcement of the agency’s regulations
may be directed to the nearest WHD
district office. Locate the nearest office
by calling WHD’s toll-free help line at
(866) 4US–WAGE ((866) 487–9243)
between 8 a.m. and 5 p.m. in your local
time zone, or logging onto WHD’s
website for a nationwide listing of WHD
district and area offices at http://
www.dol.gov/whd/america2.htm.
SUPPLEMENTARY INFORMATION
:
I. Executive Summary
The FLSA requires covered employers
to pay their nonexempt employees at
least the Federal minimum wage for
every hour worked and overtime pay for
every hour worked over 40 in a
workweek, and it mandates that
employers keep certain records
regarding their employees. A worker
who performs services for an individual
or entity (‘‘person’’ as defined in the
Act) as an independent contractor,
however, is not that person’s employee
under the Act. Thus, the FLSA does not
require such person to pay an
independent contractor either the
minimum wage or overtime pay, nor
does it require that person to keep
records regarding that independent
contractor. The Act does not define the
term ‘‘independent contractor,’’ but it
defines ‘‘employer’’ as ‘‘any person
acting directly or indirectly in the
interest of an employer in relation to an
employee,’’ 29 U.S.C. 203(d),
‘‘employee’’ as ‘‘any individual
employed by an employer,’’ id. at 203(e)
(subject to certain exceptions), and
‘‘employ’’ as ‘‘includ[ing] to suffer or
permit to work,’’ id. at 203(g). Courts
and the Department have long
interpreted the ‘‘suffer or permit’’
standard to require an evaluation of the
extent of the worker’s economic
dependence on the potential
employer—i.e., the putative employer or
alleged employer—and have developed
a multifactor test to analyze whether a
worker is an employee or an
independent contractor under the FLSA.
The ultimate inquiry is whether, as a
matter of economic reality, the worker is
dependent on a particular individual,
business, or organization for work (and
is thus an employee) or is in business
for him- or herself (and is thus an
independent contractor).
This economic realities test and its
component factors have not always been
sufficiently explained or consistently
articulated by courts or the Department,
resulting in uncertainty among the
regulated community. The Department
believes that a clear articulation will
lead to increased precision and
predictability in the economic reality
test’s application, which will in turn
benefit workers and businesses and
encourage innovation and flexibility in
the economy. Accordingly, earlier this
year the Department proposed to
introduce a new part to Title 29 of the
Code of Federal Regulations setting
forth its interpretation of whether
workers are ‘‘employees’’ or
independent contractors under the Act.
Having received and reviewed the
comments to its proposal, the
Department now adopts as a final rule
the interpretive guidance set forth in the
Notice of Proposed Rulemaking (NPRM)
(85 FR 60600) largely as proposed. This
regulatory guidance adopts general
interpretations to which courts and the
Department have long adhered. For
example, the final rule explains that
independent contractors are workers
who, as a matter of economic reality, are
in business for themselves as opposed to
being economically dependent on the
potential employer for work. The final
rule also explains that the inquiry into
economic dependence is conducted by
applying several factors, with no one
factor being dispositive, and that actual
practices are entitled to greater weight
than what may be contractually or
theoretically possible. The final rule
sharpens this inquiry into five distinct
factors, instead of the five or more
overlapping factors used by most courts
and previously the Department.
Moreover, consistent with the FLSA’s
text, its purpose, and the Department’s
experience administering and enforcing
the Act, the final rule explains that two
of those factors—(1) the nature and
degree of the worker’s control over the
work and (2) the worker’s opportunity
for profit or loss—are more probative of
the question of economic dependence or
lack thereof than other factors, and thus
typically carry greater weight in the
analysis than any others.
The regulatory guidance promulgated
in this final rule regarding independent
contractor status under the FLSA is
generally applicable across all
industries. As such, it replaces the
Department’s previous interpretations of
independent contractor status under the
FLSA which applied only in certain
contexts, found at 29 CFR 780.330(b)
(interpreting independent contractor
status under the FLSA for tenants and
sharecroppers) and 29 CFR 788.16(a)
(interpreting independent contractor
status under the FLSA for certain
forestry and logging workers). The
Department believes this final rule will
significantly clarify to stakeholders how
to distinguish between employees and
independent contractors under the Act.
This final rule is considered to be an
Executive Order 13771 deregulatory
action. Details on the estimated
increased efficiency and cost savings of
this rule can be found in the regulatory
impact analysis (RIA) in section VI.
II. Background
A. Relevant FLSA Definitions
Enacted in 1938, the FLSA requires
that, among other things, covered
employers pay their nonexempt
employees at least the Federal minimum
wage for every hour worked and
overtime pay for every hour worked
over 40 in a workweek, and it mandates
that employers keep certain records
regarding their employees. See 29 U.S.C.
206(a), 207(a) (minimum wage and
overtime pay requirements); 29 U.S.C.
211(c) (recordkeeping requirements).
The FLSA does not define the term
‘‘independent contractor.’’ The Act
defines ‘‘employer’’ in section 3(d) to
‘‘include[ ] any person acting directly or
indirectly in the interest of an employer
in relation to an employee,’’
‘‘employee’’ in section 3(e)(1) to mean,
subject to certain exceptions, ‘‘any
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29 U.S.C. 203(d), (e), (g). The Act defines a
‘‘person’’ as ‘‘an individual, partnership,
association, corporation, business trust, legal
representative, or any organized group of persons.’’
29 U.S.C. 203(a).
2
For example, the Court noted that the
slaughterhouse workers performed unskilled work
‘‘on the production line.’’ 331 U.S. at 730. ‘‘The
premises and equipment of [the employer] were
used for the work,’’ indicating little investment by
the workers. Id. ‘‘The group had no business
organization that could or did shift as a unit from
one slaughter-house to another,’’ indicating a
permanent work arrangement. Id. ‘‘The managing
official of the plant kept close touch on the
operation,’’ indicating control by the alleged
employer. Id. And ‘‘[w]hile profits to the boners
depended upon the efficiency of their work, it was
more like piecework than an enterprise that actually
depended for success upon the initiative, judgment
or foresight of the typical independent contractor.’’
Id.
3
The Treasury proposal was never finalized
because Congress amended the SSA to foreclose the
proposal.
individual employed by an employer,’’
and ‘‘employ’’ in section 3(g) to include
‘‘to suffer or permit to work.’’
1
The
Supreme Court has recognized that
‘‘there is in the [FLSA] no definition
that solves problems as to the limits of
the employer-employee relationship
under the Act.’’ Rutherford Food Corp.
v. McComb, 331 U.S. 722, 728 (1947).
The Supreme Court has interpreted
the ‘‘suffer or permit’’ language to define
FLSA employment to be broad and more
inclusive than the common law
standard. See Nationwide Mut. Ins. Co.
v. Darden, 503 U.S. 318, 326 (1992).
However, the Court also recognized that
the Act’s ‘‘statutory definition[s] . . .
have [their] limits.’’ Tony & Susan
Alamo Found. v. Sec’y of Labor, 471
U.S. 290, 295 (1985) (internal citation
omitted); see also Walling v. Portland
Terminal Co., 330 U.S. 148, 152 (1947)
(‘‘The definition ‘suffer or permit to
work’ was obviously not intended to
stamp all persons as employees.’’). The
Supreme Court specifically recognized
that ‘‘[t]here may be independent
contractors who take part in production
or distribution who would alone be
responsible for the wages and hours of
their own employees.’’ Rutherford Food,
331 U.S. at 729. Accordingly, Federal
courts of appeals have uniformly held,
and the Department has consistently
maintained, that independent
contractors are not ‘‘employees’’ for
purposes of the FLSA. See, e.g., Saleem
v. Corporate Transp. Group, Ltd., 854
F.3d 131, 139–40 (2d Cir. 2017); Karlson
v. Action Process Serv. & Private
Investigation, LLC, 860 F.3d 1089, 1092
(8th Cir. 2017).
B. Economic Dependence and the
Economic Reality Test
1. Supreme Court Development of the
Economic Reality Test
As the NPRM explained, the U.S.
Supreme Court explored the limits of
the employer-employee relationship in a
series of cases from 1944 to 1947 under
three different Federal statutes: The
FLSA, the National Labor Relations Act
(NLRA), and the Social Security Act
(SSA). 85 FR 60601 (summarizing NLRB
v. Hearst Publications, Inc., 322 U.S.
111 (1944); United States v. Silk, 331
U.S. 704 (1947); Bartels v. Birmingham,
332 U.S. 126 (1947); and Rutherford
Food, 331 U.S. 722)).
In Hearst, the Supreme Court held
that the NLRA’s definition of
employment was broader than that of
the common law. 322 U.S. 123–25.
Congress responded by amending the
definition of employment under the
NLRA on June 23, 1947, ‘‘with the
obvious purpose of hav[ing] the
[National Labor Relations] Board and
the courts apply general agency
principles in distinguishing between
employees and independent contractors
under the [NLRA].’’ NLRB v. United Ins.
Co. of Am., 390 U.S. 254, 256 (1968).
On June 16, 1947, one week before
Congress amended the NLRA in
response to Hearst, the Supreme Court
decided Silk, which addressed the
distinction between employees and
independent contractors under the SSA.
In that case, the Court relied on Hearst
to hold that ‘‘economic reality,’’ as
opposed to ‘‘technical concepts’’ of the
common law standard alone, determines
workers’ classification. 331 U.S. at 712–
14. Although the Court found it to be
‘‘quite impossible to extract from the
[SSA] a rule of thumb to define the
limits of the employer-employe[e]
relationship,’’ it identified five factors as
‘‘important for decision’’: ‘‘degrees of
control, opportunities for profit or loss,
investment in facilities, permanency of
relation[,] and skill required in the
claimed independent operation.’’ Id. at
716. The Court added that ‘‘[n]o one
[factor] is controlling nor is the list
complete.’’ Id. One week after Silk and
on the same day Congress amended the
NLRA, the Court reiterated these five
factors in Bartels, another case involving
employee or independent contractor
status under the SSA. In Bartels, the
Court explained that under the SSA,
employee status ‘‘was not to be
determined solely by the idea of control
which an alleged employer may or
could exercise over the details of the
service rendered to his business by the
worker.’’ Id. Although ‘‘control is
characteristically associated with the
employer-employee relationship,’’
employees under ‘‘social legislation’’
such as the SSA are ‘‘those who as a
matter of economic reality are
dependent upon the business to which
they render service.’’ Id.
The same day as it decided Silk, the
Court ruled in Rutherford Food that
certain workers at a slaughterhouse
were employees under the FLSA, and
not independent contractors, by
examining facts pertaining to the five
factors identified in Silk.
2
The Court
also considered whether the work was
‘‘a part of the integrated unit of
production’’ (meaning whether the
putative independent contractors were
integrated into the assembly line
alongside the company’s employees) to
assess whether they were employees or
independent contractors under the
FLSA. Id. at 729–730.
In November 1947, five months after
Silk and Rutherford Food, the
Department of the Treasury (Treasury)
proposed regulations r defining when an
individual was an independent
contractor or employee under the SSA,
which used a test that balanced the
following factors:
1. Degree of control of the individual;
2. Permanency of relation;
3. Integration of the individual’s work
in the business to which he renders
service;
4. Skill required by the individual;
5. Investment by the individual in
facilities for work; and
6. Opportunity of the individual for
profit or loss.
