Independent Contractor Status Under the Fair Labor Standards Act, 1168-1248 [2020-29274]

Agencies

• Wage and Hour Division
• DEPARTMENT OF LABOR

[Federal Register Volume 86, Number 4 (Thursday, January 7, 2021)]
[Rules and Regulations]
[Pages 1168-1248]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-29274]



[[Page 1167]]

Vol. 86

Thursday,

No. 4

January 7, 2021

Part III





Department of Labor





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Wage and Hour Division





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29 CFR Parts 780, 788 and 795





Independent Contractor Status Under the Fair Labor Standards Act; Final 
Rule

Federal Register / Vol. 86 , No. 4 / Thursday, January 7, 2021 / 
Rules and Regulations

[[Page 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.

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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 https://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

[[Page 1169]]

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).
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    \1\ 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).
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    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.
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    \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.
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    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\
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    \3\ The Treasury proposal was never finalized because Congress 
amended the SSA to foreclose the proposal.
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    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,

[[Page 1170]]

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).
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    \4\ 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.
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    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

[[Page 1171]]

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).
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    \5\ 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).
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    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.
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    \6\ Fact Sheet #13 is available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs13.pdf.
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    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

[[Page 1172]]

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.

[[Page 1173]]

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.''
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[Page 1174]]

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).
---------------------------------------------------------------------------

    \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'').
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \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.' '')
---------------------------------------------------------------------------

    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

[[Page 1175]]

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.
---------------------------------------------------------------------------

    \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.'').
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \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).
---------------------------------------------------------------------------

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 Sec.  795.100 explaining the 
purpose and legal authority for the new part;
     a provision at Sec.  795.105(a) explaining that 
independent contractors are not employees under the FLSA;
     a provision at Sec.  795.105(b) discussing the ``economic 
reality'' test for distinguishing FLSA employees from independent 
contractors and clarifying that the concept of economic

[[Page 1176]]

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 Sec.  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 Sec.  795.110 advising that the parties' 
actual practice is more probative than what may be contractually or 
theoretically possible;
     fact-specific examples at Sec.  795.115; and
     a severability provision at Sec.  795.120.
    The Department responds to commenter feedback on the proposed rule 
below.

A. The Purpose of Part 795

    Proposed Sec.  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 Sec.  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 Sec.  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.
---------------------------------------------------------------------------

    \14\ 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'').
---------------------------------------------------------------------------

    While proposed Sec.  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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    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

[[Page 1177]]

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
---------------------------------------------------------------------------

    \16\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.
---------------------------------------------------------------------------

    The American Network of Community Options and Resources (ANCOR) 
expressed concern about the Department's statement in proposed Sec.  
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 Sec.  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 Sec.  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 
Sec.  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

[[Page 1178]]

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 Sec.  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.
---------------------------------------------------------------------------

    \18\ 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.
---------------------------------------------------------------------------

    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\
---------------------------------------------------------------------------

    \19\ It is possible for a worker to be an employee in one line 
of business and an independent contractor in another.
---------------------------------------------------------------------------

    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 Sec.  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 Sec.  
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.

[[Page 1179]]

    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 Sec.  
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 Sec.  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 Sec.  
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\
---------------------------------------------------------------------------

    \20\ 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.
---------------------------------------------------------------------------

    Proposed Sec.  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 Sec.  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 Sec.  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

[[Page 1180]]

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 Sec.  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.
---------------------------------------------------------------------------

    \21\ 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.
---------------------------------------------------------------------------

    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--

[[Page 1181]]

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\
---------------------------------------------------------------------------

    \22\ The Department received related feedback from commenters 
asking for proposed Sec.  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.
---------------------------------------------------------------------------

    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 contractor 
status: The worker's ability to make decisions with respect to the 
details of how the work is performed, including the staging and 
sequencing of aspects of the work; the worker's selection of supplies, 
tools, or equipment to be used (or not used) by the worker; the 
worker's control over when the work is conducted (e.g., worker 
flexibility in start and end times) where flexibility exists in the 
result to be accomplished or the time periods available to a worker to 
offer their services; the worker's control over where certain aspects 
of the services can be performed where the subparts do not change the 
results provided by the worker; and the worker's discretion to use the 
services of others to perform the work in whole or in part, or to 
support the worker's performance of services (including performing some 
of the contracted work and/or performing supporting services such as 
accounting, legal, administrative, or financial services to support the 
worker or services to support equipment or tools used by the worker to 
perform services). UPS stated that the proposal ``fails to provide 
examples beyond controlling the worker's schedule or workload and 
restricting the worker's ability to work with other entities,'' and 
that ``courts have properly widened the lens when assessing control, 
looking at factors such as background checks, authority to hire and 
fire, training, advertising, licensing, uniforms, monitoring, 
supervision, evaluation, and discipline.'' Farmworker Justice commented 
that the proposal did ``not acknowledge other examples of employer 
control that unquestionably shape a worker's experience and performance 
of daily tasks'' and provided as examples ``[r]equirements about how a 
worker must dress, what language or tone she may use in a professional 
setting, or what prices she must charge customers.'' Likewise, Sen. 
Sherrod Brown and 22 other senators commented that the proposal 
``ignore[s] other critical matters of control that an employer 
typically exercises or retains the right to, including setting the rate 
of pay and the manner in which the work must be performed and 
disciplining workers who do not meet their standards.'' And Human 
Rights Watch commented that the proposed control factor ``potentially 
omits other ways that gig companies control their workers, such as the 
ways in which they unilaterally change the formula for calculating base 
earnings, the setting of default tip options, and restrictions on the 
range of assignments that are offered to workers at a specific time or 
in a specific locale.'' Other commenters provided various industry-
specific examples that they viewed as indicative of control by the 
individual worker or the potential employer.
    The Department has considered the various comments regarding 
additional examples of types of control that can be indicative of 
employee or independent contractor status and declines to make changes 
to the proposed regulatory text in response. While this preamble and

[[Page 1182]]

the regulatory test cannot (and should not) address each and every 
potential scenario and example, they clarify and articulate principles 
related to the control factor that can be applied to an array of fact 
patterns as they arise.
    As an initial matter, a number of commenters' examples fall within 
the general categories of control already identified in the regulatory 
text. For example, the worker's controlling whether to work at all, 
controlling when the work is conducted, and choosing between work 
opportunities based on prices are all examples of the worker's setting 
his or her schedule or selecting his or her projects, which the 
regulatory text identifies as examples of the worker's control over the 
work. Similarly, the potential employer's requiring a set schedule or 
minimum hours, controlling when the individual can take meal and rest 
breaks, controlling when the individual can take time off, and 
restricting the range of assignments that are offered to the worker are 
all examples of the potential employer's control over the worker's 
schedule, workload, or both, which the regulatory text identifies as 
examples of the potential employer's control over the work.
    Moreover, as explained in the NPRM preamble, the Department is 
concerned that application of the economic reality factors has resulted 
in certain overlaps between the factors. See 85 FR 60607-08 
(identifying ways in which the former skill/initiative, permanence, and 
``integral'' factors considered control). Consistent with that 
discussion and in the interest of further clarification, the Department 
reiterates that the worker's ability to exercise significant 
initiative, whether the potential employer directly or indirectly 
requires the worker to work exclusively for it, and the potential 
employer's ability to compel the worker's attendance to work on a 
consistent basis or otherwise closely supervise and manage performance 
of the work are examples of relevant types of control and are part of 
the control analysis. And as stated above, the Department agrees that 
who controls the manner and means by which the work is performed is a 
key component of the control analysis. In addition, the Department 
approvingly cited in the NPRM preamble cases in which the workers' 
ability to accept or reject projects or deliveries without negative 
repercussions or retaliation,\23\ the potential employer's lack of 
close supervision or specifications how the workers should do the 
work,\24\ and the potential employer's allowing the workers broad 
discretion in the manner in which to complete their work \25\ indicated 
substantial control over the work by the workers. Finally, the 
Department agrees that the various examples of types of control 
identified by the commenters above may, at least in some factual 
circumstances, be relevant to the control analysis.
---------------------------------------------------------------------------

    \23\ See 85 FR 60612 n.35 (citing Parrish, 917 F.3d at 382; 
Express Sixty-Minutes Delivery, 161 F.3d at 303).
    \24\ See id. (citing Thibault, 612 F.3d at 847).
    \25\ See 85 FR 60612-13 (citing Mid-Atl. Installation, 16 F. 
App'x at 106).
---------------------------------------------------------------------------

    Ultimately, however, it is not possible--and would be 
counterproductive--to identify in the regulatory text every type of 
control (especially industry-specific types of control) that can be 
relevant when determining under the FLSA whether a worker is an 
employee or independent contractor. As explained above, the Department 
purposefully articulated the control analysis in a general manner to 
encompass various different types of control that the individual worker 
and the potential employer may exercise over the working relationship, 
and to avoid any unintended inferences regarding omitted types of 
control. Accordingly, any type of control over the work by the 
individual worker or the potential employer may be considered, although 
some types of control are not probative of economic dependence as set 
forth in the final regulatory text (and discussed below).
    The Owner-Operator Independent Drivers Association (OOIDA) objected 
that the proposal ``offers no guidance on how'' the examples of types 
of control ``should be weighed against each other'' and asked whether 
the Department intends ``that a worker must satisfy all of the criteria 
that it mentions in order to be an independent contractor,'' or if 
there is ``some other balance when evaluating this factor.'' OOIDA 
noted that although the proposal stated that no single factor of the 
economic reality test is dispositive, ``it does not offer the same 
clarification when considering the details within a single factor.'' As 
explained above, any type of control over the work by the individual 
worker or the potential employer may be considered to the extent it is 
probative as to 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. No single example of 
control, if present or not present, is necessarily dispositive as to 
whether the control factor indicates economic dependence. The examples 
are simply that: Examples.
c. Responses to Comments Regarding Examples of Requirements That Are 
Not Probative
    Despite the final rule's broad articulation of the control factor, 
not every requirement or limitation on the means of doing business 
constitutes control for the purpose of analyzing whether a worker is an 
employee under the FLSA. The proposed regulatory text contained 
examples of requirements by a potential employer that do not constitute 
control and thus are not probative to the ultimate inquiry of whether 
the individual is, as a matter of economic reality, in business for 
himself. These are requirements 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).'' In other words, insisting on adherence to certain 
rules to which the worker is already legally bound would not make the 
worker more or less likely to be an employee.
    NELA challenged the Department's ``claims that case law supports 
this approach'' and asserted that ``[t]he majority view among courts . 
. . is that evidence of a business compelling its workers to comply 
with certain legal obligations or customer requirements is probative of 
control over the work relationship'' (citing Scantland v. Jeffry 
Knight, Inc., 721 F.3d 1308, 1316 (11th Cir. 2013), among other cases). 
NELA added that ``[c]ourts have routinely held that employer guidelines 
put in place to ensure that workers conform with the law or follow 
safety regulations constitute control over employees'' (citing Narayan 
v. EGL, Inc., 616 F.3d 895, 902 (9th Cir. 2010), among other cases). 
The National Women's Law Center similarly stated that ``courts have 
regularly rejected arguments that external requirements imposed by the 
defendant company's customers are irrelevant to the right to control 
factor'' (citing cases). NELP asserted that the Department's ``attempts 
to take away consideration of certain employer controls based on the 
source of the control'' is ``nonsense'' because ``if legislators or 
regulators have placed an obligation on employers to comply with 
certain laws, that makes the worker less independent and more dependent 
on that employer, and this should be accorded weight.'' AFL-CIO 
commented that the ``categorical exclusion of evidence of control based 
solely on the reasons why the employer exercises the

