A U.S. District Court for the Eastern District of Texas has issued a ruling favorable for those employing independent contractors by finding that the Department of Labor’s delay and eventual withdrawal of regulations under the Fair Labor Standards Act (FLSA) regarding independent contractors’ status was unlawful.

These regulations provided considerable clarification as to the factors that the Department would use in determining whether a contractor is an independent contractor and, as a result performing independent business or whether or not they are employees. One critical clarification these regulations made was establishing that the worker’s dependence on work and not income was a key factor of consideration.

Before these regulations were introduced, Department of Labor guidance provided a seven-factor “economic realities” test, which would be used in examining work relationships. This seven-factor test included examining whether or not the work was an integral part of the business’s operations and the worker’s degree of independent business organization or operation.

This seven-factor economic realities test was traditionally used by most courts in deciding whether a worker was or was not an independent contractor but was found cumbersome and led to confusing and indeterminate results for many business owners. However, based upon analysis of court decisions, the independent contractor regulations simplified this rule into only two “core factors” and three additional factors which may be used if the two core factors do not provide a definitive result.

The two core factors are:

• The worker’s nature and degree of control over the work
• The worker’s opportunity for profit or loss

The three additional factors are:

• The amount of skill required for the work
• The degree of permanence of the working relationship between the worker and the employer
• Whether the work is part of an integrated unit of production

However, the day before these rules were to go into effect on March 8th, 2021, the Department of Labor proposed to delay their effective date and eventually issued a final rule to withdraw them. 

Now, the court’s decision has found both of these actions to be unlawful and has held that the regulations did go into effect on March 8th and are still in effect now. Learn More

Though it is quite possible that this decision will be challenged or that the Department will propose another standard regulating independent contractor status, this current decision will likely be welcomed by many businesses for the additional degree of clarity it brings.

Knowledge is power, and learning is the first step. If you’re interested in more information on fair chance hiring, check out our resource, Adverse Action Notice Protocols in Compliance With FCRA 

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