12 FR 7966. Factors one, two, and four
through six corresponded directly with
the five factors identified as being
‘‘important for decision’’ in Silk, 331
U.S. at 716, and the third factor
corresponded with Rutherford Food’s
consideration of the fact that the
workers were ‘‘part of an integrated unit
of production.’’ 331 U.S. at 729. The
Treasury proposal further relied on
Bartels, 332 U.S. at 130, to apply these
factors to determine whether a worker
was ‘‘dependent as a matter of economic
reality upon the business to which he
renders services.’’ 12 FR 7966.
3
Congress replaced the interpretations
of the definitions of ‘‘employee’’
adopted in Hearst for the NLRA and in
Silk and Bartels for the SSA ‘‘to
demonstrate that the usual common-law
principles were the keys to meaning.’’
Darden, 503 U.S. at 324–25. However,
Congress did not similarly amend the
FLSA. Thus, the Supreme Court stated
in Darden that the scope of employment
under the FLSA remains broader than
that under common law and is
determined not by the common law but
instead by the economic reality of the
relationship at issue. See id. Since
implicitly doing so in Rutherford Food,
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As explained below, versions of this multifactor
economic realty test have also been enforced and
articulated by the Department in subregulatory
guidance since the 1950s.
the Court has not again applied (or
rejected the application of) the Silk
factors to an FLSA classification
question.
2. Application of the Economic Reality
Test by Federal Courts of Appeals
As the NPRM explained, in the 1970s
and 1980s Federal courts of appeals
began to adopt versions of a multifactor
‘‘economic reality’’ test based on Silk,
Rutherford Food, and Bartels and
similar to Treasury’s 1947 proposed
SSA regulation to analyze whether a
worker was an employee or an
independent contractor under the FLSA.
See 85 FR 60603.
4
Drawing on the
Supreme Court precedent discussed
above, courts have recognized that the
heart of the inquiry is whether ‘‘as a
matter of economic reality’’ the workers
are ‘‘dependent upon the business to
which they render service.’’ Usery v.
Pilgrim Equip. Co., 527 F.2d 1308, 1311
(5th Cir. 1976) (quoting Bartels, 332 U.S.
at 130). Some courts have clarified that
this question of economic dependence
may be boiled down to asking ‘‘whether,
as a matter of economic reality, the
workers depend upon someone else’s
business for the opportunity to render
service or are in business for
themselves.’’ Saleem, 854 F.3d at 139
(internal quotation marks and citations
omitted). Courts have also explained
that a non-exhaustive set of factors—
derived from Silk and Rutherford
Food—shape and guide this inquiry.
See, e.g., Usery, 527 F.2d at 1311
(identifying ‘‘[f]ive considerations
[which] have been set out as aids to
making the determination of
dependence, vel non’’); Real v. Driscoll
Strawberry Assocs., Inc., 603 F.2d 748,
754 (9th Cir. 1979) (articulating a six-
factor test).
In Driscoll, the Ninth Circuit Court of
Appeals described its six-factor test as
follows:
1. The degree of the alleged
employer’s right to control the manner
in which the work is to be performed;
2. the alleged employee’s opportunity
for profit or loss depending on his
managerial skill;
3. the alleged employee’s investment
in equipment or materials required for
his task, or his employment of helpers;
4. whether the service rendered
requires a special skill;
5. the degree of permanency of the
working relationship; and
6. whether the service rendered is an
integral part of the alleged employer’s
business. Id. at 754.
Most courts of appeals articulate a
similar test, but application between
courts may vary significantly. Compare,
e.g., Sec’y of Labor v. Lauritzen, 835
F.2d 1529, 1534–35 (7th Cir. 1987)
(applying six-factor economic reality
test to hold that pickle pickers were
employees under the FLSA), with
Donovan v. Brandel, 736 F.2d 1114,
1117 (6th Cir. 1984) (applying the same
six-factor economic reality test to hold
that pickle pickers were not employees
under the FLSA). For example, the
Second Circuit has analyzed
opportunity for profit or loss and
investment (the second and third factors
listed above) together as one factor. See,
e.g., Brock v. Superior Care, Inc., 840
F.2d 1054, 1058 (2d Cir. 1988). The
Fifth Circuit has not adopted the sixth
factor listed above, which analyzes the
integrality of the work, as part of its
standard, see, e.g., Usery, 527 F.2d at
1311, but has at times assessed
integrality as an additional factor, see,
e.g. Hobbs v. Petroplex Pipe & Constr.,
Inc., 946 F.3d 824, 836 (5th Cir. 2020).
The NPRM highlighted noteworthy
modifications some courts of appeals
have made to the economic reality
factors as originally articulated in 1947
by the Supreme Court. See 85 FR
60603–04. First, the ‘‘skill required’’
factor identified in Silk, 331 U.S. at 716,
is now articulated more expansively by
some courts to include ‘‘initiative.’’ See,
e.g., Parrish, 917 F.3d at 379 (‘‘the skill
and initiative required in performing the
job’’); Karlson, 860 F.3d at 1093 (same);
Superior Care, 840 F.2d at 1058–59
(‘‘the degree of skill and independent
initiative required to perform the
work’’).
Second, Silk analyzed workers’
investments, 331 U.S. at 717–19.
However, the Fifth Circuit has revised
the ‘‘investment’’ factor to instead
consider ‘‘the extent of the relative
investments of the worker and the
alleged employer.’’ Hopkins, 545 F.3d at
343. Some other circuits have adopted
this ‘‘relative investment’’ approach but
continue to use the phrase ‘‘worker’s
investment’’ to describe the factor. See,
e.g., Keller v. Miri Microsystems LLC,
781 F.3d 799, 810 (6th Cir. 2015); Dole
v. Snell, 875 F.2d 802, 805 (10th Cir.
1989).
Third, although the permanence
factor under Silk was understood to
mean the continuity and duration of
working relationships, see 12 FR 7967,
some courts of appeals have expanded
this factor to also consider the
exclusivity of such relationships. See,
e.g., Scantland, 721 F.3d at 1319; Keller,
781 F.3d at 807.
Finally, Rutherford Food’s
consideration of whether work is ‘‘part
of an integrated unit of production,’’ 331
U.S. at 729, has now been replaced by
many courts of appeals by consideration
of whether the service rendered is
‘‘integral,’’ which those courts have
applied as meaning important or central
to the potential employer’s business.
See, e.g., Verma v. 3001 Castor, Inc., 937
F.3d 221, 229 (3rd Cir. 2019)
(concluding that workers’ services were
integral because they were the providers
of the business’s ‘‘primary offering’’);
Acosta v. Off Duty Police Servs., Inc.,
915 F.3d 1050, 1055 (6th Cir. 2019)
(concluding that services provided by
workers were ‘‘integral’’ because the
putative employer ‘‘built its business
around’’ those services); McFeeley v.
Jackson Street Entertainment, LLC, 825
F.3d 235, 244 (4th Cir. 2016)
(considering ‘‘the importance of the
services rendered to the company’s
business’’).
Courts of appeals have cautioned
against the ‘‘mechanical application’’ of
the economic reality factors. See, e.g.,
Saleem, 854 F.3d at 139. ‘‘Rather, each
factor is a tool used to gauge the
economic dependence of the alleged
employee, and each must be applied
with this ultimate concept in mind.’’
Hopkins, 545 F.3d at 343. Further,
courts of appeals make clear that the
analysis should draw from the totality of
circumstances, with no single factor
being determinative by itself. See, e.g.,
Keller, 781 F.3d at 807 (‘‘No one factor
is determinative.’’); Baker, 137 F.3d at
1440 (‘‘None of the factors alone is
dispositive; instead, the court must
employ a totality-of-the-circumstances
approach.’’).
3. Application of the Economic Reality
Test by WHD
Since at least 1954, WHD has applied
variations of this multifactor analysis
when considering whether a worker is
an employee under the FLSA or an
independent contractor. See WHD
Opinion Letter (Aug. 13, 1954)
(applying six factors very similar to the
six economic reality factors currently
used by courts of appeals). In 1964,
WHD stated, ‘‘The Supreme Court has
made it clear that an employee, as
distinguished from a person who is
engaged in a business of his own, is one
who as a matter of economic reality
follows the usual path of an employee
and is dependent on the business which
he serves.’’ WHD Opinion Letter FLSA–
795 (Sept. 30, 1964).
Over the years since, WHD has issued
numerous opinion letters applying a
multifactor analysis very similar to the
multifactor economic reality test courts
use (with some variation) to determine
whether workers are employees or
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See, e.g., WHD Opinion Letter FLSA2019–6 at
4 (Apr. 29, 2019); WHD Opinion Letter, 2002 WL
32406602, at *2 (Sept. 5, 2002); WHD Opinion
Letter, 2000 WL 34444342, at *3 (Dec. 7, 2000);
WHD Opinion Letter, 2000 WL 34444352, at *1 (Jul.
5, 2000); WHD Opinion Letter, 1999 WL 1788137,
at *1 (Jul. 12, 1999); WHD Opinion Letter, 1995 WL
1032489, at *1 (June 5, 1995); WHD Opinion Letter,
1995 WL 1032469, at *1 (Mar. 2, 1995); WHD
Opinion Letter, 1986 WL 740454, at *1 (June 23,
1986); WHD Opinion Letter, 1986 WL 1171083, at
*1 (Jan. 14, 1986); WHD Opinion Letter WH–476,
1978 WL 51437, at *2 (Oct. 19, 1978); WHD
Opinion Letter WH–361, 1975 WL 40984, at *1
(Oct. 1, 1975); WHD Opinion Letter (Sept. 12, 1969);
WHD Opinion Letter (Oct. 12, 1965).
6
Fact Sheet #13 is available at https://
www.dol.gov/sites/dolgov/files/WHD/legacy/files/
whdfs13.pdf.
independent contractors.
5
WHD has also
promulgated regulations applying a
multifactor analysis for independent
contractor status under the FLSA in
certain specific industries. See, e.g., 29
CFR 780.330(b) (applying a six factor
economic reality test to determine
whether a sharecropper or tenant is an
independent contractor or employee
under the Act); 29 CFR 788.16(a)
(applying a six factor economic reality
test in forestry and logging operations
with no more than eight employees).
Further, WHD has promulgated a
regulation applying a multifactor
economic reality analysis for
determining independent contractor
status under the Migrant and Seasonal
Agricultural Worker Protection Act
(MSPA). 29 CFR 500.20(h)(4).
The Department’s sub-regulatory
guidance, WHD Fact Sheet #13,
‘‘Employment Relationship under the
Fair Labor Standards Act (FLSA)’’ (Jul.
2008), similarly stated that, when
determining whether an employment
relationship exists under the FLSA,
common law control is not the exclusive
consideration. Instead, ‘‘it is the total
activity or situation which controls’’;
and ‘‘an employee, as distinguished
from a person who is engaged in a
business of his or her own, is one who,
as a matter of economic reality, follows
the usual path of an employee and is
dependent on the business which he or
she serves.’’
6
The fact sheet identified
seven economic reality factors; in
addition to factors that are similar to the
six factors identified above, it also
considered the worker’s ‘‘degree of
independent business organization and
operation.’’ On July 15, 2015, WHD
issued Administrator’s Interpretation
No. 2015–1, ‘‘The Application of the
Fair Labor Standards Act’s ‘Suffer or
Permit’ Standard in the Identification of
Employees Who Are Misclassified as
Independent Contractors’’ (AI 2015–1).