[[Page 1183]]

control is both irrational and contrary to Supreme Court precedent and 
Congress' intent.'' And the United Brotherhood of Carpenters and 
Joiners of America asserted that the Department's proposal would 
``create[ ] a gaping hole that is fertile ground for exploitation by 
irresponsible employers like the ones we find in the construction 
industry.''
    On the other hand, the Coalition to Promote Independent 
Entrepreneurs ``strongly agree[d]'' with this proposal and ``agree[d] 
that these types of requirements frequently apply to work performed by 
employees and independent contractors alike and thus are not probative 
of whether an individual is economically dependent on a company.'' In 
addition, NRF asserted that ``this clarification is important, as there 
is a difference between `control' and `quality control' and/or other 
performance standards.'' And the Independent Bakers Association 
``strongly support[ed] the proposed clarification that requiring an 
individual to comply with specific legal obligations typical of 
business relationships would not constitute evidence of control or make 
an individual more or less likely to be an employee.'' See also SHRM 
(``support[ing] the [p]roposed . . . recognition that contracting 
parties should be able to build compliance with, for example, specific 
legal obligations, satisfy health and safety standards, and the 
carrying of insurance into the contractual relationship'').
    The Department understands that some courts have found requirements 
that workers comply with specific legal obligations or meet quality 
control standards to be indicative of employee status. In particular, 
the Eleventh Circuit in Scantland stated that it examines ``the nature 
and degree of the alleged employer's control, not why the alleged 
employer exercised such control'' and that ``a company must hire 
employees, not independent contractors'' if ``the nature of [its] 
business requires [the] company to exert control over workers to the 
extent that [the defendant] has allegedly done.'' 721 F.3d at 1316. The 
Scantland court correctly recognized that the ultimate inquiry in the 
economic reality test is ``whether an individual is in business for 
himself or is dependent upon finding employment in the business of 
others.'' 721 F.3d at 1312 (quotation marks omitted). But to answer 
that question it is necessary to consider ``why'' the potential 
employer imposed a requirement. If the reason for a requirement applies 
equally to individuals who are in business for themselves and those who 
are employees, imposing the requirement is not probative. See Parrish, 
917 F.3d at 379 (``although requiring safety training and drug testing 
is an exercise of control in the most basic sense of the word, . . . 
[r]equiring . . . safety training and drug testing, when working at an 
oil-drilling site, is not the type of control that counsels in favor of 
employee status.'').
    The Scantland court's discussion of the control factor included the 
fact that ``[t]echnicians could also be . . . fired, for consistently 
misbilling, fraudulently billing, stealing, . . . [and] having 
consistently low quality control ratings'' as evidence that the control 
factor weighed in favored employee classification. 721 F.3d at 1314 
(11th Cir. 2013).\26\ However, employees and independent contractors 
alike are routinely terminated for fraud, theft, and substandard work. 
Such dismissal are therefore not probative as to whether and the 
dismissed workers were in business for themselves, as opposed to being 
economically dependent on the potential employer. In contrast, 
dismissals for failing to work mandatory hours or for disregarding 
close supervision would be probative because mandatory hours and close 
supervision are typically not imposed on individuals who are in 
business for themselves. At bottom, the question of ``why'' workers 
were dismissed matters a great deal.
---------------------------------------------------------------------------

    \26\ The court also relied on the employers' close supervision, 
control over schedules, and ability to prevent technicians from 
hiring helpers or working for others to conclude that the control 
factors weighed in favor of employee classification. Scantland, 721 
F.3d at 1314-15.
---------------------------------------------------------------------------

    In any event, Scantland's reasoning appears to be in the minority 
among courts of appeals.\27\ As explained in the NPRM preamble, other 
courts have concluded that requiring such types of compliance is not 
probative of an employment relationship. See, e.g., Parrish 917 F.3d at 
379; Iontchev v. AAA Cab Serv., Inc., 685 F. App'x 548, 550 (9th Cir. 
2017) (noting that the potential employer's ``disciplinary policy 
primarily enforced the Airport's rules and [the city's] regulations 
governing the [drivers'] operations and conduct'' in finding that the 
potential employer ``had relatively little control over the manner in 
which the [d]rivers performed their work''); Mid-Atl. Installation, 16 
F. App'x at 106 (rejecting an argument that backcharging the workers 
``for failing to comply with various local regulations or with 
technical specifications demonstrates the type of control 
characteristic of an employment relationship,'' and noting that 
withholding money in such circumstances is common in contractual 
relationships); cf. Mr. W Fireworks, 814 F.2d at 1048 (finding that, 
because a scheduling requirement was imposed by the potential employer 
and not by state law, it suggested control over the workers). And 
courts have reached analogous conclusions in joint employer cases. See, 
e.g., Zheng v. Liberty Apparel Co. Inc., 355 F.3d 61, 75 (2d Cir. 2003) 
(finding that control with respect to ``contractual warranties of 
quality and time of delivery has no bearing on the joint employment 
inquiry'' because such control is ``perfectly consistent with a 
typical, legitimate subcontracting relationship''); Moreau v. Air 
France, 356 F.3d 942, 950-51 (9th Cir. 2003) (noting that control 
exercised by potential joint employer over contractor's employees to 
``ensure compliance with various safety and security regulations'' is 
``qualitatively different'' from control that indicates employer 
status).
---------------------------------------------------------------------------

    \27\ In Narayan, the Ninth Circuit applied California law--not 
the FLSA--and merely recited requirements imposed by the potential 
employer to comply with certain legal obligations among a litany of 
examples of control that precluded summary judgment on the employee 
versus independent contractor issue in that case. See 616 F.3d at 
900-02.
---------------------------------------------------------------------------

    In addition to the supportive case law, the extent to which courts 
take differing approaches to the probative value of such requirements 
is yet another example of the need identified by the Department for a 
clear and uniform standard under the FLSA to distinguish between 
employees and independent contractors. Moreover, the Department 
believes that these types of requirements are generally imposed by 
employers on both employees and independent contractors (as some 
commenters indicated). Employers expect and often require all of their 
workers to, for example, comply with the law, satisfy health and safety 
standards, and meet deadlines and quality standards. Thus, the 
existence of the requirements themselves are not probative of whether 
the worker is an employee or independent contractor. Other indicia of 
control over the work, including the indicia of control identified in 
the final regulatory text, are more probative of the worker's economic 
dependence or independence. Accordingly, the Department retains in the 
final regulatory text's statement that requirements by the potential 
employer that the worker ``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

[[Page 1184]]

businesses (as opposed to employment relationships)'' are not ``control 
that makes the individual more or less likely to be an employee under 
the Act.''
    Although the ATA ``strongly agrees'' with the Department's proposal 
that requirements by the potential employer that the worker ``comply 
with specific legal obligations'' would not be ``control that makes the 
individual more or less likely to be an employee under the Act,'' it 
suggested that ``specific'' be changed to ``any'' in the final 
regulatory text. ATA explained that referring to ``specific'' legal 
obligations ``may unfortunately result in a great deal of litigation 
over whether any particular aspect of a contract is `specifically' 
mandated by law.'' It cited, as examples, laws that impose general 
safety standards with which employers determine the specifics of how to 
comply. See also NHDA (``The proposal carves out compliance with 
specific legal obligations. However, not all legal obligations are 
specific, making other language in the proposal unnecessarily 
problematic.'').
    After careful consideration, the Department declines to adopt the 
suggested change. As an initial matter, the Department used the 
``specific legal obligations'' language in its recent Joint Employer 
Status under the Fair Labor Standards Act final rule. See 85 FR 2859 
(finalizing 29 CFR 791.2(d)(3)).\28\ The Department noted there that 
the obligations include compliance with the FLSA or other similar laws, 
sexual harassment policies, background checks, or workplace safety 
practices and protocols. See id. The Department did not intend a high 
degree of specificity there and intends the same meaning here. 
Moreover, a potential employer's requirement that a worker comply with 
legal obligations without any further specificity as to the law or the 
actual obligations is unlikely to be probative of control in the first 
place. Accordingly, retaining the word ``specific'' is consistent with 
the Department's position that, although requiring workers to comply 
with legal obligations could be some manner of control, such 
requirements reflect the applicable legal regime more than the 
potential employer's control, and encouraging such requirements in 
contractual work relationships has obvious benefits for employers, 
workers, and society generally.
---------------------------------------------------------------------------

    \28\ The Department's Joint Employer final rule was mostly 
vacated by the U.S. District Court for the Southern District of New 
York for reasons unrelated to the ``specific legal obligations'' 
language. See New York v. Scalia, No. 1:20-cv-1689-GHW, 2020 WL 
5370871 (S.D.N.Y. Sept. 8, 2020). The Department appealed the 
decision to the U.S. Court of Appeals for the Second Circuit on 
November 6, 2020.
---------------------------------------------------------------------------

    Other commenters expressed support for the Department's proposal to 
carve out from the control analysis the identified employer actions 
toward individual workers, but also requested that the Department 
expand its proposal by identifying many additional employer 
requirements as not types of control that make the individual more or 
less likely to be an employee under the Act. For example, SHRM asserted 
that ``the Final Rule must emphasize that all workers, regardless of 
their formal employment status, should be able to benefit from the 
training, resources, and positive workplace practices as those who are 
directly employed in the same workplace,'' and it gave examples of 
workplace trainings and audit measures. The U.S. Chamber of Commerce 
stated that the Department ``should expand this concept'' and 
``explicitly state that workers and businesses should not be 
discouraged from incorporating terms (and audit and other certification 
processes) into their relationship that support sound, lawful, safe 
work practices.'' It suggested the following examples of such terms: 
``Incorporation of an obligation that the work be performed pursuant to 
acceptable professional, industry and customer service standards, as 
well as commonly accepted safety, ethics, licensure and other standards 
and recommendations (such as compliance with limitations or control 
imposed or necessitated by law, regulation, order or ordinance).'' See 
also Seyfarth Shaw (requesting that the following employer actions 
toward workers be excluded from the control analysis: ``(1) compliance 
with professional obligations and ethics standards; (2) compliance with 
regulatory obligations, including over health and safety; (3) 
compliance with other published industry standards; (4) compliance with 
applicable local, state, and national licensure standards and rules; 
and (5) additional contractual term examples of agreed upon results and 
deadlines''); \29\ WPI (asserting that the potential employer's 
practice or ability to do the following are not probative: Requiring 
the individual to comply with or pass down contractual and legal 
obligations to subcontractors and employees; requiring the individual 
to comply with customer requirements; tracking and monitoring data 
related to the individual; providing the individual with market data on 
pricing; establishing default pricing that the individual may change; 
providing the individual with information related to the establishment 
or running of a business; providing the individual with emergency 
assistance (e.g., protective equipment during a public-health crisis); 
and complying with Federal, state or locals laws related to a 
contracting relationship). Likewise, the Financial Services Institute 
requested that the Department carve out from the control analysis 
requirements that ``Independent Broker-Dealers'' (IBDs) place on their 
``financial advisors'' to ``comply with requirements imposed by FINRA, 
the SEC, and state securities regulators'' and exclusivity requirements 
that IBDs place on their financial advisors to comply with ``the 
extensive supervisory obligations imposed by the SEC and FINRA.'' OOIDA 
also expressed concerns about exclusivity requirements and sought 
clarification that a potential employer's compliance with ``Federal 
regulations requir[ing] that an owner-operator lease[ ] his or her 
equipment exclusively to a carrier for the duration of the lease'' not 
affect the control analysis. Finally, CPIE asked the Department to 
``make clear that duties or requirements imposed by any third party, 
whether it be a government agency or a third-party customer, . . . be 
disregarded'' when applying the control factor. See also NHDA 
(``[C]ontrol weighing in favor of employee status should be control 
exercised by the potential employer that originates with the potential 
employer and does not originate from outside, independent forces or 
circumstances, such as customer requirements or governmental 
regulations.'').
---------------------------------------------------------------------------

