Department of Labor Proposes New Rule on Defining “Employ”


Written By Shareholder Barbara J. Barron

On September 22, the Department of Labor released a new proposed rule on the definition of “employ.”  Whether you are an independent contractor or an employee has been decided inconsistently by various federal courts.  The current DOL Fact Sheet lists seven factors and other courts list 5 or 6 and some courts combine the various factors. The DOL is proposing two “core factors” and if both are answered the same, the issue is decided.  If the answers are not similar, then 3 “other factors” would be examined.

The core factors are:

  • Nature and degree of the individual’s control over the work; and
  • The individual’s opportunity for profit or loss.

Basically, the first factor supports an employee being an independent contractor if the worker exercises substantial control over his work.  Is the employee able to set their schedule, select projects, and being able to work for other employers?  If not, the worker may be an employee subject to overtime.

The second factor concerns whether the worker has the opportunity to make more money or incur losses based on their own managerial skill, business ability, initiative, their own investments. For instance, does the worker have the ability to determine whether to hire new helpers or buy equipment?  If not, again the worker may be an employee subject to overtime.

If the two factors result in different answers, then, the next three factors are analyzed:

  • Amount of skill required for the work;
  • Degree of permanence of the working relationship between the individual and the employer; and
  • Whether the work is part of an integrated unit of production.

The more specialized skill or training an employee has, the more likely they are to be found an independent contractor.

If the work is sporadic, indefinite, or of short duration, the more likely the worker will be found an independent contractor.  Note though that If the work is seasonal that does not weigh in favor of independent contractor status.

The final test whether the work is part of an integrated unit of production comes from two 1947 United States Supreme Court cases.  The DOL has stated that the question is whether the work is “integrated,” not whether it is “integral.”   If the employee’s work can be segregated from the employer’s processes for goods or services, than,  the more likely classifying the employee as an independent contractor will work.  For instance, an employee working on a production line would not lean towards independent contractor.

The rule now enters a 30-day period for the public to submit comments.  The DOL can extend the public comment, enact the rule as written, modify the rule, or decline to implement any new rule.

This proposed new rule does not disturb Independent Contractor versus Employee tests under IRS rules, discrimination laws, employee benefit laws or any state law, but if passed, it is one more test employers should examine before classifying a worker as an independent contractor.

Texas Employment Law Attorneys

This new proposed rule from the DOL will impact thousands of workers and employers across the state if implemented. If you are an employer and have questions regarding how to classify your employees or whether certain workers qualify for independent contractor status, contact the Texas employment law attorneys of MehaffyWeber for more information on how we can help.