AI 2015–1 provided guidance regarding
the employment relationship under the
FLSA and the application of the six
economic realities factors. AI 2015–1
was withdrawn on June 7, 2017 and is
no longer in effect.
WHD’s most recent opinion letter
addressing this issue, from 2019,
generally applied the principles and
factors similar to those described in the
prior opinion letters and Fact Sheet #13,
but not the ‘‘independent business
organization’’ factor because it did not
add to the analysis as a separate factor
and was ‘‘[e]ncompassed within’’ the
other factors. It also stated that the
investment factor should focus on the
‘‘amount of the worker’s investment in
facilities, equipment, or helpers.’’ The
opinion letter addressed the FLSA
classification of service providers who
used a virtual marketplace company to
be referred to end-market consumers to
whom the services were actually
provided. WHD concluded that the
service providers appeared to be
independent contractors and not
employees of the virtual marketplace
company. See WHD Opinion Letter
FLSA2019–6 at 7. WHD found that it
was ‘‘inherently difficult to
conceptualize the service providers’
‘working relationship’ with [the virtual
marketplace company], because as a
matter of economic reality, they are
working for the consumer, not [the
company].’’ Id. Because ‘‘[t]he facts . . .
demonstrate economic independence,
rather than economic dependence, in
the working relationship between [the
virtual marketplace company] and its
service providers,’’ WHD opined that
they were not employees of the
company under the FLSA but rather
were independent contractors. Id. at 9.
As explained below, the Department’s
prior interpretations of independent
contractor status, which themselves
have evolved over time, are subject to
similar limitations as that of court
opinions, and the Department believes
that stakeholders would benefit from
clarification. For these reasons, the
Department proposed promulgating a
clearer and more consistent standard for
evaluating whether a worker is an
employee or independent contractor
under the FLSA and is now finalizing
that proposal, with some modifications
based on comments received.
C. The Department’s Proposal
On September 25, 2020, the
Department published the NPRM in the
Federal Register. The Department
proposed to adopt an ‘‘economic
reality’’ test to determine a worker’s
status as an FLSA employee or an
independent contractor. The test
considers whether a worker is in
business for himself or herself
(independent contractor) or is instead
economically dependent on an
employer for work (employee). The
Department further identified two ‘‘core
factors’’: The nature and degree of the
worker’s control over the work; and the
worker’s opportunity for profit or loss
based on initiative, investment, or both.
The Department explained it was
proposing to emphasize these factors
because they are the most probative of
whether workers are economically
dependent on someone else’s business
or are in business for themselves. The
proposal identified three other factors to
also be considered, though they are less
probative than the core factors: The
amount of skill required for the work,
the degree of permanence of the
working relationship between the
individual and the potential employer,
and whether the work is part of an
integrated unit of production. The
Department further proposed to advise
that the actual practice is more
probative than what may be
contractually or theoretically possible in
determining whether a worker is an
employee or an independent contractor.
D. Comments
The Department solicited comments
on all aspects of the proposed rule.
More than 1800 individuals and
organizations timely commented on the
Department’s NPRM during the thirty-
day comment period that ended on
October 26, 2020. The Department
received comments from employers,
workers, industry associations, worker
advocacy groups, and unions, among
others. All timely comments may be
viewed at the website
www.regulations.gov, docket ID WHD–
2020–0007.
Of the comments received, the
Department received approximately 230
comments from workers who identified
themselves as independent contractors
(not including the over 900 comments
received from Uber drivers discussed
below). Of those, the overwhelming
majority expressed support for the
NPRM. These individuals identified
themselves as freelancers or
independent contractors in jobs
including translator, journalist,
consultant, musician, and many others.
Among this group of commenters, over
200 expressed support for the proposed
rule, while only 8 opposed it. The
remaining individuals in this group did
not express a specific position. Uber
drivers submitted over 900 comments.
While many expressed views on Uber
corporate policies and not on the NPRM
itself, the majority of these drivers who
addressed the NRPM supported the
Department’s proposal. The Department
also received a number of other
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comments that are beyond the scope of
this rulemaking. For example, several
commenters expressed opinions related
to the issues addressed in the
Department’s proposal but that were
specific to state legislation or employer
policies. Significant issues raised in the
timely comments received are discussed
below, along with the Department’s
response to those comments.
III. Need for Rulemaking
The NPRM explained that the
Department has never promulgated a
generally-applicable regulation
addressing who is an independent
contractor and thus not an employee
under the FLSA. Instead, as described
above, the Department has issued and
revised guidance since at least 1954,
using different variations of a
multifactor economic reality test that
analyzes economic dependence to
distinguish independent contractors
from employees. Such guidance reflects,
in large part, application of the general
principles of the economic reality test
by Federal courts of appeals. Such
guidance, however, did not reflect any
public input. Indeed, the NPRM kicked
off the Department’s first ever notice-
and-comment rulemaking to provide a
generally applicable interpretation of
independent contractor status under the
FLSA. As recounted just above, the
Department received many comments
from stakeholders who are actually
impacted by FLSA classification
decisions, which are valuable
information and insight that the
Department has not previously gathered
and many of which reinforced the
Department’s view that more clarity is
needed in this area.
The Department explained in the
NPRM preamble that prior articulations
of the test have proven to be unclear and
unwieldy for the four following reasons.
First, the test’s overarching concept of
‘‘economic dependence’’ is under-
developed and sometimes
inconsistently applied, rendering it a
source of confusion. Second, the test is
indefinite in that it makes all facts
potentially relevant without guidance
on how to prioritize or balance different
and sometimes competing
considerations. Third, inefficiency and
lack of structure in the test further stem
from blurred boundaries between the
factors. Fourth, these shortcomings have
become more apparent over time as
technology, economic conditions, and
work relationships have evolved.
The Department thus proposed to
promulgate a regulation that would
clarify and sharpen the contours of the
economic reality test used to determine
independent contractor classification
under the FLSA. The NPRM explained
that such a regulation would provide
much needed clarity and encourage (or
at least stop deterring) flexible work
arrangements that benefit both
businesses and workers.
Commenters in the business
community and freelance workers
generally agreed with the Department
that the multifactor balancing test is
confusing and needs clarification. The
National Retail Federation (NRF)
complained that ‘‘existing tests for
independent contractor status tend to
have a large number of factors which
can be nebulous, overlapping, and even
irrelevant to the ultimate inquiry.’’ The
Workplace Policy Institute of Littler
Mendelson, P.C. (WPI) stated that
‘‘[b]oth the Department and the courts
have struggled to define ‘dependence’ ’’
in the modern economy—resulting in
confusion, unpredictability and
inconsistent results.’’ The Society for
Human Resource Management (SHRM)
echoed this sentiment, writing ‘‘the
business community and workers are
left applying numerous factors in a
variety of ways that is mired in
uncertainty and, therefore, unnecessary
risk.’’ The U.S. Chamber of Commerce
stated that ‘‘[t]he confusion regarding
whether a worker is properly classified
as an employee or an independent
contractor has long been a vexing
problem for the business community,
across many different industries and
work settings.’’ See also, e.g., World
Floor Covering Association (WFCA)
(‘‘The current test has resulted in
inconsistent decisions, much confusion,
and unnecessary costs.’’). Numerous
individual freelancers and organizations
that represent freelance workers also
stated they would welcome ‘‘greater
clarity and predictability in the
application of the ‘economic realities’
test.’’ Coalition to Promote Independent
Entrepreneurs (CPIE); see also Coalition
of Practicing Translators & Interpreters
of California (CoPTIC) (requesting
‘‘greater clarity in Federal law’’).
Individual freelancers generally
welcomed greater legal clarity. For
example, one individual commenter
wrote ‘‘to express [her] support for this
proposed rule. As someone who has
enjoyed freedom and flexibility as a
freelancer for 20 years, this would be a
welcome clarification.’’ Another
individual freelancer stated that ‘‘[t]he
clarity and updating of [the FLSA]
through this NPRM is long overdue and
the DOL should issue ruling on
independent contracting. . . .’’
These supportive commenters
generally agreed with the Department
that additional clarity would encourage
flexible work arrangements that benefit
businesses and workers alike. For
example, the Coalition for Workforce
Innovation (CWI) asserted that
additional clarity of the economic
reality test would ‘‘allow workers and
businesses to pursue [ ] mutually
beneficial opportunities as the United
States economy evolves with
technology.’’ Fight for Freelancers
explained that its members value
flexibility that comes with working as
independent contractors and supported
the Department’s ‘‘efforts to protect [its
members’] classification.’’
Some commenters who opposed this
rulemaking questioned the need for a
regulation on this topic. The Southwest
Regional Council of Carpenters
(SWRCC) stated that the ‘‘[t]he first of
the Rule’s shortcomings is its
assumption that a new rule is necessary
in the first place,’’ and the American
Federation of Labor & Congress of
Industrial Organization (AFL–CIO)
asserted that the Department’s ‘‘quest
for certainty . . . is quixotic.’’ Mr.
Edward Tuddenham, an attorney,
contended that the current test is
‘‘generally consistent and predictable’’
and thus does not need further
clarification. He and others repeatedly
questioned the Department’s reasons for
rulemaking by asserting that the
Department did not identify cases where
courts reached incorrect outcomes.
Rather than focus on the outcomes in
particular cases, the NPRM highlighted
inconsistent or confusing reasoning in
many decisions to explain why the
regulated community would benefit
from regulatory clarity. See 85 FR
60605. Mr. Tuddenham and others also
provided thoughtful and detailed
comments criticizing specific aspects of
the reasons presented in the NPRM’s
need for rulemaking discussion. The
following discussion retraces those
reasons and responds to these
criticisms.
A. Confusion Regarding the Meaning of
Economic Dependence
The NPRM explained that
undeveloped analysis and inconsistency
cloud the application of ‘‘economic
dependence,’’ the touchstone of the
economic reality test. 85 FR 60605. The
Department and some courts have
attempted to furnish a measure of clarity
by explaining, for example, that the
proper inquiry is ‘‘ ‘whether the workers
are dependent on a particular business
or organization for their continued
employment’ in that line of business,’’
Brock v. Mr. W Fireworks, Inc., 814 F.2d
1042, 1054 (5th Cir. 1987) (quoting
DialAmerica, 757 F.2d at 1385), or
instead ‘‘are in business for
themselves,’’ Saleem, 854 F.3d at 139.
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7
The Thibault court also highlighted the fact that
Mr. Thibault worked for only 3 months—although
he intended to work for 7 or 8 months—before
being fired. See 612 F.3d at 846, 849. In contrast,
the splicers in Cromwell worked approximately 11
months. See 348 F. App’x at 58.
8
The Thibault case recognized that ‘‘[a]n
individual’s wealth is not a solely dispositive factor
in the economic dependence question.’’ 612 F.3d at
849 n.4. This confirms that wealth was in fact a
meaningful consideration, which runs against other
cases explaining that dependence on wealth is an
inappropriate lens.
But the Department and many courts
have often applied the test without
helpful clarification of the meaning of
the economic dependency that they are
seeking.
The NPRM explained that the lack of
explanation of economic dependence
has sometimes led to inconsistent
approaches and results and highlighted
as an example the apparently
inconsistent results in Cromwell v.
Driftwood Elec. Contractor, Inc., 348 F.