    \29\ In a separate section of its comment, Seyfarth Shaw 
recommended that the Department state that the following are not 
evidence of a potential employer's control over the work of the 
worker: The business provides information regarding the final result 
to be accomplished by the worker; the business provides customer 
specifications/details and feedback relating to the work (including 
requesting confirmation that the customer feedback has been 
addressed); the business provides time frames within which services 
can be provided in light of the services contracted for, and/or the 
time sensitivity or perishable nature of the services/products; the 
business' right to enforce contractual obligations; the business 
provides the worker suggestions, recommendations, guidance, and/or 
tips that are not mandated but informational relating to the 
services; and the business pays the worker by the hour where it is 
customary in the particular business/trade to do so (e.g., 
attorneys, physical trainers).
---------------------------------------------------------------------------

    The Department does not agree with CPIE that any requirement 
stemming from ``duties or requirements imposed by any third party'' be 
``disregarded'' or with NHDA that only control ``that originates with 
the potential employer'' can indicate employee status. This is because 
a third party may explicitly or impliedly encourage businesses to

[[Page 1185]]

impose requirements on workers that signify employee classification. 
For example, clients of a home cleaning company may prefer that the 
company's workers wear uniforms, use the same equipment, and be closely 
supervised. Imposing such requirements, even to satisfy client 
preferences, makes the workers more likely to be classified as 
employees because those requirements are inconsistent with the workers 
being in business for themselves. A company may also require that 
workers it hires perform timely and high-quality work, as clients 
surely prefer. But contractually agreed-upon deadlines and quality 
standards do not signify employee classification because independent 
businesses routinely agree to meet deadlines and quality standards as 
part of their businesses.
    In response to comments requesting that the Department identify 
many additional employer requirements as not types of control that make 
the individual more or less likely to be an employee under the Act, the 
Department declines to change its proposed regulatory text. As an 
initial matter, many of the requested additions are already covered by 
the proposed text. For example, the following requested additions are 
requirements to ``comply with specific legal obligations'' and thus 
already covered: Requirements to comply with limitations or control 
imposed or necessitated by law, regulation, order, or ordinance; 
regulatory obligations; Federal, state, or local laws related to a 
contracting relationship; requirements imposed by FINRA, the SEC, and 
state securities regulators; and Federal regulations requiring that an 
owner-operator lease his or her equipment exclusively to a carrier for 
the duration of the lease.\30\ Other requested additions may fall into 
the ``satisfy health and safety standards'' category (for example: 
Requiring that the work be performed pursuant to commonly accepted 
safety standards; and providing the individual emergency assistance 
such as protective equipment during a public-health crisis) or the 
``meet contractually agreed-upon deadlines or quality control 
standards'' category (for example: Agreements that the work be 
performed pursuant to acceptable professional, industry, or published 
industry standards; agreements to comply with applicable local, state, 
and national licensure standards and rules; and agreed upon results and 
deadlines). Other requested additions are narrow or industry-specific 
in nature, and the Department prefers general guidance that may be used 
by as many employers and workers as possible.
---------------------------------------------------------------------------

    \30\ Uber requested that the Department clarify that background 
checks are not an indicia of control: ``Where a business is required 
by law to engage in certain activities (such as screening potential 
workers for violent crime history), the Department should make clear 
that this required screening is not an indicia of control.'' 
However, requiring a worker to undergo and pass a background check 
when the law requires it falls in the ``comply with specific legal 
obligations'' category. No further clarification is necessary.
---------------------------------------------------------------------------

    In any event, it is not possible to identify in the regulation 
every employer requirement that is not the type of control that makes 
the individual more or less likely to be an employee under the Act. The 
regulatory text accounts for this with a broader final category: 
Requiring the worker to ``satisfy other similar terms that are typical 
of contractual relationships between businesses (as opposed to 
employment relationships).'' This category recognizes that contractual 
work relationships currently vary and will evolve going forward, and 
provides that additional employer requirements that are not expressly 
identified in the regulatory text but which are similar to those 
identified and are typical of such relationships do ``not constitute 
control that makes the individual more or less likely to be an employee 
under the Act.''
    SHRM requested that the Department exclude from the control 
analysis the offering of benefits such as ``health insurance, bonuses, 
or retirement savings.'' According to SHRM, ``the modern workplace 
would suffer if businesses were effectively barred from providing 
workplace enhancements that all workers should enjoy like healthcare or 
retirement savings.'' Other commenters made overlapping requests, 
although not necessarily in the context of applying the control factor. 
For example, TechNet requested that the Department add a ``safe 
harbor'' stating that ``a worker does not lose his or her independent 
status solely because a network platform provides the worker with 
emergency aid or benefits allowed or required under state law.'' 
Similarly, WPI requested a general ``safe harbor'' with respect to the 
provision of ``protections or benefits as allowed or required by 
Federal, state or local laws, including but not limited to minimum 
guaranteed earnings, health insurance, retirement benefits, health or 
retirement subsidies, life insurance, workers compensation or similar 
insurance, unemployment insurance, sick or other paid leave, training 
and expense reimbursement.''
    The Department declines to change the regulatory text in response 
to these comments. The offering of health, retirement, and other 
benefits is not necessarily indicative of employment status. For 
example, payment of proceeds owed into a worker's own health plan or 
retirement account would not indicate an employment relationship. This 
is because it is reasonable for an independent contractor to have a 
personal health or retirement plan, and the precise method of 
compensation--whether cash, contributions to an account, or some other 
method--is not relevant to the question of economic dependence. 
However, providing a worker with the same employer-provided health or 
retirement plans on the terms that a business also gives its own 
employees may indicate the worker is not an independent contractor but 
rather an employee. Certain other benefits could also suggest employee 
status. For example, sick or other paid leave, especially the potential 
employer's administration and authorization of the leave, could be 
indicative of the potential employer's control over the worker's 
schedule. Finally, offering a bonus to a worker may or may not be 
indicative of employee status. For example, a worker's participation in 
a bonus or profit sharing plan in which he or she receives a bonus 
depending on the employer's, a division of the employer's, or his or 
her own performance over a period of time could limit the worker's 
ability to affect his or her profit or loss through initiative or 
investment--suggesting economic dependence and thus employee status. 
But a contractual agreement to provide a worker with a fixed bonus if 
the worker completes a job by a certain deadline or completes a certain 
number of tasks over a fixed period is typical of contractual 
relationships between businesses and itself does not make the worker 
more or less likely to be an employee under the Act. Even if, based on 
the circumstances of a particular case, the provision of certain 
health, retirement, or other benefits suggests classification as an 
employee, that fact is not determinative by itself because other facts 
and factors must also be considered.
2. The ``Opportunity for Profit or Loss'' Factor
    The second core factor identified in the proposed regulatory text 
was the ``individual's opportunity for profit or loss.'' 85 FR 60639. 
This factor, included at proposed Sec.  795.105(d)(1)(ii), ``weighs 
towards the individual being an independent contractor to the extent 
the individual has an opportunity to earn profits or incur losses based 
on his or her exercise of initiative (such as managerial skill or 
business acumen or judgment) or management of his or her

[[Page 1186]]

investment in or capital expenditure on, for example, helpers or 
equipment or material to further his or her work.'' Proposed Sec.  
795.105(d)(1)(ii) further explained that, ``[w]hile the effects of the 
individual's exercise of initiative and management of investment are 
both considered under this factor, the individual does not need to have 
an opportunity for profit or loss based on both for this factor to 
weigh towards the individual being an independent contractor.'' In 
addition, under the proposal, this factor ``weighs towards the 
individual being an employee to the extent the individual is unable to 
affect his or her earnings or is only able to do so by working more 
hours or more efficiently.'' Numerous comments were submitted regarding 
the proposals to analyze investment through the lens of opportunity for 
profit or loss and to focus that analysis on the worker's investment 
rather than comparing the worker's investment to the potential 
employer's investment. One commenter requested eliminating this factor 
altogether, and several commenters requested changes to the other 
aspects of the proposed opportunity factor section.
a. Whether To Analyze Investment Through the Lens of Opportunity for 
Profit or Loss
    Some commenters opposed the proposal to consider the individual 
worker's ``management of his or her investment in or capital 
expenditure on, for example, helpers or equipment or material to 
further his or her work'' as part of the opportunity factor. For 
example, NELA stated that a worker's investment has ``been a critically 
important factor in the economic realities test analysis'' and that 
``[d]iscounting this important piece of the economic reality test, as 
the Department has done here, plainly makes it easier for businesses to 
require workers to make significant financial investments without 
risking a finding of employee status.'' The State AGs similarly 
commented that the proposed approach of considering investment only in 
the context of opportunity for profit or loss ``inappropriately 
subordinates the investment factor to the opportunity for profit or 
loss'' factor. According to the State AGs, ``[c]ourts consider both 
factors, often together, but investment `is, itself, indicative of 
independent contractor status' especially in smaller businesses'' 
(quoting Saleem v. Corp. Transp. Group, Ltd., 854 F.3d 131, 144 n.29 
(2d Cir. 2017)). UPS said that ``workers [who] make little or no 
monetary investment toward completion of the work . . . are more likely 
to be dependent on the company,'' but that the Department's proposal 
``ignores that reality'' by suggesting that initiative and investment 
``are on equal footing.'' NELP stated that, although opportunity for 
profit or loss and investment ``are linked, they are hardly duplicative 
and separately serve as useful indicia of an entity's status under the 
FLSA, as the Supreme Court's tests note.''
    On the other hand, some commenters supported the proposal to 
consider investment in the opportunity factor. For example, according 
to WPI, ``[t]he Department's proposal to combine [opportunity for 
profit or loss] with an individual's investment in facilities and 
equipment, following Second Circuit precedent, is a welcome change that 
will bring clarity and reduce overlap.'' It added that ``[w]ise 
decisions about investments are perhaps the clearest path to increasing 
profits or suffering losses.'' CPIE supported the proposed ``adoption 
of the Second Circuit's approach of combining the factors `opportunity 
for profit or loss' and `investment,' and not treating them as separate 
factors.'' According to CPIE, the proposal ``better captures both the 
manufacturing-based independent contractor (who likely has a tangible 
capital business investment) and the new-economy independent contractor 
(who likely does not).''
    Having carefully considered the comments on this issue, the 
Department adopts its proposal, consistent with Second Circuit case 
law, to consider investment as part of the opportunity factor. Some 
courts have acknowledged that the two concepts are related while still 
keeping the factors separate. See McFeeley, 825 F.3d at 243; Lauritzen, 
835 F.2d at 1537. Other courts do not expressly acknowledge that they 
are related but consider investment when evaluating opportunity for 
profit or loss--resulting in unnecessary and duplicative analysis of 
the same facts under two factors. See, e.g., Mid-Atl. Installation, 16 
F. App'x at 106-07 (finding that the worker's capital investments in 
tools, equipment, and a truck indicated independent contractor status 
under both the opportunity and the investment factors). And 
consideration of investment separately has caused other courts to 
discuss the worker's involvement in outside businesses in the context 
of opportunity for profit or loss. See, e.g., Parrish, 917 F.3d at 384 
(considering consultant's management of a goat farm). After considering 
these varying approaches, the Department believes that adopting the 
Second Circuit's approach best furthers the Department's goal: A clear 
and non-duplicative analysis for determining employee versus 
independent contractor status. In sum, the individual worker's 
meaningful capital investments may evince opportunity for profit or 
loss: ``[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; see also Superior Care, 840 F.2d at 1060 
(identifying ``the workers' opportunity for profit or loss and their 
investment in the business'' as a single factor).
    Moreover, considering investment as part of opportunity for profit 
or loss is consistent with the Supreme Court's opinion in Silk which 
articulated the two factors separately but analyzed them together. In 
particular, the Court found that coal unloaders were employees because 
they had ``no opportunity to gain or lose except from the work of their 
hands and [ ] simple tools,'' while truck drivers who invested in their 
own vehicles had ``opportunity for profit from sound management'' of 
that investment by, for instance, hauling for different customers. Id. 
at 719. Thus, it framed the analysis as whether workers are more like 
unloaders whose profits were based solely on ``the work of their hands 
and [ ] simple tools'' or the drivers whose profits depended on their 
initiative and investments. See id. As the Court explained decades ago 
and as the Second Circuit noted much more recently in Saleem, 
investment is a pathway to opportunity for profit or loss.
    In response to NELA and likeminded commenters' concern that 
employers may require significant investments by their workers to avoid 
employee status, the Department reiterates that the investment must be 
capital in nature and consistent with the worker being in business for 
him/herself for the investment to indicate an opportunity for profit or 
loss. Senator Sherrod Brown and 22 other senators stated that 
``[r]equiring [workers] to purchase a franchise or their own equipment, 
including a vehicle'' or otherwise ``take on financial risk as a 
condition of employment does not convert an employee into an 
independent contractor under the FLSA.'' While no single fact or factor 
may ``convert an employee into an independent contractor,'' the 
prospect of financial risk and reward plays an important role in 
distinguishing ``wage earners toiling for a living'' from ``independent 
entrepreneurs seeking a return on their risky capital investments.'' 
Mr. W. Fireworks, 814 F.2d at 1051. Moreover, it matters why certain 
investments are required. If certain capital investments