App’x 57 (5th Cir. 2009) (holding that
cable splicers hired by Bellsouth to
perform post-Katrina repairs were
employees), and Thibault v. BellSouth
Telecommunication, 612 F.3d 843 (5th
Cir. 2010) (holding that cable splicer
hired by same company under a very
similar arrangement was an
independent contractor). See 85 FR
60605. The Thibault court distinguished
its result from Cromwell in part by
highlighting Mr. Thibault’s significant
income from (1) his own sales company
that had profits of approximately
$500,000, (2) ‘‘eight drag-race cars [that]
generated $1,478 in income from racing
professionally[,]’’ and (3) ‘‘commercial
rental property that generated some
income.’’ Thibault, 612 F.3d at 849.
While these facts indicate that Mr.
Thibault may have been in business for
himself as a manager of a sales business,
drag-race cars, and commercial
properties, they are irrelevant as to
whether he was in business for himself
as a cable splicer.
7
The Thibault court
nonetheless assigned these facts
substantial weight because it
understood economic dependence to
mean dependence for income or wealth,
which is incompatible with the
dependence-for-work approach that
other courts and the Department
apply.
8
See, e.g., Off Duty Police, 915
F.3d at 1058 (‘‘[W]hether a worker has
more than one source of income says
little about that worker’s employment
status.’’); Halferty, 821 F.2d at 268 (‘‘[I]t
is not dependence in the sense that one
could not survive without the income
from the job that we examine, but
dependence for continued
employment’’); DialAmerica, 757 F.2d
at 1385 (‘‘The economic-dependence
aspect of the [economic reality] test does
not concern whether the workers at
issue depend on the money they earn
for obtaining the necessities of life.’’).
As the DialAmerica court explained, the
dependence-for-income approach
‘‘would lead to a senseless result’’
because a wealthy individual who had
an independent source of income would
be an independent contractor even
though a poorer individual who worked
for the same company under the same
work arrangement is an employee. 757
F.2d at 1385 n.11. Mr. Tuddenham
initially defended the reasoning in
Thibault, but later listed that case as an
example of ‘‘the occasional erroneous
application of the [economic reality]
test.’’
The NPRM also highlighted the
decision in Parrish v. Premier
Directional Drilling, 917 F.3d 369, as an
example of inconsistent articulation of
economic dependence. In that case, the
court first applied a dependence-for-
work concept to analyze the control
factor and then explicitly departed from
that framework in favor of a
dependence-for-income analysis of the
opportunity factor. See 85 FR 60606.
The Parrish court impliedly took a third
concept of dependence to analyze the
investment factor through a ‘‘side-by-
side comparison’’ of each worker’s
individual investment to that of the
alleged employer.’’ 917 F.3d at 383. AI
2015–1 took the same approach and
explained that ‘‘it is the relative
investments that matter’’ because ‘‘[i]f
the worker’s investment is relatively
minor, that suggests that the worker and
the employer are not on similar footing
and that the worker may be
economically dependent on the
employer.’’ The comparative analysis of
investments thus appears to rely on a
concept of economic dependence that
means ‘‘not on a similar footing,’’ which
is different from the ‘‘dependence for
work’’ concept that the Department
believes to be correct.
In summary, courts and the
Department typically economic
dependence as ‘‘dependence for work,’’
but have sometimes applied other
concepts of dependence to analyze
certain factors, such as ‘‘dependence for
income’’ and ‘‘not on similar footing.’’
Because economic dependence is the
ultimate inquiry of FLSA employment,
these different conceptions result in
essentially different tests that confuse
the regulated community. Accordingly,
the economic reality test needs a more
developed and dependable touchstone
at its heart.
B. Lack of Focus in the Multifactor
Balancing Test
The NPRM explained that the
versions of the multifactor economic
reality test used by courts since at least
the 1980s and the Department since the
1950s lack clear, generally applicable
guidance about how to balance the
multiple factors and the countless facts
encompassed therein. See 85 FR
60606.The test’s lack of guidance leads
to uncertainty regarding ‘‘which aspects
of ‘economic reality’ matter, and why.’’
Lauritzen, 835 F.2d at 1539 (Easterbrook
J., concurring).
As examples of such uncertainty, the
NPRM highlighted court decisions
analyzing economic reality factors to
reach an overall decision about a
worker’s classification without
meaningful explanation of how they
balanced the factors to reach the final
decision. 85 FR 60606 (citing, e.g.,
Parrish, 917 F.3d at 380; Chao v. Mid-
Atl. Installation Servs., Inc., 16 F. App’x
104, 108 (4th Cir. 2001); and Snell, 875
F.2d at 912). Even where many facts and
factors support both sides of the
classification inquiry, courts have not
explained how they balanced the
competing considerations. See, e.g.,
Acosta v. Paragon Contractors Corp.,
884 F.3d 1225, 1238 (10th Cir. 2018);
Iontchev v. AAA Cab. Services, 685 F.
App’x 548, 550 (9th Cir. 2017). The
NPRM thus identified a need for
guidance on which factors are most
probative.
Even some commenters critical of the
Department’s approach in the NPRM
conceded that the test as currently
applied can create considerable
ambiguity. Mr. Tuddenham asserted
that the lack of general guidance
regarding how to balance factors is ‘‘an
unavoidable function of determining
something as nebulous as ‘economic
dependence.’ ’’ See also Farmworker
Justice (‘‘[T]he test, as currently applied,
creates necessary ambiguity.’’). The
Department disagrees that the concept
of ‘‘economic dependence’’ is
necessarily ‘‘nebulous.’’ FLSA
employment itself depends on economic
dependence, and nothing in the statute
requires that this standard be nebulous
and thus unmanageable. See Usery, 527
F.2d at 1311 (‘‘It is dependence that
indicates employee status.’’). Instead,
the Department believes the correct
concept of economic dependence
tangibly defines FLSA employment to
include individuals who are dependent
on others for work, and to exclude
individuals who are, as a matter of
economic reality, in business for
themselves. See Saleem, 854 F.3d at
139. The Department thus believes it is
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9
See, e.g., Selker Bros., 949 F.2d at 1295
(concluding that the skill factor weighed towards
employee classification due to ‘‘the degree of
control exercised by [the potential employer] over
the day-to-day operation’’); Baker, 137 F.3d at 1443
(finding that the skill factor weighed towards
employee classification where skilled welders ‘‘are
told what to do and when to do it’’); Superior Care,
840 F.2d at 1060 (finding that the skill factor
weighed towards employee classification for skilled
nurses because ‘‘Superior Care in turn controlled
the terms and conditions of the employment
relationship’’).
10
Some courts of appeal continue to analyze skill
rather than control as part of the skill factor. See,
e.g., Paragon, 884 F3d at 1235 (considering ‘‘the
degree of skill required to perform the work’’); see
also Iontchev, 685 F. App’x at 550 (asking ‘‘whether
services rendered . . . require[d] a special skill’’);
Keller, 791 F.3d at 807 (analyzing ‘‘the degree of
skill required’’).
11
As the NPRM explained, this presumption that
firms would control all important services on which
they rely may rest on a mistaken premise because,
for example, manufacturers routinely have critical
parts and components produced and delivered by
wholly separate companies. 85 FR 60608. And
companies whose business is to connect
independent service providers with customers
would find those service providers to be important
even though they are independent from the
company’s business. See State Dep’t of
Employment, Training & Rehab., Employment Sec.
Div. v. Reliable Health Care Servs. of S. Nevada,
Inc., 983 P.2d 414, 419 (Nev. 1999) (‘‘[W]e cannot
ignore the simple fact that providing patient care
and brokering workers are two distinct
businesses.’’’)
possible to provide generally applicable
guidance regarding how to consider and
balance the economic reality factors to
assess this concept of economic
dependence.
C. Confusion and Inefficiency Due to
Overlapping Factors
The NPRM next explained that courts
and the Department have articulated the
economic reality factors such that they
have overlapping coverage, which
undermines the structural benefits of a
multifactor test. See 85 FR 60607. The
NPRM noted that most of these overlaps
did not exist in the Supreme Court’s
original articulation of the economic
reality factors in Silk and were instead
introduced by subsequent court of
appeals decisions. The NPRM then
explained several ways in which
extensive overlaps may lead to
inefficiency and confusion for the
regulated community.
First, the ‘‘skill required’’ factor
articulated in Silk, 331 U.S. at 716, has
been expanded by the Department and
some courts to analyze ‘‘skill and
initiative.’’ See, e.g., Superior Care, 840
F.2d at 1060; WHD Fact Sheet WHD
#13. Because the capacity for on-the-job
initiative is already part of the control
factor, the NPRM explained that this
approach essentially imports control
analysis into the skill factor. Indeed, the
presence of control appears to overrides
the existence of skill,
9
effectively
transforming the skill factor into an
extension of the control factor in some
circuits, but not others.
10
The ‘‘skill and
initiative’’ factor also overlaps with the
opportunity factor, which considers the
impact of initiative on worker’s
earnings, resulting in initiative being
analyzed under three different factors.
As an illustration of confusion resulting
from this overlap, the NPRM
highlighted a case in which a court
found that workers exercised enough
on-the-job initiative for the control and
opportunity factors to point towards
independent contractor status, but
nonetheless found the ‘skill and
initiative factor points towards
employee status’ due to ‘the key missing
ingredient . . . of initiative.’ ’’ 85 FR
60607 (quoting Express Sixty-Minutes
Delivery, 161 F.3d at 303).
Next, the permanence factor originally
concerned the continuity and duration
of a working relationship but has since
been expanded by some courts and the
Department to also consider the
exclusivity of that relationship. See 85
FR 60608 (citing Parrish 917 F.3d at
386–87; Keller, 781 F.3d at 807–09;
Scantland, 721 F.3d at 1319; WHD
Opinion Letter FLSA 2019–6 at 8). But
exclusivity—the ability or inability for a
worker to offer services to different
companies—is already a part of the
control factor. This overlap results in
exclusivity being analyzed twice and
causes the actual consideration of
permanence being potentially subsumed
by control.
Third, the ‘‘integral part’’ factor is
used by some courts to be merely a
proxy of control. As one such court
explained: ‘‘It is presumed that, with
respect to vital or integral parts of the
business, the employer will prefer to
engage an employee rather than an
independent contractor. This is so
because the employer retains control
over the employee and can compel
attendan[ce] at work on a consistent
basis.’’ Baker v. Dataphase, Inc., 781 F.
Supp. 724, 735 (D. Utah 1992). But the
control factor already directly analyzes
whether a business can compel
attendance on a consistent basis. It is
unclear what additional value can be
gained by indirectly analyzing that same
consideration a second time under the
‘‘integral part’’ factor.
11
Finally, while Silk articulated the
opportunity for profit and loss and
investment as separate factors, it
analyzed the two together in concluding
that truck drivers in that case were
independent contractors in part because
they ‘‘invested in their own trucks and
had ‘‘an opportunity for profit from
sound management’’ of that investment.
331 U.S. at 719. The Second Circuit
recognized such clear overlap, noting
that ‘‘[e]conomic investment, by
definition, creates the opportunity for
loss, [and] investors take such a risk
with an eye to profit.’’ Saleem, 854 F.3d
at 145 n.29. Nonetheless, most courts
and Department have analyzed
opportunity for profit and loss and
investment as separate factors. When
done right, separate analysis leads to
redundancy. See, e.g., Mid-Atlantic
Installation Servs., 16 F. App’x at 106–
07. When done wrong, it leads to
analysis of investment without regard
for the worker’s profit or loss, such as
by comparing the dollar value of a
worker’s personal investments against
the total investment of a large company
that, for example, ‘‘maintain[s]
corporate offices.’’ Hopkins 545 F.3d at
344. The NPRM explained that such a
comparison says nothing about whether
the worker is in business for himself, as
opposed to being economically
dependent on that company for work,
and is therefore not probative and
potentially misleading. 85 FR 60608.
The NRPM concluded that reducing the
above-mentioned overlaps would make
the economic reality test easier to
understand and apply.
The SWRCC contended that
‘‘overlapping factors [have] never been
the source of—and the DOL cannot
point to—any credible criticism,’’ but
did not question or even acknowledge
the above criticism discussed at length
in the NRPM. In contrast, commenters
that are significantly impacted by the
FLSA’s obligations generally agreed
with the Department that overlapping
factors have created confusion. For
example, the Association of General
Contractors stated that ‘‘[n]avigating and
complying with the various overlapping
and inconsistent standards are
confusing and costly,’’ and WPI
‘‘agree[d] with the Department that such
overlap and blurring of factors is
confusing and inefficient.’’ See also,
e.g., Center for Workplace Compliance
(CWC); NRF; U.S. Chamber of
Commerce.
A multifactor test is a useful
framework for determining FLSA
employment in part because it organizes
the many facts that are part of economic
reality into distinct categories, thus
providing some structure to an
otherwise roving inquiry. However, this
benefit is lost if the lines between those
factors blur. Under prior articulations of
the test, considerations within the
control factor—capacity for on-the-job
initiative, exclusivity, and ability to
compel attendance—have been
imported into analysis of three other
factors: Skill, permanence, and integral
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12
Ronald Coase, Nature of the Firm, 4 Economica
386 (1937), https://onlinelibrary.wiley.com/doi/
epdf/10.1111/j.1468-0335.1937.tb00002.x. See also
Nobel Prizes and Laureates, Oct., 15, 1991, https://
www.nobelprize.org/prizes/economic-sciences/
1991/press-release/ (explaining The Nature of the
Firm’s contribution to economics literature as a
central reason for Coase’s receipt of the 1991 Nobel
Prize in Economics); Katz and A. Krueger, ‘‘The
Rise and Nature of Alternative Work Arrangements
in the United States, 1995–2015,’’ p. 25 (2018)
(‘‘Coase’s (1937) classic explanation for the
boundary of firms rested on the minimization of
transaction costs within firm-employee
relationships. Technological changes may be
reducing the transaction costs associated with
contracting out job tasks, however, and thus
supporting the disintermediation of work.’’).
13
The Department notes that it is unlikely that
job tenures of independent contractors have fallen
by more than employees because average job tenure
for employees have dropped by many years, which
is greater than the total duration of a typical
independent contractor relationship. See Julie
Hotchkiss and Christopher Macpherson, Falling Job
Tenure: It’s Not Just about Millennials, Federal
Reserve Bank of Atlanta, June 8, 2015, https://
www.frbatlanta.org/blogs/macroblog/2015/06/08/
falling-job-tenure-its-not-just-about-
millennials.aspx. (showing that median job tenure
for individuals born in 1933 was ten years or longer
while median job tenure for individuals born after
1983 was three years or less).
part. Indeed, those control-based
considerations appear to be the most
important aspect of the other factors,
which obscures those factors’ distinctive
probative values. Moreover,
considerations under the opportunity
factor—the ability to affect profits
through initiative—have been imported
into the skill factor. And the ability to
earn profits through investment
overlaps completely with the
investment factor. The Department
continues to believe these overlapping
coverages contribute to confusion and
should be reduced where practicable.
D. The Shortcomings and
Misconceptions That This Rulemaking
Seeks To Remedy Are More Apparent in
the Modern Economy
The NPRM explained that certain
technological and social changes have
made shortcomings of the economic
reality test more apparent in the modern
economy. It highlighted the effects of
three types of change. First, falling
transaction costs in many industries
makes it more cost effective for firms to
hire independent contractors rather than
employees to perform core functions.
12
This in turn means analyzing the
importance of the work through the
‘‘integral part’’ factor, which the
Supreme Court never endorsed, is more
likely to result in misleading signals
regarding an individual’s employment
status. Second, the transition from a
more industrial-based to a more
knowledge-based economy reduces the
probative value of the investment factor
in certain industries because
individuals can be in business for
themselves in those industries with
minimal physical capital. Third, shorter
job tenures among employees dull the
ability of the permanence factor to
distinguish between employees and
independence contractor. See 85 FR
60608–09.
Several commenters agreed with the
Department’s assessments of modern
trends. See, e.g., TechNet (‘‘Given
falling transaction costs, companies are
more willing to allocate certain pieces of
their production, even integrated parts,
to independent contractors.’’); Food
Industry Association (‘‘societal changes
have resulted in innovative work
arrangements and changes in job tenure
expectation’’). Former Deputy Under
Secretary of Labor and retired law
professor Henry H. Perritt, Jr. found the
discussion of modern trends to be
‘‘particularly insightful and should be
retained and expanded in the preamble
to any final rule.’’ Other commenters
disagreed. The AFL–CIO, for instance,
theorized that lower transaction costs
‘‘might just as easily result in employers
not taking steps to retain employees
who perform work central to their
business, but instead tolerate frequent
turnover in such positions’’ and that the
‘‘job tenure of independent contractors
may have fallen more’’ than for
employees—though it did not provide
evidence in support of its hypotheses.
13
The Department continues to believe
that each of the above shortcomings of
the previously applied economic reality
test provides sufficient reason for this
rulemaking and that technological and
societal changes have made these
shortcomings even more apparent.
E. Effects of Additional Regulatory
Clarity on Innovation
The NPRM expressed concern that the
legal uncertainty arising from the above-
described shortcomings of the
multifactor economic reality test may
deter innovative, flexible work
arrangements that benefit businesses
and workers alike. Some commenters
questioned this assumption. The
Coalition of State Attorneys General,
Cities, and Municipal Agencies (State
AGs), for instance, contended that the
Department ‘‘provides no empirical
evidence or data demonstrating that
employers now hesitate to engage in
innovative arrangements’’ and further
argued that because ‘‘digital platforms
have become part of the modern
economy . . . they have not been stifled
by the current test.’’ But the mere
existence of certain types of businesses
is insufficient evidence that other such
businesses are not being stifled, and it
is unclear what empirical data could
measure innovation that is not occurring
due to legal uncertainty. Commenters
who represent technology companies
stated that legal uncertainty regarding
worker classification in fact deters them
from developing innovative and flexible
work arrangements. See, e.g., CWI;
TechNet. In addition, economists who
study the impact of labor regulation on
entrepreneurship also commented that
clear independent contractor regulations
would assist startup companies. Dr. Liya
Palagashvilli (‘‘71 percent of startups
relied on independent contractors and
thought it was necessary to use contract
labor during their early stages’’); Dr.
Michael Farren and Trace Mitchell
(‘‘[G]reater legal clarity to employers
and workers will allow for more
efficient production processes and will
reduce the resources wasted on
determining a worker’s employment
classification through the legal
process.’’).
For the reasons mentioned above, the
Department continues to believe that,
unless revised, the multifactor economic
reality test suffers because the analytical
lens through which all the factors are
filtered remains inconsistent; there is no
clear principle regarding how to balance
the multiple factors; the lines between
many of the factors are blurred; and
these shortcomings have become more
apparent in the modern economy. The
resulting legal uncertainty obscures
workers’ and businesses’ respective
rights and obligations under the FLSA
and deters innovative work
arrangements, thus inhibiting the
development of new job opportunities
or eliminating existing jobs. The
Department is therefore issuing this
final rule to increase legal certainty.
IV. Final Regulatory Provisions
Having reviewed commenter feedback
submitted in response to the proposed
rule, the Department is finalizing the
addition of a new part 795 to Title 29
of the Code of Federal Regulations,
which will address whether particular
workers are ‘‘employees’’ or
independent contractors under the
FLSA. In relevant part, and as discussed
in greater detail below, the part
includes:
An introductory provision at
§ 795.100 explaining the purpose and
legal authority for the new part;
a provision at § 795.105(a)
explaining that independent contractors
are not employees under the FLSA;
a provision at § 795.105(b)
discussing the ‘‘economic reality’’ test
for distinguishing FLSA employees from
independent contractors and clarifying
that the concept of economic
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See 29 U.S.C. 204, 211(a), 212(b), 216(c), 217;
see also Fernandez v. Zoni Language Centers, Inc.,
858 F.3d 45, 48–49 (2d Cir. 2017) (noting that ‘‘[t]he
DOL . . . administers the FLSA’’).
15
Additionally and as explained in greater detail
below, this rule does not narrow the longstanding
standard for distinguishing between FLSA
employees and independent contractors; employees
are economically dependent on another for work,
and independent contractors are in business for
themselves as matter of economic reality.
dependence turns on whether a worker
is in business for him- or herself
(independent contractor) or is
economically dependent on a potential
employer for work (employee);
provisions at § 795.105(c) and (d)
describing factors examined as part of
the economic reality test, including two
‘‘core’’ factors—the nature and degree of
the worker’s control over the work and
the worker’s opportunity for profit or
loss—which typically carry greater
weight in the analysis, as well as three
other factors that may serve as
additional guideposts in the analysis;
a provision at § 795.110 advising
that the parties’ actual practice is more
probative than what may be
contractually or theoretically possible;
fact-specific examples at § 795.115;
and
a severability provision at
§ 795.120.
The Department responds to
commenter feedback on the proposed
rule below.
A. The Purpose of Part 795
Proposed § 795.100 explained that the
interpretations in part 795 will guide
WHD’s enforcement of the FLSA and are
intended to be used by employers,
businesses, the public sector,
employees, workers, and courts to
assess employment status classifications
under the Act. See 85 FR 60638.
Proposed § 795.100 further clarified
that, if proposed part 795 is adopted,
employers may safely rely upon the
interpretations in part 795 under section
10 of the Portal-to-Portal Act, unless and
until any such interpretation ‘‘is
modified or rescinded or is determined
by judicial authority to be invalid or of
no legal effect.’’ Id. (quoting 29 U.S.C.
259).
Few commenters specifically
addressed proposed § 795.100, but
several discussed issues relevant to its
content. For example, a few commenters
questioned the Department’s legal
authority to promulgate any regulation
addressing independent contractor
status under the FLSA. See Northern
California Carpenters Regional Council
(‘‘At no time since the FLSA was passed
has Congress made substantive
amendments to the definitions of
employee, employer, or the ‘suffer or
permit to work’ standard . . . nor has it
directed any changes in the controlling
regulations.’’); Rep. Bobby Scott et al.
(‘‘Congress has not delegated
rulemaking authority to the DOL with
respect to the scope of the employment
relationship under the FLSA.’’). A few
commenters requested that the
Department explain its source of
rulemaking authority and the level of
deference it expects to receive from
courts interpreting its proposed
regulation. A diverse collection of
commenters, including the American
Trucking Association (ATA), the
National Home Delivery Association
(NHDA), the Northwest Workers Justice
Project (NWJP), and Winebrake &
Santillo, LLC, opined that the
Department’s proposed regulation
would be entitled to Skidmore
deference from courts, though these
commenters diverged on the proposed
rule’s ‘‘power to persuade.’’ Skidmore v.
Swift & Co., 323 US 134, 140 (1944).