[[Page 1187]]

are necessary to perform the job for which the contractor is hired, 
then requiring a contractor to make such investments would be 
consistent with the contractor being in business for him- or herself. 
For example, a company that hires independent contractors to haul 
freight may obviously require that drivers bring their own vehicles. 
Silk 331 U.S at 719. In contrast, a requirement to ``invest'' in 
specific, company-provided equipment would not be consistent with the 
worker being in business for him- or herself, and may constitute a 
consideration under the control factor that points towards employee 
status. See Scantland, 721 F.3d at 1318 (concluding that technicians' 
``expenditures [in equipment and materials] detract little from the[ir] 
economic dependence on Knight'' in part because ``many technicians 
purchased specialty tools from Knight directly via payroll 
withholdings''). As such, OOIDA's concern ``that any requirement that a 
worker must purchase services or equipment from the business for which 
they work [w]ould weigh in favor of employee status'' is misplaced. See 
also SWRCC (``[T]his standard would provide a perverse incentive for 
companies to require putative employees to maintain their own equipment 
in an effort to steer those employees to independent contractor 
status.''). Consistent with the economic dependence inquiry, an 
investment must indicate an independent business by the worker, as 
opposed to merely being required by the potential employer, for it to 
indicate an opportunity for profit or loss.
    In response to the State AGs, the Department's approach does not 
subordinate investment; it can still separately indicate independent 
contractor status as they suggest. Finally, the Department's approach 
is not contrary to UPS' assertion that workers who make little or no 
investment ``are more likely to be dependent'' on the potential 
employer.\31\ Workers who make little or no investment are more likely 
to be employees than workers who make significant investments, but of 
course, such a worker's ultimate status as an employee or independent 
contractor will also depend on other factors. As the Department 
explained in the NPRM preamble, workers who do not make significant 
investments may still be independent contractors: ``while the presence 
of significant capital investment is still probative, its absence may 
be less so in more knowledge-based occupations and industries. Indeed, 
technological advances enable, for example, freelance journalists, 
graphic designers, or consultants to be entrepreneurs with little more 
than a personal computer and smartphone.'' 85 FR 60609 (citing Faludi 
v. U.S. Shale Sols., L.L.C., 950 F.3d 269, 276 (5th Cir. 2020)); see 
also Meyer v. United States Tennis Ass'n, 607 F. App'x 121, 123 (2d 
Cir. 2015) (concluding that workers who invested little were 
independent contractors primarily because of their control over the 
work and their initiative); Lauritzen, 835 F.2d at 1540-41 
(Easterbrook, J. concurring) (``[P]ossess[ing] little or no physical 
capital . . . is true of many workers we would call independent 
contractors. Think of lawyers, many of whom do not even own books. The 
bar sells human capital rather than physical capital, but this does not 
imply that lawyers are `employees' of their clients under the 
FLSA.'').\32\
---------------------------------------------------------------------------

    \31\ The American Society of Travel Advisors disagreed at least 
in part, commenting that ``workers in many service industries may 
make only a minimal investment in equipment or materials and in such 
situations this consideration, by itself, should not be taken to 
weigh in favor of employee status.''
    \32\ LocumTenens, an online company that specializes in the 
temporary placement of physicians and other health clinicians, 
requested that the Department eliminate from the economic reality 
test consideration of whether an individual has an opportunity for 
profit or loss. According to LocumTenens, its physicians and 
clinicians who provide temporary healthcare services ``do not have 
an obvious investment or opportunity for profit when they step in'' 
for another physician or clinician. However, as explained later, the 
Department believes that opportunity for profit or loss is very 
predictive of a worker's status as an employee or independent 
contractor. In addition, the rule requires a worker to exercise 
personal initiative or manage capital investments, but not 
necessarily both, for the opportunity factor to indicate independent 
contractor status. In other words, an absence of capital investment 
does not prevent an individual from having an opportunity for profit 
or loss, because such opportunity can be based on the individual's 
initiative. Nor does such absence necessarily prevent an individual 
from being properly classified an independent contractor, 
particularly in knowledge-based industries such as medicine where 
human capital matters more than physical capital.
---------------------------------------------------------------------------

b. Whether To Analyze the Worker's Investment or Compare the Worker's 
Investment With That of the Potential Employer
    The Department noted in the NPRM preamble that, when considering 
investment, some courts use ``a side-by-side comparison method'' that 
directly compares the worker's individual investment to the investment 
by the potential employer. See 85 FR 60614 (citing cases). The 
Department explained that ``such a `side-by-side comparison method' 
does not illuminate the ultimate question of economic dependence,'' but 
instead ``merely highlights the obvious and unhelpful fact that 
individual workers--whether employees or independent contractors--
likely have fewer resources than businesses'' that, for example, 
maintain corporate offices. Id. (citing cases). The Department received 
a number of comments addressing its proposed rejection of the relative 
investment approach.
    For example, UPS stated that the Department's proposal 
``undervalues comparative analysis of investment'' and noted that 
courts ``have evaluated investment comparatively--correctly measuring 
the worker's investment against the company's'' (citing cases). NELA 
added that ``comparing workers' investments to the employer's 
investments'' has been ``a critically important factor in the economic 
realities test analysis'' and ``must be done in the context of the 
working relationship.'' TRLA objected that ``the proposed test does not 
include the Fifth Circuit's `extent of the relative investments of the 
worker and alleged employer' factor'' and asserted that, while its 
usefulness may vary ``depending on the facts of individual cases,'' 
``its wholesale exclusion from the test factors is not warranted, 
especially given the Supreme Court's caution against an exhaustive 
list'' (citing Silk, 331 U.S. at 716). The Southwest Regional Council 
of Carpenters described the relative investment approach as simple and 
efficient by ``lining up the expenses between worker and company'' and 
thus ``advanc[ing] the key interest of all parties concerned with the 
predictability of this part of the independent contractor test.'' 
According to the Pacific Northwest Regional Council of Carpenters, the 
Department acted ``arbitrarily'' in proposing to eliminate 
consideration of relative investments and asserted that, because 
``virtually every craftsperson who works in the various carpentry 
trades owns his or her own tools,'' the proposal would make ``all of 
those individuals more susceptible to being classified as'' independent 
contractors regardless whether the investment is small or extensive.
    Other commenters supported the Department's proposed position. For 
example, the ATA, the Arkansas Trucking Association, NHDA, and 
Scopelitis, Garvin, Light, Hanson & Feary (on behalf of various 
transportation companies) each agreed with the Department's proposal 
``that the relative investment test fashioned by the Fifth Circuit 
`does not illuminate the ultimate question of economic

[[Page 1188]]

dependence' '' (quoting 85 FR 60614). TechNet explained that ``the 
relative sizes of the parties' investments'' are not relevant to the 
analysis, asserting that ``[l]arge businesses may contract with small 
businesses,'' make investments that ``typically exceed their smaller 
partners' investments by orders of magnitude . . . because of their 
size,'' and ``not endanger [their] partners' independence merely 
because [they are] bigger than [their partners] are.'' CPIE stated that 
``the determinative inquiry relative to investment should be whether 
the individual has a sufficient investment in his or her trade or 
business as to enable the individual to operate independently,'' 
asserting that ``[t]he investment of a potential client has no 
discernible relevance to this inquiry.'' See also WFCA (``The issue is 
whether a worker invested in his or her business, not how that 
investment compares to the employing company's investment.'').
    Having carefully considered the comments, the Department reaffirms 
its position that comparing the individual worker's investment to the 
potential employer's investment should not be part of the analysis of 
investment. Comparing their respective investments does little more 
than compare their respective sizes and resources. In Hopkins v. 
Cornerstone America, 545 F.3d 338, 344 (5th Cir. 2008), it was of 
course ``clear that [the insurance company's] investment--including 
maintaining corporate offices, printing brochures and contracts, 
providing accounting services, and developing and underwriting 
insurance products--outweighs the personal investment of any one Sales 
Leader.'' The court, however, never explained how this fact indicated 
the Sales Leaders' economic dependence. See id. Tellingly, when summing 
up the entirety of the facts and analyzing whether the workers were 
economically dependent on the insurance company as a matter of economic 
reality, the court did not even mention the insurance company's larger 
investment. See id. at 346. And in Karlson, 860 F.3d at 1096, the court 
found that comparing the worker's investment with the potential 
employer's total operating expenses had little relevance because 
``[l]arge corporations can hire independent contractors, and small 
businesses can hire employees.'' Cf. Parrish, 917 F.3d at 383 
(comparing relative investments, but noting that ``[o]bviously, [the 
oil drilling company] invested more money at a drill site compared to 
each plaintiff's investments'' and according the factor little weight 
in light of the other evidence). In sum, comparing the relative 
investments does not illuminate the worker's economic dependence or 
independence. By contrast, as explained herein, analyzing the extent to 
which the individual worker has an opportunity for profit or loss 
because of his or her investment in, or capital expenditure on, helpers 
or equipment or material to further his or her work is probative of the 
worker's economic dependence or independence.
c. Other Comments Concerning the Opportunity Factor
    WFCA agreed that ``an evaluation of a worker's investment and 
capital expenditures are relevant factors in determining whether he or 
she is an independent contractor'' and suggested including of ``a 
definition of what constitutes an investment or capital expense.'' WFCA 
suggested the following: ``Investments and capital expenditure shall 
include: The purchase or rental of tools, equipment, material, and 
office or work facilities; the payment for marketing and administrative 
expenses; the payment of costs incurred hiring or using other workers; 
and similar expenditures.'' However, the regulatory text already 
identifies investment in ``helpers or equipment or material'' as 
relevant, and the ``for example'' preceding them in the regulatory text 
makes clear that the list is non-exhaustive. The Department believes 
that general and non-exhaustive examples are more helpful than trying 
to precisely identify as many examples of relevant investments as 
possible.
    NRF commented that ``it is important to emphasize that it is the 
`opportunity' or `ability' to earn profits or incur losses based on 
investment and/or initiative, as opposed to the actual level of 
investment or initiative shown by the individual.'' Relatedly, NRF 
expressed concern whether this factor squares with the discussion in 
proposed Sec.  795.110 that the actual practice of the parties involved 
is more relevant than what may be contractually or theoretically 
possible, asserting that ``the fact that someone might not engage in 
certain practices or take on certain risks that would further impact 
the level of profit or loss should not result in a finding that the 
individual is not an independent contractor, unless that person is 
prevented from doing so by the entity with whom the individual 
contracts.'' Here, the Department believes that NRF is conflating the 
ultimate outcome of independent entrepreneurship (profit or loss) with 
the actions indicative of entrepreneurship (initiative and/or 
investment) that largely determine that outcome. While profits are 
hardly guaranteed for anyone in business for him/herself, the text at 
Sec.  795.105(d)(1)(ii) makes clear that independent contractors 
typically ``exercise . . . initiative'' and/or ``manag[e] . . . 
investment,'' (emphasis added). Thus, a lack of profit viewed in 
hindsight says little about a worker's economic independence; instead, 
the focus is the degree to which the worker actually exercised 
initiative or actually managed investments. A worker's theoretical 
ability to, for example, exercise initiative is weaker evidence than 
the worker's actual practices. See e.g., Sureway Cleaners, 656 F.2d at 
1371 (``[T]he fact that Sureway's `agents' possess, in theory, the 
power to set prices . . . and advertise to a limited extent on their 
own is overshadowed by the fact that in reality the `agents' . . . 
charge the same prices, and rely in the main on Sureway for 
advertising.''). However, a worker's conscious decision to not make a 
particular investment (especially when choosing among a range of 
investments) or to not take a particular action (especially when 
choosing among a range of options) may constitute an affirmative 
exercise of initiative to consider among others when evaluating 
opportunity for profit or loss. In sum, in the context of the 
opportunity factor, the focus is the individual worker's opportunity 
for profit or loss, as shown by meaningful investments or the exercise 
of personal initiative; actual profits or losses are less relevant.
    OOIDA expressed ``concern[ ] that the timeline for determining 
profit or loss is not clarified in the NPRM'' and explained that 
certain ``[m]otor carriers that take advantage of drivers through a 
lease-purchase agreement are likely to argue that a driver's 
opportunity for profit is merely a few years in the future, and that 
this full timeline must be considered.'' The Department agrees with 
OOIDA that ``[t]his is a fallacy''; the opportunity for profit or loss 
must be reasonably current to indicate independent contractor status.
    Regarding the Department's proposal to include initiative as a 
consideration in the opportunity factor, NRF agreed that ``[t]he 
ability to impact profits or losses also may be dependent on business 
acumen and managerial skills, regardless of the `skill level' of the 
work or the level of investment.'' NRF added that ``identifying 
`business acumen' or `management skill' as part of the profit or loss 
factor is appropriate and consistent with the FLSA.'' Senator Sherrod 
Brown and 22 other senators disagreed, commenting: ``Just because

[[Page 1189]]

employees can increase their wages by exercising skill or initiative 
does not mean they are running a separate, independent business, 
particularly if they cannot pass along costs to customers.'' They added 
that ``[t]he rule does not include additional, critical considerations 
of skill and initiative that are necessary to define an employment 
relationship.'' And Seyfarth Shaw requested that the Department state 
that ``a worker's business acumen is to be interpreted to cover acumen 
relevant to the wide range of business endeavors in the U.S. economy, 
including, for example: Sales, managerial, customer service, marketing, 
distribution, communications, and other professional, trade, technical, 
and other learned skills, as well as other unique business abilities 
and acumen, including acumen that impacts a worker's ability to 
profitably run their own independent business.''
    Having carefully considered the comments, the Department continues 
to believe that a worker's initiative, such as managerial skill or 
business acumen or judgment, is an appropriate measure of a worker's 
opportunity to earn profits or incur losses. See, e.g., Karlson, 860 
F.3d at 1094-95 (discussing how the worker's decisions and choices 
regarding assignments and customers affected his profits); Saleem, 854 
F.3d at 145 (noting in support of independent contractor status that 
the degree to which the worker's relationship with the potential 
employer ``yielded returns was a function . . . of the business acumen 
of each [worker]''); McFeeley, 825 F.3d at 243 (``The more the worker's 
earnings depend on his own managerial capacity rather than the 
company's . . . the less the worker is economically dependent on the 
business and the more he is in business for himself and hence an 
independent contractor.'') (internal quotation marks omitted); Express 
Sixty-Minutes Delivery, 161 F.3d at 304 (agreeing with district court 
that ``driver's profit or loss is determined largely on his or her 
skill, initiative, ability to cut costs, and understanding of the 
courier business''); WHD Opinion Letter FLSA2019-6 at 6 (``These 
opportunities typically exist where the worker receives additional 
compensation based, not [merely] on greater efficiency, but on the 
exercise of initiative, judgment, or foresight.''). Commenters did not 
seriously dispute the relevance of initiative to a worker's opportunity 
for profit or loss. In response to the comment by Senator Sherrod Brown 
and 22 other senators, the Department agrees that a worker is not 
necessarily an independent contractor because he or she can use 
initiative to affect his or her opportunity for profit or loss but 
maintains that yet initiative is indicative of--or weighs towards--
independent contractor status in the multifactor analysis. And the 
Department agrees that a worker's ability to cut costs, including by 
passing them along to customers, is relevant to determining initiative. 
See Express Sixty-Minutes Delivery, 161 F.3d at 304. Finally, the 
Department agrees with Seyfarth Shaw that a worker's business acumen 
can ``cover acumen relevant to the wide range of business endeavors in 
the U.S. economy''--initiative is not limited to or automatically 
present in any particular type of job.
    Regarding the last sentence of the proposed opportunity factor 
regulatory text (``This factor weighs towards the individual being an 
employee to the extent the individual is unable to affect his or her 
earnings or is only able to do so by working more hours or more 
efficiently.''), WFCA expressed the concern that the sentence means 
that a worker who starts his or her own business and seeks to develop 
efficiencies in so doing will be an employee under the analysis. WFCA 
suggested that the sentence be deleted. WPI also asked that the last 
sentence be deleted because ``[a]n individual who uses initiative, 
skill or judgment to perform a job more efficiently can generate 
greater profits, even if compensated by the hour or piece rate.'' It 
asserted: ``The ability to use managerial skill, expertise, market 
experience, or business acumen to perform work more efficiently is 
indicative of independent contractor status.'' The Department agrees 
that such use of initiative can indicate independent contractor status 
when it affects opportunity for profit or loss. The word 
``efficiently'' was used in proposed Sec.  795.105(d)(2)(ii) to mean 
working faster to perform rote tasks more quickly. See 85 FR 60614 n.38 
(identifying piece-rate workers as ``an example of workers who are able 
to affect their earnings only through working more hours or more 
efficiently.''). Higher earnings that result solely from this ``working 
faster'' concept of efficiency do not by themselves indicate 
independent contractor status. However, as WFCA and WPI note, 
efficiency may also mean effective management based on business acumen, 
which is indicative of being in business for oneself if it results in 
increased earnings. For instance, the Fifth Circuit found that the 
opportunity factor ``points towards independent contractor status'' 
where ``a driver's profit or loss is determined largely on his or her 
skill, initiative, ability to cut costs, and understanding of the 
courier business,'' observing that ``drivers who made the most money 
appeared to be the most experienced and most concerned with efficiency, 
while the less successful drivers tended to be inexperienced and less 
concerned with efficiency.'' Express Sixty-Minutes Delivery Serv. 161 
F.3d at 304. To avoid confusion between multiple potential meanings of 
``more efficiently,'' the Department is revising Sec.  
795.105(d)(2)(ii) to replace that term with ``faster.'' Relatedly, ATA 
and other transportation commenters objected to the Department's 
statements in the NPRM preamble that ``[w]orkers who are paid on a 
piece-rate basis are an example of workers who . . . lack meaningful 
opportunity for profit or loss.'' They asserted that the statements may 
result in some judges refraining from engaging in the actual analysis 
set forth in the rule as to opportunity for profit or loss. They 
further asserted that truck drivers paid on a piece-rate basis may be 
independent contractors based on their management decisions or ability 
to cut costs. The Department's statements in the NPRM preamble 
regarding workers paid on a piece-rate basis were general observations 
supported by case law \33\ and not a categorical rule or the complete 
analysis. The fact that a worker is paid on a piece-rate basis set by 
the potential employer does not indicate an opportunity for profit or 
loss, but whether that worker has an opportunity for profit or loss 
indicative of independent contractor status is determined by a fuller 
analysis of the worker's circumstances.
---------------------------------------------------------------------------

    \33\ See Goldberg v. Whitaker House Co-op., Inc., 366 U.S. 28, 
33 (1961) (plaintiffs who manufactured knitted goods at home were 
employees under the FLSA, in part, because ``[t]he management fixes 
the piece rates at which they work''); Rutherford Food, 331 U.S. at 
730 (because workers' earnings ``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''); Hodgson v. 
Cactus Craft of Arizona, 481 F.2d 464, 467 (9th Cir. 1973) (persons 
who manufacture novelty and souvenir gift items at homes and were 
compensated at a piece rate were employees under the FLSA). And in 
Donovan v. DialAmerica Marketing, Inc., the court held that 
homeworkers who were paid on a piece-rate basis to perform the 
simple service of researching telephone numbers were employees who 
lacked meaningful opportunity for profit or loss. See 757 F.2d 1376, 
1385 (3rd Cir. 1985). In contrast, distributors who recruited and 
managed researchers and were paid based on the productivity of those 
they managed were independent contractors, in part, because 
distributors' earnings depended on ``business-like initiative.'' Id. 
at 1387.
---------------------------------------------------------------------------

    Some commenters requested additional examples that are indicative

[[Page 1190]]

of an opportunity for profit or loss (many of the suggested examples 
overlapped with each other). TechNet asked for ``concrete examples'' 
and suggested the following: ``[d]rivers who can set their own hours, 
choose which jobs to accept or reject, and use their judgment in how to 
best complete jobs,'' as well as ``[a]pp-based opportunities--including 
opportunities to provide personal transportation, parcel deliveries, 
shopping services, or food delivery, among other types of service.'' 
The U.S. Chamber of Commerce offered eleven ``additional examples of a 
worker's initiative or investment that may impact a worker's profit or 
loss.'' \34\ The U.S. Chamber of Commerce also suggested ``examples of 
fact situations which are neutral in the analysis of whether the worker 
controls their profits and losses.'' \35\ SHRM requested numerous 
``additional examples of worker investment and initiative that impact 
profit and loss.'' \36\ SHRM also requested that the final rule make 
``the following explicit statements regarding facts that do not support 
a finding of dependency: [w]orkers may experience financial losses as a 
result of cancellations of their service or the provision of service 
that does not meet customer expectations when the worker has 
flexibility to choose between work opportunities; and [e]ven if the 
business sets the price of goods provided by the worker, that does not 
negate the worker's initiative when the worker controls the amount of 
time, when, and where they provide the services as well as the amount 
of the same service they chose to provide.'' Seyfarth Shaw asked the 
Department to ``expand upon the examples of ways that workers impact 
their own profitability as well as their losses (by impacting their 
profits and their costs)'' and to include numerous examples.\37\ And 
Mr. Reibstein commented that ``[e]xamples of loss should be identified 
. . . so it is clear [that this factor] does not focus only on 
profit.'' He offered the following examples: ``He or she has to re-do 
work that is not consistent with industry standards or does not meet a 
customer's expectations; is potentially liable to the potential 
employer in the event his or her actions or inactions cause harm or 
legal expense to the potential employer; or fails to render services in 
a cost-efficient manner by not managing expenses or investing far too 
much time on activities that are unproductive.''
---------------------------------------------------------------------------