Finally, the AFL–CIO asserted that
‘‘[t]he proposed rule is based on
considerations that did not motivate
Congress when it adopted the FLSA,
that the Department of Labor is not
authorized to consider in construing the
terms of the FLSA, and that the
Department has no expertise regarding,’’
thus placing the proposed rule ‘‘outside
the ‘limits of the delegation’ from
Congress to the Department contained
in the Act.’’ (quoting Chevron, U.S.A.,
Inc. v. NRDC, Inc., 467 U.S. 837, 865
(1984)).
The Department appreciates
commenter interest in these issues. The
Department without question has
relevant expertise in the area of what
constitutes an employment relationship
under the FLSA, given its responsibility
for administering and enforcing the
Act
14
and its decades of experience
doing so. The Department’s authority to
interpret the Act comes with its
authority to administer and enforce the
Act. See Herman v. Fabri-Centers of
Am., Inc., 308 F.3d 580, 592–93 (6th Cir.
2002) (noting that ‘‘[t]he Wage and Hour
Division of the Department of Labor was
created to administer the Act’’ while
agreeing with the Department’s
interpretation of one of the Act’s
provisions); Dufrene v. Browning-Ferris,
Inc., 207 F.3d 264, 267 (5th Cir. 2000)
(‘‘By granting the Secretary of Labor the
power to administer the FLSA, Congress
implicitly granted him the power to
interpret.’’); Condo v. Sysco Corp., 1
F.3d 599, 603 (7th Cir. 1993) (same).
The Department believes a clear
explanation of the test for whether a
worker is an employee under the FLSA
or an independent contractor not
entitled to the protections of the Act in
easily accessible regulatory text is
valuable to potential employers, to
workers, and to other stakeholders. It
has a long history of offering
interpretations in this area and believes
this rulemaking has great value
regardless of what deference courts
ultimately give to it.
While proposed § 795.100
emphasized that part 795 would state
the Department’s interpretation of
independent contractor status under the
FLSA, some commenters expressed
concern that it would affect the scope of
employment under other Federal laws.
The United Food and Commercial
Workers International Union (UFCW)
believed that the proposal may narrow
the coverage of the ‘‘Title VII of the Civil
Rights Act of 1964, Americans with
Disabilities Act, Age Discrimination in
Employment Act (ADEA), and the Equal
Pay Act.’’ See also National Women’s
Law Center (NWLC); CLASP. The
Department reaffirms that the rule
concerns the distinction between
employees and independent contractors
solely for the purposes of the FLSA, and
as such, would not affect the scope of
employment under other Federal
laws.
15
Many commenters requested that the
Department promulgate a standard more
broadly applicable across other state
and Federal employment laws. See, e.g.,
American Society of Travel Advisors,
Inc. (‘‘[The NPRM . . . represents
something of a missed opportunity
insofar as it fails to address the
longstanding difficulty associated with
the continued use of multiple tests at
the Federal level to determine worker
status.’’); Cambridge Investment
Research, Inc. (‘‘[W]ithout a more
encompassing Department position or
guidance addressing different state
standards, some of the current
uncertainty and unpredictability
remain.’’); Chun Fung Kevin Chiu
(‘‘[I]nconsistent Federal and state
standards with regards to classification
may render the DOL rules ineffective in
practice for those independent
contractors and businesses affected.’’).
While several commenters
acknowledged the Department’s lack of
authority to interpret the scope of laws
outside of its jurisdiction, the National
Association of Manufacturers and the
Mechanical Contractors Association of
America (MCAA) urged the Department
to collaborate with other Federal
agencies to harmonize the varying
employment definitions under Federal
law. Finally, the Zobrist Law Group
‘‘urge[d] the Department to prohibit
states from using classification tests that
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See, e.g., Pharm. Research & Mfrs. of Am. v.
FTC, 790 F.3d 198, 203 (D.C. Cir. 2015) (affirming
that agency had discretion to ‘‘proceeding
incrementally’’ in promulgating rules that were
directed to one industry but no others); Inv. Co.
Inst. v. Commodity Futures Trading Comm’n, 720
F.3d 370, 378 (D.C. 2013) (observing that ‘‘[n]othing
prohibits Federal agencies from moving in an
incremental manner’’ (quoting FCC v. Fox
Television Stations, Inc., 556 U.S. 502, 522 (2009));
City of Las Vegas v. Lujan, 891 F.2d 927,935 (D.C.
Cir. 1989) (noting that ‘‘agencies have great
discretion to treat a problem partially’’).
17
Similar to the MSPA regulation at 29 CFR
500.20(h)(4), a regulation promulgated by the
Department’s Veterans’ Employment & Training
Service (VETS) at 20 CFR 1002.44 articulates a six-
factor balancing test based on the tests used by
courts under the FLSA for determining whether an
individual is an employee or an independent
contractor under the Uniformed Services
Employment and Reemployment Rights Act
(USERRA). See 70 FR 75254 (‘‘The independent
contractor provision in this rule is based on
Congress’s intent that USERRA’s definition of
‘employee’ be interpreted in the same expansive
manner as the term is defined under the [FSLA].’’
(citing H.R. Rep. No. 103–65, Pt. I, at 29 (1993); S.
Rep. No. 103–58, at 40 (1993))). Consistent with this
rulemaking’s incremental focus of the FLSA
context, the Department declines to amend 20 CFR
1002.44 at this time.
conflict with the proposed rule,’’
asserting that ‘‘state law not preempted
by the FLSA is narrow’’ and that state
laws ‘‘shifting an independent
contractor under the FLSA to an
employee under state law . . . [impose]
greater obligations upon those workers.’’
But see Truckload Carriers Association
(‘‘TCA understands that, due to our
nation’s federalist system, individual
states such as California can pursue
misguided statues that are more
stringent than the Federal standard the
Department is seeking to clarify[.]’’).
While the Department appreciates the
desire to achieve uniformity across the
various state and Federal laws which
may govern work arrangements,
requests to modify definitions and tests
under different laws are outside the
scope of this rulemaking.
Some commenters supportive of the
proposed rule requested that the
Department make conforming edits to
its MSPA regulation at 29 CFR
500.20(h)(4), addressing whether or not
a farm labor contractor engaged by an
agricultural employer/association is an
independent contractor or an employee
under MSPA. See Americans for
Prosperity Foundation (AFPF) (‘‘To
further the Department’s goal of
clarification, simplification, and
consistency . . . the same criteria used
in the NPRM to define independent
contractors for purposes of the FLSA
also should apply to the MSPA, and to
any other provision that references the
FLSA.’’); Administrative Law Clinic at
the Antonin Scalia Law School (‘‘[T]he
Department should simply use its
proposed regulations in 29 CFR 795.100,
et seq., to determine employee status
under MSPA, and repeal [29 CFR
500.20(h)] as duplicative.’’). Relatedly,
Texas RioGrande Legal Aid (TRLA),
which expressed opposition to the
proposed rule, asserted that ‘‘the
proposed rule will lead to considerable
confusion among both employers and
workers . . . because the proposed rule
at odds with the Department’s [MSPA]
regulations,’’ but opined that any effort
to revise 29 CFR 500.20(h) ‘‘would be in
direct contravention of Congressional
directives regarding the interpretation of
the MSPA.’’
As noted in the NPRM preamble, the
Department acknowledges that MSPA
adopts by reference the FLSA’s
definition of ‘‘employ,’’ see 18 U.S.C.
1802(5), and that 29 CFR 500.20(h)(4)
considers ‘‘whether or not an
independent contractor or employment
relationship exists under the Fair Labor
Standards Act’’ to interpret independent
contractor status under MSPA. At this
time, however, the Department does not
see a compelling need to revise 29 CFR
500.20(h)(4), as we are unsure whether
application of the six factor economic
reality test described in that regulation
has resulted in confusion and
uncertainty in the more limited MSPA
context similar to that described in the
FLSA context. Importantly, the
regulatory standard for determining an
individual’s classification status under
MSPA is generally consistent with the
FLSA guidance finalized in this rule:
‘‘In determining if the farm labor
contractor or worker is an employee or
an independent contractor, the ultimate
question is the economic reality of the
relationship—whether there is
economic dependence upon the
agricultural employer/association or
farm labor contractor, as appropriate.’’
29 CFR 500.20(h)(4). Therefore, as
explained in the NPRM, the Department
prefers to proceed incrementally at this
time by leaving the MSPA regulation at
29 CFR 500.20(h)(4) unchanged.
16 17
The American Network of Community
Options and Resources (ANCOR)
expressed concern about the
Department’s statement in proposed
§ 795.100 that, if finalized, the proposed
rule ‘‘would contain the Department’s
sole and authoritative interpretation of
independent contractor status under the
FLSA,’’ fearing that the statement could
be interpreted to ‘‘render obsolete the
Department’s specific guidance on the
application of the FLSA to shared living
in Fact Sheet #79G and Administrator’s
Interpretation No. 2014–1.’’ The
Department disagrees with this
interpretation, noting that § 795.100
only rescinds earlier WHD guidance
addressing independent contractor
status under the FLSA ‘‘[t]o the extent
. . . [that such guidance is] inconsistent
or in conflict with the interpretations
stated in this part.’’ As explained in the
NPRM, the Department engaged in this
rulemaking to ‘‘clarify the existing
standard, not radically transform it,’’ 85
FR 60636, and none of the industry-
specific guidance in Administrator’s
Interpretation No. 2014–1 is
meaningfully affected by this final rule.
For similar reasons, we believe that the
assertion by the Nebraska Appleseed
Center for Law in the Public Interest
(Appleseed Center) that this rulemaking
will ‘‘rescind years of [Departmental]
guidance’’ is an overstatement. This rule
is premised on familiar FLSA concepts
that courts, employers, workers, and the
Department have applied for years
while providing updated and clearer
explanations of what the concepts mean
and how they are considered. Although
this rule will change the Department’s
analysis for classifying workers as
employees or independent contractors
in some respect, those changes do not
favor independent contractor
classification (i.e., the ultimate legal
outcome) relative to the status quo, but
rather offer greater clarity as to workers’
proper classifications.
B. Clarification That Independent
Contractors Are Not Employees Under
the Act
Proposed § 795.105(a) explained that
an independent contractor who renders
services to a person is not an employee
of that person under the FLSA, and that
the Act’s wage and hour requirements
do not apply with respect to a person’s
independent contractors. See 85 FR
60638–39. Proposed 795.105(a)
similarly explained that the
recordkeeping obligations for employers
under section 11 of the Act do not apply
to a person with respect to services
received from an independent
contractor. Id.
The vast majority of substantive
comments agreed with proposed
§ 795.105(a). One anonymous
commenter suggested that the
Department interpret the FLSA’s
minimum wage and overtime pay
requirements to apply to independent
contractors because the Act’s
‘‘declaration of policy’’ at 29 U.S.C. 202
‘‘suggests the purpose of the FLSA is to
protect workers.’’ The Department does
not adopt this interpretation because
Federal courts of appeals have
uniformly held, and the Department has
consistently maintained, that ‘‘FLSA
wage and hour requirements do not
apply to true independent contractors.’’
Karlson, 860 F.3d at 1092; see also, e.g.,
Parrish, 917 F.3d at 384; Saleem, 854
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The Department’s prior guidance has stated
that ‘‘an employee, as distinguished from a person
who is engaged in a business of his or her own, is
one who, as a matter of economic reality, follows
the usual path of an employee.’’ Fact Sheet #13; see
also WHD Opinion Letter FLSA–795 (Sept. 30,
1964). Upon consideration, however, the
Department believes that describing an employee as
someone who ‘‘follows the usual path of an
employee’’ is circular and unhelpful.