    \34\ The U.S. Chamber of Commerce's suggested examples were: 
``(1) The worker's own decision-making with respect to the details 
and means by which they make use of, secure, and pay helpers, 
substitutes, and related labor or specialties . . . (2) The worker's 
own decision-making with respect to the details and means by which 
they purchase, rent, or otherwise obtain and use tools . . . ; (3) 
The worker's own decision-making with respect to the details and 
means by which they purchase or otherwise obtain and use supplies . 
. . ; (4) The worker's own decision-making with respect to the 
details and means by which they purchase, rent, or otherwise obtain 
and use equipment . . . ; (5) The worker's initiative and decisions 
they implement in connection with their own performance of services 
through higher service fees, incentives, charges, and other ways; 
(6) The worker's initiative to invest in the development of skills, 
competencies, and trades . . . ; (7) The worker's expertise in 
delivery of services/products that result in enhanced profits, for 
example through tips and other incentives as a result of providing 
quality customer service; (8) The worker's losses incurred as a 
result of customer complaints or other charges where the worker's 
results were below customer or contractual expectations and 
obligations; (9) The worker's flexibility to choose amongst work 
opportunities offered that impact profits and losses; (10) The 
worker's contractual or other losses if they do not provide the 
accepted services or the worker provides substandard services, and 
are engaged to provide time-sensitive, often perishable services and 
products; and (11) The worker's avoidance of liquidated damages 
charges or indemnification obligations in the parties' agreement 
relating to various provisions, including material breaches of the 
parties' agreement.''
    \35\ These suggested examples were: ``(1) The business pays the 
worker by the hour where it is customary in the particular business/
trade to do so (e.g., attorneys, physical trainers); (2) The 
business sets the price of goods and services offered by a worker to 
customers where the worker controls the amount of time, date and 
place they provide the services as well as the amount of services 
they choose to provide and the price is set to facilitate the time 
sensitive transaction as a result of the time sensitive or 
perishable nature of the service the customer desires[;] and (3) The 
business's facilitation of payments from the customer to the 
worker.''
    \36\ SHRM's suggested examples were: ``[t]he worker's decisions 
in choosing amongst opportunities offered that impact profit and 
loss; [t]he worker's losses suffered from receipt of customer 
complaints where the worker's results were below customer or 
contractual expectations; [t]he worker's decisions in avoiding 
liquidated damages charges or indemnification obligations in the 
parties' agreement; [t]he worker's own decision-making on whether to 
use other workers or services as helpers or substitutes as well as 
the use of related labor or specialties to assist in either the 
services provided, the tools and equipment used, or the maintenance 
of the worker's business structure; [t]he worker's acumen regarding 
the delivery of services/products that result in enhanced profits 
through tips and other incentives; [t]he worker's decision-making 
regarding the details and means by which they obtain supplies, 
tools, and equipment for use in their business, including choices 
regarding from whom to purchase these goods, how much of the goods 
are obtained at any one time, the quality of the goods, and the 
negotiated prices regarding said goods; and [t]he worker's decision-
making regarding investment in skills they deem necessary to achieve 
the desired results from their work, including education, 
certificates, or classes.''
    \37\ Seyfarth Shaw's suggested examples were ``[t]he worker's 
own decision-making regarding the use of helpers, substitutes, and 
related labor or specialties to assist in the services provided, the 
tools and equipment used, or the maintenance of the worker's 
business structure . . . to the extent those decisions impact the 
worker's costs and overall profitability; [t]he worker's initiative 
and the decisions they implement in connection with the performance 
of services and/or capital expenditures on equipment, supplies, and 
tools . . . ; [t]he worker's initiative to invest in the development 
of skills, competencies, and trades (including education, training, 
licenses, certifications, and classes) . . . ; [t]he worker's 
expertise in delivery of services/products that result in enhanced 
profits through tips and other incentives as a result of great 
customer service and exceptional skills, for example[; t]he worker's 
losses incurred as a result of customer complaint or other charges 
where the worker's results were below customer or contractual 
expectations and obligations; and [t]he worker's avoidance of 
liquidated damages charges or indemnification obligations in the 
parties' agreement relating to various provisions, including 
material breaches of the parties' agreement.''
---------------------------------------------------------------------------

    The Department has considered the various requests for additional 
examples of initiative and investment that can indicate a worker's 
opportunity for profit or loss, but declines to change to the proposed 
regulatory text. The regulatory text already broadly describes 
initiative as including managerial skill and business acumen or 
judgment, and explains that investment is the worker's management of 
his or her investment in or capital expenditure on, for example, 
helpers or equipment or material to further his or her work. Many of 
the suggested examples seem to fall into one of these categories, and 
some of them effectively repeat concepts already identified in the 
regulatory text--especially the ones involving helpers, tools, 
supplies, and equipment. The Department does not believe that (even 
after culling out all of the overlap) additional examples of initiative 
and investment would benefit employers or workers. It is not possible 
or productive to seek to identify in the regulatory text every example 
of initiative and investment that may be relevant to the opportunity 
for profit or loss analysis. The Department purposefully described both 
initiative and investment in a broad and general manner to provide 
helpful guidance to as many employers and workers as possible. The 
Department believes that this approach, along with the further 
clarification provided throughout this preamble section as well as the 
examples added in Sec.  795.115, will be more helpful and functional 
for employers and workers as they apply the analysis.
3. The ``Skill Required'' Factor
    In the NPRM, the Department identified three other factors that may 
serve as ``additional guideposts'' in the analysis to determine whether 
a worker is an employee or independent contractor. The first of these 
other factors, included at proposed Sec.  795.105(d)(2)(i), is the 
amount of skill required for the work. 85 FR 60639. The Department's 
proposed regulatory text stated that this factor would weigh in favor 
of the individual being an independent contractor to the extent the 
work at issue requires specialized training or skill that the potential

[[Page 1191]]

employer does not provide; conversely, the factor would weigh in favor 
of the individual being an employee to the extent the work at issue 
requires no specialized training or skill and/or the individual is 
dependent upon the potential employer to equip him or her with any 
skills or training necessary to perform the job. As explained in the 
NPRM, the Department proposed to clarify that this factor should focus 
on the amount of skill required because importing aspects of the 
control factor into the skill factor has diluted the consideration of 
actual skill to the point of near irrelevance, and such dilution 
generates confusion regarding the relevance and weight of the worker's 
skill in evaluating economic dependence.
    Employer representatives were generally supportive of the 
Department's clarification and relegation of this factor as an 
``additional guidepost'' but provided additional commentary and 
requests for modification. Several commenters suggested that this 
factor be eliminated entirely. The National Restaurant Association 
commented that this factor ``does not add much clarity to the 
analysis'' and ``unnecessarily discriminates against individuals who 
operate businesses that do not require advanced degrees.'' WPI stated 
that ``[s]o narrowed, this factor has little probative value in 
determining economic dependence and should be eliminated as a separate 
factor.''
    Other commenters suggested that the factor be included within the 
core, ``profit and loss'' factor or otherwise minimized. CWI suggested 
that the factor be incorporated into the profit and loss factor because 
``[w]here specialized skills are required to perform work, workers 
unquestionably have taken the initiative to invest time and money into 
developing those skills.'' SHRM and U.S. Chamber of Commerce agreed 
that this factor should not be a stand-alone factor, but rather should 
be incorporated into the opportunity factor, to ensure that workers who 
desire the flexibility and freedom of independent contractor status--
but who provide services that may not require specialized training--are 
not negatively impacted. See also WFCA (requesting that lack of skill 
should not weigh in favor of the worker being an employee). Commenters 
also stated that this additional factor should be minimized further in 
the analysis, commenting that the factor places too much emphasis on 
the importance of skill, and requested that ``the final rule should at 
least indicate that this may be a relevant factor in some but not all 
instances.'' Reibstein.
    After considering these comments, the Department declines both the 
request to eliminate this factor from consideration entirely and the 
request to include it as part of the opportunity factor. The Department 
agrees with commenters that the concepts of initiative and judgment are 
sufficiently analyzed in multiple ways under the control and 
opportunity core factors, but believes that longstanding case law 
militates in favor of considering this additional factor--skill 
required--when relevant under the particular circumstances of each 
situation. As explained in the NPRM, the Supreme Court articulated the 
factor as ``skill required'' in Silk, 331 U.S. at 716, and multiple 
courts of appeals continue to consider as ``the degree of skill 
required to perform the work.'' Paragon Contractors, 884 F.3d at 1235; 
see also Iontchev, 685 F. App'x at 550; Keller, 781 F.3d at 807. The 
Department believes that sharpening this factor to focus solely on 
skill clarifies the analysis. Moreover, analyzing the worker's ability 
to exercise initiative under the control factor, a core factor that is 
given more weight than the skill factor, appropriately reflects that 
that the presence or absence of initiative is usually more important 
than the presence or absence of skill. Similarly, the effect of the 
worker's initiative is analyzed under the opportunity factor, another 
core factor that, for the reasons explained above, is usually more 
probative than the skill factor.
    Commenters such as the National Restaurant Association and NRF 
suggested that the regulation should focus not on whether the skill 
required is specialized, but rather the extent to which a worker relies 
on the potential employer for training needed to perform the work. The 
Wood Flooring Covering Association, however, stated that the regulation 
as proposed may create unintended limits on training and employers 
should not be discouraged from funding needed training for workers, 
particularly in view of its industry's labor shortage. With respect to 
these requests, the Department declines to eliminate the modifier 
``specialized'' from the regulation. This type of consideration is 
supported by discussions of this factor in case law. See, e.g., 
Simpkins v. DuPage Hous. Auth., 893 F.3d 962, 966 (7th Cir. 2018) 
(``whether Simpkins had specialized skills, as well as the extent to 
which he employed them in performing his work, are [material] 
issues''); Carrell v. Sunland Const., Inc., 998 F.2d 330, 333 (5th Cir. 
1993) (finding it relevant that ``[p]ipe welding, unlike other types of 
welding, requires specialized skills''). The Department also declines 
to adjust the regulatory text to directly address who provides the 
training because such facts are not necessarily probative in every 
circumstance; the Department notes, however, that it can be suggests 
employee status if a worker receives all specialized skills from the 
employer. See, e.g., Keller, 781 F.3d at 809 (explaining that if ``the 
company provides all workers with the skills necessary to perform the 
job,'' that suggests employee status); Scantland, 721 F.3d at 1318; 
Hughes v. Family Life Care Inc., 117 F. Supp. 3d 1365, 1372 (N.D. Fla. 
2015) (``The relevant inquiry [for the skill factor] is whether [the 
worker] is dependent upon [the company] to equip her with the skills 
necessary to perform her job.''). This is because an individual who is 
in business for him- or herself typically brings his or her own skills 
to the job, rather than relying on the client to provide training.
    While the WFCA generally supports this factor, it also requested 
that the Department include examples of specialized training or skill 
that focused on indicators such as certifications and licensing. 
Scopelitis, Garvin, Light, Hanson & Feary, a law firm commenting on 
behalf of several unnamed transportation providers, agreed that 
credentials such as testing to earn a Commercial Driver's License can 
demonstrate specialized skill, but also noted that skills needed to 
successfully operate a business should also be considered specialized 
skills to help distinguish independent contractors from employees. The 
Department notes that the opportunity factor already considers whether 
workers have an opportunity for profit or loss based on their business 
acumen or managerial expertise. It would be redundant to analyze 
``skills needed to successfully operate a business'' as part of the 
skill factor. As to requests for examples or additional clarification 
as to what constitutes ``specialized'' skills, the Department agrees 
that credentials such as certifications and licenses can be helpful 
indicators of specialized skill, though they are by no means the only 
indicators of such skill. The Department does not believe any change to 
the regulatory text to clarify this point is warranted, however.
    Employee representatives such as the AFL-CIO expressed concern that 
de-emphasizing the skill factor would ``place considerable competitive 
pressure on law-abiding employers employing employees at the bottom of 
the wage scale, thus undermining the

[[Page 1192]]

national minimum wage standard.'' The AFL-CIO further asserted that the 
proposed regulation would make it more likely that unskilled workers 
such as home care workers, delivery drivers, and janitors will be 
classified as independent contractors, and thus such workers will be 
unprotected by the FLSA's minimum wage and overtime pay standards. See 
AFL-CIO. The National Employment Lawyers Association (NELA) commented 
that the Department's proposed regulation ``seeks to constrict and 
demote'' the skill factor, and, relying on case law, noted that 
``courts typically assess whether workers are required to use 
specialized skills, beyond those typically acquired through 
occupational or technical training, in an independent way to perform 
their job'' but that this factor, ``which often favors employee status, 
does not suit the Department's purposes.''
    Regarding farmworkers specifically, TRLA stated that whether the 
services rendered by an employee require special skills has often been 
probative in the farm labor context, and that by largely eliminating 
consideration of this factor, the proposed rule makes the proper 
classification of farmworkers harder to determine. See Texas Rio Grande 
Legal Aid. This ``will lead to more farmworkers being classified as 
independent contractors, thereby denying the protections of the FLSA to 
one of the most vulnerable classes of workers''; moreover, ``[t]o the 
extent that the proposed rule purports to be descriptive of the current 
state of the law, it is flatly inaccurate.''
    The Department has considered these comments but continues to 
believe that its proposal with respect to this factor is logical and 
helpful. Although many courts consider the skill factor, courts appear 
to find the core factors to be more dispositive than the skill factor 
when such factors conflict. See 85 FR 60621-22 (listing cases). 
Continuing to take it into account, but not as one of the core factors, 
adds clarity to the economic realities test. The Department's 
formulation of the test does not preclude the possibility that in some 
circumstances, such as with respect to farmworkers, that this factor 
could be particularly probative.
    The Department adopts Sec.  795.105(d)(2)(i) as proposed.
4. The ``Permanence of the Working Relationship'' Factor
    The second additional guidepost factor, described in the regulatory 
text at Sec.  795.105(d)(2)(ii), is the degree of permanence of the 
working relationship between the individual and the potential employer. 
The Department proposed that this factor would weigh in favor of the 
individual being an independent contractor to the extent the work 
relationship is by design definite in duration or sporadic, which may 
include regularly occurring fixed periods of work, although the 
seasonal nature of work by itself would not necessarily indicate 
independent contractor classification. In particular, the Department 
explained that the seasonal nature of work would not indicate 
independent contractor status where the worker's position is permanent 
for the duration of the relevant season and where the worker has done 
the same work for multiple seasons. See Paragon Contractors, 884 F.3d 
at 1236-37. The proposal also provided that this factor would weigh in 
favor of the individual being an employee to the extent the work 
relationship is instead by design indefinite in duration or continuous. 
As noted in the NPRM, courts and the Department routinely consider this 
factor when applying the economic reality analysis under the FLSA to 
determine employee or independent contractor status. See, e.g., WHD 
Opinion Letter FLSA2019-6 at 4; Razak, 951 F.3d at 142; Hobbs, 946 F.3d 
at 829; Karlson, 860 F.3d at 1092-93; McFeeley, 825 F.3d at 241; 
Keller, 781 F.3d at 807; Scantland, 721 F.3d at 1312.
    Multiple commenters urged the Department to focus this factor 
further on the indefiniteness of a working relationship. For example, 
the U.S. Chamber of Commerce commented that independent contractors 
often enter into multiple, long-term contracts with the same business. 
It suggested that the Department clarify that such contracts do not 
indicate employee status merely because of their length, but that only 
contracts of an indefinite length would be indicative of employee 
status. CWI similarly requested that this factor focus only on the 
length of the relationship as reflected in contractual agreements, 
regardless of how long the relationship is in reality.
    The Department considered adding clarifying language to the 
regulation indicating that a relationship whose length is indefinite is 
more indicative of employee status than a relationship that is merely 
long. However, because the focus of the economic realities test is not 
on technical formalities, it may be that a long relationship could be 
evidence of permanence despite a contract with a definite end. For 
example, an employer may have a permanent relationship with an employee 
despite requiring the employee to enter into annual employment 
contracts. Or a potential employer may have a long-term relationship 
reflected in several short-term contracts. The Department has therefore 
retained the proposed regulatory text because, although indefiniteness 
is a stronger indicator of permanence, the length of a working 
relationship is still relevant to this factor.
    One commenter urged the Department to consider the exclusivity of a 
relationship as part of the permanence factor, an approach taken by 
some courts. Specifically, CPIE commented that permanence does not 
indicate an employment relationship unless it is due to the potential 
employer's requirement of exclusivity rather than the worker's choice. 
The Department agrees that exclusivity most strongly indicates an 
employment relationship when the exclusivity is required by the 
potential employer. However, as the Department discussed in the NPRM, 
an exclusivity requirement more strongly relates to the control 
exercised over the worker than the permanence of the relationship. As 
explained in the discussion of the control factor, that factor already 
considers whether a worker has freedom to pursue external opportunities 
by working for others, including a potential employer's rivals. See, 
e.g., Freund, 185 F. App'x at 783 (affirming district court's finding 
that ``Hi-Tech exerted very little control over Mr. Freund,'' in part, 
because ``Freund was free to perform installations for other 
companies'').\38\ The same concept of exclusivity is then re-analyzed 
as part of the permanence factor. Compare id. (``Freund's relationship 
with Hi-Tech was not one with a significant degree of permanence . . . 
[because] Freund was able to take jobs from other installation 
brokers.''), with Scantland, 721 F.3d at 1319 (finding installation 
technicians' relationships with the potential employer were permanent 
because they ``could not work for other companies''). Such duplicative 
analysis of exclusivity under the permanence factor, however, is not 
supported by the Supreme Court's original articulation of that factor 
in Silk. See 331 U.S. at 716 (analyzing the

[[Page 1193]]

``regularity'' of unloaders' work); id. at 719 (analyzing truck 
drivers' ability to work ``for any customer'' as an aspect of ``the 
control exercised'' but not permanence); see also 12 FR 7967 
(describing the permanence factor as pertaining to ``continuity of the 
relation'' but with no reference to exclusivity). Nor is the concept of 
exclusivity part of the common understanding of the word ``permanent.'' 
\39\ In a similar vein to the Department's analysis of the concept of 
initiative, the Department believes analysis of exclusivity as part of 
the permanence factor dilutes the significance of actual permanence 
within that factor, blurs the lines between the economic reality 
factors, and creates confusion by incorporating a concept that is 
distinct from permanence.
---------------------------------------------------------------------------

    \38\ In addition, as also noted in the NPRM, the opportunity 
factor considers whether a worker's decisions to work for others 
affects profits or losses. See, e.g., Freund, 185 F. App'x at 783 
(affirming the district court's finding that the ``looseness of the 
relationship between Hi-Tech and Freund permitted him great ability 
to profit,'' in part, because ``Freund could have accepted 
installation jobs from other companies.''). The Department does not 
believe this consideration overlaps with the control factor. While 
the control factor concerns the ability to work for others, the 
opportunity factor concerns the effects of doing so.
    \39\ See Merriam-Webster Dictionary, https://www.merriam-webster.com/dictionary/permanent (defining permanent as ``continuing 
or enduring without fundamental or marked change''); see also Oxford 
American Dictionary 1980 (defining permanent as ``lasting or meant 
to last indefinitely''); Merriam-Webster Pocket Dictionary 1947 
(defining permanent as ``Lasting; enduring'').
---------------------------------------------------------------------------

    Because the worker's ability to work for others is already analyzed 
as part of the control factor, proposed Sec.  795.105(d)(2)(ii) 
articulated the permanence factor without referencing the exclusivity 
of the relationship between the worker and potential employer, and the 
Department retains the same language in the final rule.
    Commenters also requested that the Department clarify that long-
term relationships that are based on the workers' choice to continue 
working for the same business rather than the potential employer's 
requirements should not indicate employee status under this factor. NRF 
commented that an independent contractor may choose to focus on a 
particular client for reasons of the contractor's own rather than the 
client's requirements, suggesting that the worker's choice does not 
indicate employee status. The Department does not believe that further 
explanation in the regulatory text is necessary, though it agrees that 
a long-term relationship may not always indicate an employee 
relationship. This factor is not always probative to the analysis, and 
the scenarios described by the commenters may be situations where the 
length of the relationship is not a useful indicator. However, 
explicitly stating that a relationship is not permanent whenever the 
worker chooses for it to be long-term is not accurate. After all, every 
employee to some extent chooses whether to continue working for their 
employer, and the FLSA's definition of ``employ'' includes to passively 
``suffer or permit to work.'' 29 U.S.C. 203(g). A long-term 
relationship is always the result of choices by both the potential 
employer and the worker, but it is sometimes a helpful indicator of 
employee status.
    Edward Tuddenham urged the Department to give examples 
relationships that may or may not be viewed as permanent, such as a 
contract that is repeatedly renewed or an industry that is generally 
itinerant. Although the Department has added one example regarding this 
factor to new Sec.  795.115 to help illustrate how the factor is to be 
considered, the Department does not believe it is possible to address 
all of the possible working relationships and contractual arrangements 
in a useful fashion. Certain general principles should inform any 
analysis of work relationships. The Department reiterates that it is 
not contractual formalities that are relevant to the inquiry, but 
economic reality. A potential employer's attempts to use contractual 
technicalities to label a relationship as temporary even though it is 
indefinite in reality should not affect whether this factor indicates 
employee or independent contractor status. Again, this factor will not 
always be probative, and, for example, in certain industries where 
employees are often employed for short periods, a short term of 
employment would not indicate independent contractor status.
    SWCCA pointed out that a recent WHD opinion letter included 
language stating that ``the existence of a long-term working 
relationship may indirectly indicate permanence.'' WHD Opinion Letter 
FLSA 2019-06 (April 29, 2019). The Alliance requested that this 
language be added to Sec.  795.105(d)(2)(ii). Though the quoted 
language and the case law from which it is drawn remain useful guidance 
for employers, the Department does not believe it is necessary to add 
this language to the regulation, which already indicates that a long-
term relationship points toward an employment relationship.
    Accordingly, the Department finalizes Sec.  795.105(d)(2)(ii) as 
proposed.
5. The ``Integrated Unit'' Factor
    The final additional guidepost factor, described in Sec.  
795.105(d)(2)(iii), is whether the work is part of an integrated unit 
of production. The Department proposed that this factor would weigh in 
favor of the individual being an employee to the extent his or her work 
is a component of the potential employer's integrated production 
process for a good or service. The proposed regulatory text further 
explained that this factor would weigh in favor of an individual being 
an independent contractor to the extent his or her work is segregable 
from the potential employer's production process. The Department 
proposed to clarify that this factor is different from the concept of 
the importance or centrality of the individual's work to the potential 
employer's business.
    As noted in the NPRM, the Department and courts outside of the 
Fifth Circuit have typically articulated the sixth factor of the 
economic reality test as ``the extent to which services rendered are an 
integral part of the [potential employer's] business.'' WHD Fact Sheet 
#13. Under this articulation, the ``integral part'' factor considers 
``the importance of the services rendered to the company's business.'' 
McFeeley, 825 F.3d at 244. In line with this thinking, courts generally 
state that this factor favors employee status if the work performed is 
so important that it is central to or at ``[t]he heart of [the 
potential employer's] business.'' Werner v. Bell Family Med. Ctr., 
Inc., 529 F. App'x 541, 545 (6th Cir. 2013); see also Baker, 137 F.3d 
at 1443 (``[R]ig welders' work is an important, and indeed integral, 
component of oil and gas pipeline construction work.''); Lauritzen, 835 
F.2d at 1537-38 (``[P]icking the pickles is a necessary and integral 
part of the pickle business[.]''); DialAmerica, 757 F.2d at 1385 
(``[W]orkers are more likely to be `employees' under the FLSA if they 
perform the primary work of the alleged employer.'').
    The Department explained in the NPRM that it is concerned that this 
focus on importance or centrality departs from the Supreme Court's 
original articulation of the economic reality test, has limited 
probative value regarding the ultimate question of economic dependence, 
and may be misleading in some instances. As such, the Department 
proposed that Sec.  795.105(d)(2)(iii) would clarify that the 
``integral part'' factor should instead consider ``whether the work is 
part of an integrated unit of production,'' which aligns with the 
Supreme Court's analysis in Rutherford Food, 331 U.S. at 729.
    Many commenters representing workers urged the Department to retain 
the ``integral part'' factor used by courts as part of the economic 
realities test, rather than replacing it with the ``integrated unit'' 
factor articulated in the proposed rule. This ``integral part'' factor 
would consider the importance or centrality of the work performed to 
the purported employer's business. In