19
It is possible for a worker to be an employee
in one line of business and an independent
contractor in another.
F.3d at 139–40; Express Sixty-Minutes
Delivery, 161 F.3d at 305; see also
Portland Terminal, 330 U.S. at 152
(holding that the FLSA ‘‘was obviously
not intended to stamp all persons as
employees’’).
C. Adopting the Economic Reality Test
To Determine a Worker’s Employee or
Independent Contractor Status Under
the Act
Proposed § 795.105(b) would adopt
the economic reality test to determine a
worker’s status as an employee or an
independent contractor under the Act.
As the proposal explained, the inquiry
of whether an individual is an employee
or independent contractor under the Act
is whether, as a matter of economic
reality, the individual is economically
dependent on the potential employer for
work. See 85 FR 60611; see also Pilgrim
Equip., 527 F.2d at 1311 (‘‘It is
dependence that indicates employee
status.’’). The proposal and this final
rule provide further clarity as to the
economic reality test’s touchstone—
economic dependence.
The NPRM preamble explained that
clarifying the test requires putting the
question of economic dependence in the
proper context. ‘‘Economic dependence
is not conditioned reliance on an
alleged employer for one’s primary
source of income, for the necessities of
life.’’ Mr. W Fireworks, 814 F.2d at 1054.
Rather, courts have framed the question
as ‘‘ ‘whether, as a matter of economic
reality, the workers depend upon
someone else’s business for the
opportunity to render service or are in
business for themselves.’ ’’ Saleem, 854
F.3d at 139 (quoting Superior Care, 840
F.2d at 1059). This conception of
economic dependence comports with
the FLSA’s definition of employ as
‘‘includ[ing] to suffer or permit to
work.’’ See 29 U.S.C. 203(g). An
individual who depends on a potential
employer for work is able to work only
by the sufferance or permission of the
potential employer. Such an individual
is therefore an employee under the Act.
In contrast, an independent contractor
does not work at the sufferance or
permission of others because, as a
matter of economic reality, he or she is
in business for him- or herself. In other
words, an independent contractor is an
entrepreneur who works for him- or
herself, as opposed to for an employer.
18
The Department did not receive any
substantive comments disputing this
distinction between employee and
independent contractor classification
under the Act.
The Department observed in the
NPRM preamble that some courts have
relied on a worker’s entrepreneurship
with respect to one type of work to
conclude that the worker was also in
business for him- or herself in a second,
unrelated type of work. See, e.g.,
Parrish, 917 F.3d at 384 (considering
‘‘plaintiff’s enterprise, such as the goat
farm, as part of the overall analysis of
how dependent plaintiffs were on
[defendant]’’ for working as
consultants); Thibault, 612 F.3d at 849
(concluding that plaintiff was an
independent contractor as a cable
splicer in part because he managed
unrelated commercial operations and
properties in a different state). This
approach is inconsistent with the
Supreme Court’s instruction that the
economic reality analysis be limited to
‘‘the claimed independent operation.’’
Silk, 331 U.S. at 716. Thus, the relevant
question in this context is whether the
worker providing certain service to a
potential employer is an entrepreneur
‘‘in that line of business.’’ Mr. W
Fireworks, 814 F.2d at 1054. Otherwise,
businesses must make worker
classification decisions based on facts
outside the working relationship.
19
At bottom, the phrase ‘‘economic
dependence’’ may mean many different
things. But in the context of the
economic reality test, ‘‘economic
dependence’’ is best understood in
terms of what it is not. The phrase
excludes individuals who, as a matter of
economic reality, are in business for
themselves. Such individuals work for
themselves rather than at the sufferance
or permission of a potential employer,
see 29 U.S.C. 203(g), and thus are not
dependent on that potential employer
for work. Section 795.105(b) therefore
recognizes the principle that, as a matter
of economic reality, workers who are in
business for themselves with respect to
work being performed are independent
contractors for that work.
Many commenters supported the
Department’s decision to implement the
economic reality test applying the
above-described approach to economic
dependence. WPI applauded the
‘‘decision to retain the long-standing
economic reality test while sharpening
the factors used to apply that test.’’ The
NRF stated that the economic reality test
‘‘is the proper basis for distinguishing
independent contractors from
employees under the FLSA as
articulated by the U.S. Supreme Court.’’
ATA) found that the economic
dependence framework ‘‘comports with
a thoughtful reading of decades of court
precedent.’’ See also Americans for
Prosperity Foundation; Cetera Financial
Group; Center for Workplace
Compliance (‘‘DOL is correct to propose
using the economic dependence
standard for determining whether an
individual is an employee or
independent contractor’’).
The majority of commenters agreed
with the Department’s proposal to adopt
the economic reality test using the
above-mentioned definition of economic
dependence, including commenters that
were generally critical of the proposed
rule. For example, the State AGs
approvingly stated that ‘‘[f]or nearly
three-quarters of a century, the Supreme
Court has held that whether a worker is
a covered ‘‘employee’’ under the FLSA
is governed by the economic reality
test.’’ See also National Employment
Law Project (NELP); Signatory Wall and
Ceiling Contractors Alliance (SWACCA)
(recommending adopting an economic
reality test with a different number of
factors). While objecting commenters
challenged various aspects of the
proposed rule, they did not dispute the
sharpened explanation of the economic
dependence inquiry. Commenters, both
supportive and objecting, made a
number of thoughtful suggestions,
which are addressed below.
The Administrative Law Clinic at the
Antonin Scalia Law School suggested
further clarifying the test by adding
‘‘[a]n individual is not an ‘employee’
merely because he or she is
economically dependent in some way
on the potential employer.’’ Such
additional language may be redundant
in § 795.105(b) because that section
already articulates economic
dependence as dependence on a
potential employer for work, as opposed
to being in business for oneself. As
explained above, other forms of
dependence, such as dependence on
income or subsistence, do not count.
However, given how important it is to
apply the correct concept of economic
dependence, the Department believes
this point bears emphasis through a
concrete, fact-specific example in the
regulatory text. The Department is thus
adding an example in § 795.115 to
demonstrate that a different form of
dependence, i.e., dependence of income
or subsistence, is not a relevant
consideration in the economic reality
test.
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Consistent with WHD Opinion Letter
FLSA2019–6, the Department’s proposal did not
include the ‘‘independent business organization’’
factor mentioned in Fact Sheet #13. The opinion
letter explained that the ‘‘independent business
organization’’ factor was ‘‘[e]ncompassed within’’
the other factors. Because the ultimate inquiry of
the economic dependence test is whether workers
are ‘‘in business for themselves,’’ Saleem, 854 F.3d
at 139, analyzing the worker’s degree of
‘‘independent business organization’’ restates the
inquiry and adds little, if anything, to the analysis
that is not already covered by the other factors.
A number of individual commenters
who generally support this rule
requested that the Department allow
workers who voluntarily agree to be
independent contractors to be classified
as such, regardless of other facts. For
example, Farren and Mitchell urged the
Department to ‘‘allow the parties
themselves to explicitly define the
nature of their labor relationship,’’
asserting that such an approach would
respect worker autonomy, maximize
legal certainty, and promote greater
flexibility in work arrangements. This
requested approach would allow
voluntary agreements to supersede the
economic reality test in determining
classification as an employee or
independent contractor. The Supreme
Court, however, held in Tony & Susan
Alamo, 471 U.S. at 302, that the FLSA
must be ‘‘applied even to those who
would decline its protections.’’ In other
words, an individual may not waive
application of the Act through voluntary
agreement. See Barrentine v. Arkansas-
Best Freight Sys., Inc., 450 U.S. 728, 740
(1981) (‘‘FLSA rights cannot be abridged
by contract or otherwise waived,
because this would ‘nullify the
purposes’ of the statute and thwart the
legislative policies it was designed to
effectuate.’’) (quoting Brooklyn Savings
Bank v. O’Neil, 324 U.S. 697, 707
(1945)); Lauritzen, 835 F.2d at 1544–45
(‘‘The FLSA is designed to defeat rather
than implement contractual
arrangements. If employees voluntarily
contract to accept $2.00 per hour, the
agreement is ineffectual.’’) (Easterbrook
J., concurring). Because this request
would contradict this precedent by
allowing the possibility of workers who
are employees under the facts and law
to waive the FLSA’s protections by
classifying themselves as independent
contractors, the Department declines to
implement it in the final rule.
Some commenters, including the
Minnesota State Building &
Construction Trades Council, PJC, and
SWRCC, suggested that the rule include
a presumption of employee status. The
Supreme Court has said and the
Department agrees that this is a totality
of the circumstances analysis, based on
the facts. The Department thus declines
to create a presumption in favor of
employee status.
NELA, Farmworker Justice (FJ), and
several other commenters requested that
the Department abandon the economic
reality test in favor of the ABC test
adopted by the California Supreme
Court in Dynamex Operations West v.
Superior Court, 416 P.3d 1 (2018). By
contrast, other commenters, such as the
American Society of Travel Advisors
(ASTA) and National Federation of
Independent Business (NFIB), urged the
Department to adopt the common law
standard used to distinguish between
employees and independent contractors
under the Internal Revenue Code and
other Federal laws. These requests are
addressed in the discussion of
regulatory alternatives in Section VI,
which explains why the Department is
not adopting either the common law
control test or the ABC test for
employment under the FLSA.
For the reasons discussed above, the
Department adopts § 795.105(b) as
proposed to adopt the economic realty
test to determine whether an individual
is an employee or independent
contractor under the FLSA. Under that
test, an individual is an employee if he
or she is dependent on an employer for
work, and is an independent contractor
if that he or she is, as a matter of
economic reality, in business for him- or
herself.
D. Applying the Economic Reality
Factors To Determine a Worker’s
Independent Contractor or Employee
Status
Proposed § 795.105(c) explained that
certain nonexclusive economic reality
factors guide the determination of
whether an individual is, on one hand,
economically dependent on a potential
employer for work and therefore an
employee or, on the other hand, in
business for him- or herself and
therefore an independent contractor.
See 85 FR 60639. These factors were
listed in proposed § 795.105(d), based
on the factors currently used by the
Department and most Federal courts of
appeals, with certain proposed
reformulations. Id.
First, the Department proposed to
follow the Second Circuit’s approach of
analyzing the worker’s investment as
part of the opportunity factor. The
combined factor asked whether the
worker has an opportunity to earn
profits or incur losses based on his or
her exercise of initiative or management
of investments. See 85 FR 60613–15,
60639. Second, the Department
proposed to clarify that the ‘‘skill
required’’ factor originally articulated by
the Supreme Court should be used, as
opposed to the ‘‘skill and initiative’’
factor currently used in some circuits,
because considering initiative as part of
the skill factor creates unnecessary and
confusing overlaps with the control and
opportunity factors. See 85 FR 60615,
60639. Third, the Department proposed
to further reduce overlap by analyzing
the exclusivity of the relationship as a
part of the control factor only, as
opposed to both the control and
permanence factors. See 85 FR 60615–
16, 60639. Lastly, the Department
proposed to reframe the ‘‘whether the
service rendered is an integral part of
the alleged employer’s business’’ factor
in accordance with the Supreme Court’s
original inquiry in Rutherford Food, 331
U.S. at 729, of whether the work is ‘‘part
of an integrated unit of production.’’ See
85 FR 60616–18, 60639.
20
Proposed § 795.105(c) further aimed
to improve the certainty and
predictability of the test by focusing it
on two core factors: (1) The nature and
degree of the worker’s control over the
work; and (2) the worker’s opportunity
for profit or loss. The proposed rule
explained that if both proposed core
factors point towards the same
classification—whether employee or
independent contractor—there is a
substantial likelihood that that
classification is appropriate. See 85 FR
60618–20, 60639.
The following discussion addresses
commenter feedback on the five
proposed economic reality factors.
1. The ‘‘Nature and Degree of the
Individual’s Control Over the Work’’
Factor
The first core factor identified in the
proposed regulatory text was the
‘‘nature and degree of the individual’s
control over the work.’’ 85 FR 60639.
Proposed § 795.105(d)(1)(i) explained
that this factor ‘‘weighs towards the
individual being an independent
contractor to the extent the individual,
as opposed to the potential employer,
exercises substantial control over key
aspects of the performance of the work,
such as by setting his or her own
schedule, by selecting his or her
projects, and/or through the ability to
work for others, which might include
the potential employer’s competitors.’’
Proposed § 795.105(d)(1)(i) further
explained that, in contrast, this factor
‘‘weighs in favor of the individual being
an employee under the Act to the extent
the potential employer, as opposed to
the individual, exercises substantial
control over key aspects of the
performance of the work, such as by
controlling the individual’s schedule or
workload and/or by directly or
indirectly requiring the individual to
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As Mr. Reibstein acknowledged, the proposed
regulatory text beyond the title of the control
section was written in a ‘‘neutral’’ manner. The
final regulatory text is written in a similarly neutral
manner.
work exclusively for the potential
employer.’’ In addition, the proposal
stated that the following actions by the
potential employer ‘‘do[ ] not
constitute control that makes the
individual more or less likely to be an
employee under the Act’’: ‘‘[r]equiring
the individual to comply with specific
legal obligations, satisfy health and
safety standards, carry insurance, meet
contractually agreed-upon deadlines or
quality control standards, or satisfy
other similar terms that are typical of
contractual relationships between
businesses (as opposed to employment
relationships).’’ Numerous commenters
requested changes to the proposed
control section regarding (1) the
perspective from which control is
framed; (2) the examples of control that
are relevant to the economic
dependence inquiry; and (3) examples
of control that are not.
a. Responses to Requests Regarding the
Framing of Control
Some commenters asserted that the
control factor should focus on the
potential employer’s substantial control
over the worker instead of the worker’s
substantial control over the work. For
example, the State AGs said that the
‘‘proposed control factor incorrectly
focuses on the worker’s control over the
work’’ and that ‘‘[w]ell-established
precedent makes clear that the proper
focus is the employer’s control over the
worker.’’ According to NELA, ‘‘the
control analysis has historically been,
and should continue to be, on the
control that the employer has over the
employee, not that the employee has
over their work.’’ NELA added that the
Department ‘‘cannot deny that its
proposal casts the control inquiry
differently than the Supreme Court,
courts of appeals, and the Department
have in the past.’’ And the United
Brotherhood of Carpenters and Joiners
of America stated that the proposal’s
‘‘focus on the individual’s control over
the work turns the ‘suffer or permit’
standard on its head’’ because that
standard ‘‘references the purported
employer’s behavior—not the worker’s.’’
See also Northern California Carpenters
Regional Council (noting that ‘‘[b]ecause
the ‘nature and degree of the
individual’s control over the work’ . . .
focuses on the individual’s control, as
opposed to the employer’s control, the
factor skews towards most skilled
tradespeople being classified as
independent cont[r]actors’’). Relatedly,
attorney Richard Reibstein suggested
that the title of the control subsection
‘‘be re-drafted in a manner that does not
suggest it favors independent contractor
status because the remaining text
regarding [the control factor] is neutral.’’
Mr. Reibstein suggested that the title be
changed from the ‘‘nature and degree of
the individual’s control over the work’’
to the ‘‘nature and degree of each party’s
control over the work.’’ Finally, WPI
expected that some commenters would
object to the Department’s proposed
articulation of the control factor, and it
supported the Department’s approach
by saying that ‘‘the economic reality test
focuses on the individual—whether the
individual is economically dependent
on another business or in business for
him or herself,’’ and that, ‘‘[t]hus, the
focus of each factor should also be on
the economic realities of the individual,
not the businesses with which [he or
she] contracts.’’ See also CPIE
(supporting ‘‘the NPRM’s articulation of
this factor’’).
Notwithstanding differing commenter
preferences over the primary
articulation of the control factor, the
proposed (and final) regulatory text at
§ 795.105(d)(1)(i) discusses both the
individual worker’s control and the
potential employer’s control.
21
This
approach is consistent with that of
courts, which also generally consider
both the individual’s control and the
potential employer’s control. See, e.g.,
Razak, 951 F.3d at 142; Hobbs, 946 F.3d
at 829; Saleem, 854 F.3d at 144–45;
Karlson, 860 F.3d at 1096. The
Department explained in the NPRM
preamble that whether the control factor
is articulated with reference to the
individual worker’s control or the
potential employer’s control is a
‘‘distinction . . . of no consequence,’’
and that both ‘‘the nature and degree of
control over the work by the worker and
by the potential employer are
considered to determine whether
control indicates employee or
independent contractor status.’’ 85 FR
60612 n.34. The Department reaffirms
that statement now and reiterates that
both the worker’s control and the
potential employer’s control should be
considered. To remove any ambiguity
on this point, the Department has
modified the title of subsection
795.105(d)(1)(i) to ‘‘[t]he nature and
degree of control over the work,’’
removing the proposed rule’s reference
to ‘‘the individual’s control over the
work.’’ This revised articulation is
closer to the Supreme Court’s
description of the economic reality test’s
control factor in Silk, 331 U.S. at 716
(‘‘degrees of control’’), which does not
indicate a focus on either the individual
worker or the potential employer.
Mr. Reibstein also suggested that the
control factor ‘‘should be drafted in a
manner that focuses attention on the key
to control, which is control over the
manner and means by which the work
in question is performed.’’ He asserted
that, as proposed, the control section ‘‘is
ambiguous at best and may be
misleading at worst,’’ and suggested that
‘‘control over the work’’ should be
changed to ‘‘control over the
performance of the work, particularly
how the work is to be performed.’’ The
Department, however, prefers to retain
the ‘‘control over the work’’ articulation.
It is purposefully broad to encompass
various different types of control that
the individual worker and the potential
employer may exercise over the working
relationship. Moreover, the Department
agrees that who controls the manner and
means by which the work is performed
is a key component of the control
analysis, and the Department believes
that both the proposed and final
regulatory text reflect the importance of
the manner and means by which the
work is performed.
b. Responses to Comments Regarding
Examples of Relevant Control
A number of comments addressed the
proposed regulatory text’s three non-
exhaustive examples of control that may
indicate employee or independent
contractor status, which were setting
schedules, selecting projects, and
working exclusively for the employer or
working for others.
Several commenters sought
clarification that these examples may
not always be probative of an
employment or independent contracting
relationship. For instance, NRF stated
‘‘there may be limits on schedules that
are consistent with business
relationships that should not be treated
as impacting the analysis,’’ such as
delivery workers who can deliver only
during the restaurant’s operating hours
and a retailer that arranges for after-
hours cleaning services. The
Department agrees that there are
examples of impacts on a workers
schedule that are not probative of the
type of control that indicates economic
dependence and that NRF has identified
two such examples by pointing to the
fact that a delivery worker can deliver
for a restaurant only when the
restaurant is open and a cleaning worker
can clean a retailer only when it is
closed. But the Department does not
think any change to the regulatory text
is warranted to clarify this point, as the
regulatory text merely provides a few
examples of facets of control that may—
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The Department received related feedback from
commenters asking for proposed §795.110 to
discount the relevance of voluntary worker
practices (e.g., choosing to work exclusively for one
business, declining to negotiate prices, etc.); as
explained in greater detail in Section IV(F), coercive
behavior by a potential employer (e.g., vigilant
enforcement of a non-compete clause, punishing
workers for turning down available work, etc.)
constitutes stronger evidence of employment status
than such voluntary worker practices, but is not a
prerequisite for such worker practices to have
import under the FLSA’s economic reality test.
or may not—be probative in any given
case depending on the facts. NHDA
sought clarification of the working for
others example because, in its view, ‘‘it
is not enough for the individual to claim
he/she never turned down projects or
never worked for others. Rather, the
individual must demonstrate some
action, implementation, or execution (in
other words, act or conduct) by the
potential employer that prevented the
individual from turning down projects
or working for others.’’ In response, the
Department notes its statement in the
NPRM preamble that ‘‘a potential
employer may exercise substantial
control, for example, where it explicitly
requires an exclusive working
relationship or where it imposes
restrictions that effectively prevent an
individual from working with others.’’
85 FR 60613 (citing cases where the
employer’s schedule made it
‘‘impossible’’ or ‘‘practically
impossible’’ for the worker to work for
others). Where a worker could work for
others, meaning the potential employer
is not explicitly or effectively
preventing the worker from doing so,
the worker retains control over this
aspect of his or her work. That he or she
exercises this control by choosing to
work only for one potential employer
does not necessarily shift the control to
the potential employer. Further, the
parties’ actions, including whether the
potential employer enforced an explicit
bar on working for others or has
imposed working conditions that make
doing so impracticable, are stronger
evidence of control than contractual or
theoretical ability or inability to control
this aspect of the working
relationship.
22
Some commenters interpreted the few
examples of control in the proposal as
an effort to limit the types of control
that may be considered. For example,
Farmworker Justice stated that the
proposal ‘‘improperly and erroneously
tries to narrow the relevant
considerations for the [control] factor.’’
According to Edward Tuddenham, the
proposal ‘‘lists some ‘key’ elements of
control that . . . may have little or no
significance whatsoever’’ and ‘‘[s]uch a
rigid approach to the question of control
can only wreak havoc with the
established common law of FLSA
employer/employee relationships.’’
However, the examples of types of
control identified in the proposal were
not an attempt to narrow or limit the
control factor analysis. The Department
cannot provide an exhaustive list of
types of control and so instead focused
on several key examples of types of
control. Any type of control over the
work by the individual worker or the
potential employer may be considered.
Such considerations should not be
‘‘mechanical,’’ Saleem, 854 F.3d at 140,
and instead must focus on whether the
control exercised by either the
individual or the potential employer
answers the ultimate inquiry of
‘‘whether the individual is, as a matter
of economic reality, in business for
himself,’’ as opposed to being
economically dependent on the
potential employer for work. In any
event, as explained below, the
Department is clarifying types of control
that may be relevant to the analysis.
Numerous other commenters
suggested the addition of dozens of
examples of types of control that
indicate employee or independent
contractor status. For example, WPI
suggested that the following types of
control by the individual worker are
indicative of independent contractor
status: Controlling whether to work at
all; controlling the location of where to
perform the work; controlling how the
work is performed; setting prices or
choosing between work opportunities
based on prices; and hiring employees
or engaging subcontractors. It suggested,
conversely, that the following types of
control by the potential employer are
indicative of employee status: Requiring
the individual worker to comply with
company specific procedures regarding
how the work is performed; requiring a
set schedule or minimum hours;
controlling when the individual can
take meal and rest breaks; and
controlling when the individual can
take time off. CWI recommended
addition of the following as examples of
the individual worker’s control over the
work that are indicative of independent