[[Page 1194]]

particular, several commenters, including United Food and Commercial 
Workers, Senator Patty Murray, and the State AGs contended that 
removing the ``integral'' factor would be contrary to established 
circuit court precedent. The UFCW asserted that ``[w]hether a worker's 
service is an integral part of the company's business may not be a 
relevant factor in all situations, but it may be in some and some 
courts have found value in analyzing this fact.'' It commented that if 
the Department stated that integrality is not relevant to the economic 
realities test, the Department's proposed rule would unduly limit the 
inquiry. One commenter, the Greenlining Institute, commented that 
eliminating an ``integral part'' factor disfavors workers ``performing 
physical tasks instead of stereotypically `intellectual' pursuits,'' 
who are disproportionately racial or ethnic minorities.
    Many commenters agreed with the Department's proposal to eliminate 
the ``integral part'' factor or any similar factor focused on the 
importance of the work. The U.S. Chamber of Commerce, for example, 
commented, ``In today's economy, independent workers provide services 
in all aspects of the economy and all aspects of individual businesses, 
including core and non-core functions, as well as in the same or 
different lines of business.'' The Society for Human Resource 
Management similarly commented that the ``analysis concerning the 
`integrated unit' factor should not focus on the `importance of 
services' provided.''
    Though circuit courts have applied an ``integral part'' factor, it 
was not one of the factors analyzed by the Supreme Court in Rutherford 
Food. Rather, the Court considered whether the worker was part of an 
``integrated unit of production,'' 331 U.S. at 729, as this final rule 
does. The Department believes that circuit courts--and even the 
Department itself--have deviated from the Supreme Court's guidance and, 
in doing so, have introduced an ``integral part'' factor that can be 
misleading. As explained in the NPRM, the ``integral part'' factor was 
not one of the distinct factors identified in Silk as being ``important 
for decision.'' 331 U.S. at 716. The ``integrated unit'' factor instead 
derives from Rutherford Food, where the Supreme Court observed that the 
work at issue was ``part of an integrated unit of production'' in the 
potential employer's business and concluded that workers were employees 
in part because they ``work[ed] alongside admitted employees of the 
plant operator at their tasks.'' 331 U.S. at 729. As the NPRM 
explained, the Department began using the ``integral part'' factor in 
subregulatory guidance in the 1950s. See WHD Opinion Letter (Aug. 13, 
1954); WHD Opinion Letter (Feb. 8, 1956).\40\ And circuit courts in the 
1980s began referring to it as the ``integral part'' factor and 
analyzing it in terms of the ``importance'' of the work to the 
potential employer. See, e.g., Lauritzen, 835 F.2d 1529, 1534-35; 
DialAmerica Mktg., 757 F.2d at 1386.
---------------------------------------------------------------------------

    \40\ A 2002 opinion letter interpreted the factor to focus on 
the importance of the work, explaining that ``[w]hen workers play a 
crucial role in a company's operation, they are more likely to be 
employees than independent contractors.'' WHD Opinion Letter, 2002 
WL 32406602, at *3 (Sept. 5, 2002). However, the Department's most 
recent opinion letter on this subject characterized the factor as 
``the extent of the integration of the worker's services into the 
potential employer's business.'' WHD Opinion Letter FLSA2019-6 at 6 
(emphasis added).
---------------------------------------------------------------------------

    The NPRM explained the reasons that the Department now believes the 
Supreme Court's original ``integrated unit'' formulation is more 
probative than the ``integral part'' (meaning ``important'') approach. 
As Judge Easterbrook pointed out in his concurrence in Lauritzen, 
``[e]verything the employer does is `integral' to its business--why 
else do it?'' Lauritzen, 835 F.2d at 1541 (Easterbrook J., concurring); 
see also Zheng, 355 F.3d at 73 (cautioning in the joint employer 
context that interpreting the factor to focus on importance ``could be 
said to be implicated in every subcontracting relationship, because all 
subcontractors perform a function that a general contractor deems 
`integral' to a product or a service'').
    The Department's review of appellate cases since 1975 involving 
independent contractor disputes under the FLSA supports this criticism. 
The Department generally found that, in cases where the ``integral 
part'' factor was addressed, the factor aligned with the ultimate 
classification when the ultimate classification was employee.\41\ 
However, courts' analyses of the ``integral part'' factor--again, if it 
was analyzed at all \42\--were misaligned more frequently than they 
were aligned with the ultimate classification when the ultimate 
classification was independent contractor status. Compare Iontchev, 685 
F. App'x at 551; Meyer, 607 F. App'x at 123; Freund, 185 F. App'x at 
784-85; Mid-Atl. Installation, 16 F. App'x at 107-08; Brandel, 736 F.2d 
at 1120, with Werner, 529 F. App'x at 545-46; DialAmerica Mktg., 757 
F.2d at 1387. This higher rate of misalignment is precisely what Judge 
Easterbrook's criticism would have predicted: If ``[e]verything the 
employer does is `integral,' '' that factor would point towards 
employee status for workers who are employees, but also for workers who 
are independent contractors.
---------------------------------------------------------------------------

    \41\ The only appellate case the Department found of 
misalignment in this scenario is Paragon Contractors, 884 F.3d at 
1237-38.
    \42\ As explained elsewhere, the Fifth Circuit does not usually 
consider the ``integral part'' factor in its analysis.
---------------------------------------------------------------------------

    The NPRM further explained that ``the relative importance of the 
worker's task to the business of the potential employer says nothing 
about whether the worker economically depends on that business for 
work.'' 85 FR 60617. While some courts assumed that business may desire 
to exert more control over workers who provide important services, 
there is no need to use importance as an indirect proxy for control 
because control is already a separate factor. Id. (citing Dataphase, 
781 F. Supp. at 735, and Barnard Const., 860 F. Supp. at 777, aff'd sub 
nom. Baker v. Flint Eng'g & Const. Co., 137 F.3d 1436 (10th Cir. 
1998)). And this assumption may not always be valid. Modern 
manufacturers, for example, commonly assemble critical parts and 
components that are produced and delivered by wholly separate companies 
through contract rather than employment arrangements. And low 
transaction costs in many of today's industries make it cost-effective 
for firms to hire contractors to perform routine tasks.
    The Department considered salvaging the ``integral part'' factor by 
deemphasizing ``integral'' and emphasizing ``part.'' Instead of 
focusing on whether the work is important ``to'' a potential employer's 
business, the factor would focus on whether the work is an important 
``part'' of that business. This approach would more closely align with 
how ``integral part'' was used by the Supreme Court in Silk, which 
asked whether workers were ``an integral part of [defendants'] 
businesses,'' as opposed to operating their own businesses. 331 U.S. 
716. But as the NPRM noted, the Silk Court framed that question as the 
ultimate inquiry, and not as a factor that is useful to guide the 
inquiry. See 85 FR 60616 n.41. Asking whether a worker is part of--
integral or otherwise--a potential employer's business is not useful 
because it simply restates the ultimate inquiry: If a worker were part 
of the potential employer's business, then he or she could not be in 
business for him- or herself and therefore would be economically 
dependent. As an added complication, new technologies have led to the 
emergence of platform companies that connect consumers directly with 
service providers, and it is often difficult to determine whether those 
platform companies are in

[[Page 1195]]

business of supporting service providers' own businesses or are in the 
business of hiring service providers to serve customers. Compare Razak, 
951 F.3d at 147 n.12 (``We also believe [there] could be a disputed 
material fact'' whether Uber is ``a technology company that supports 
drivers' transportation businesses, and not a transportation company 
that employs drivers.''), with O'Connor v. Uber Techs., Inc., 82 F. 
Supp. 3d 1133, 1153 (N.D. Cal. 2015) (``it is clear that Uber is most 
certainly a transportation company''). For the reasons explained, the 
final rule retains the ``integrated unit'' approach.
    The Department does not share the Greenlining Institute's concern 
that the final rule's ``integrated unit'' factor would result in 
workers who perform ``physical tasks'' being classified as independent 
contractors more than workers who perform white collar, 
``intellectual'' work. Meat deboning is a physical task, but deboners 
were found to be part of an integrated unit of production in Rutherford 
Food. 331 U.S. at 729. On the other hand, freelance writers perform a 
white collar task, but they generally are not integrated into a 
publication's production process because they are not involved in, for 
instance, assigning, editing, or determining the layout of articles. 
Both white collar and physical labor jobs may be part of an integrated 
unit of production. The Department has added one example in new Sec.  
795.115 showing that a newspaper editor--who performs primarily white 
collar tasks--may be part of an integrated unit of production.
    Another commenter, the Arkansas Trucking Association, agreed that 
the ``integrated unit'' factor was superior to ``integral part,'' but 
suggested an alternative formulation based on whether the business's 
activities would cease or be severely impacted by the absence of the 
worker. However, this approach has the same limitations as the 
approaches that emphasize ``importance.'' Almost every worker performs 
work that is in some sense important to the business that has hired the 
worker; otherwise, the business would not hire the worker. Moreover, as 
explained in the NPRM, easily-replaced workers are often more dependent 
on a particular business for work precisely because they are so easily 
replaced. Focusing on the impact of a worker's absence turns the 
economic dependence analysis on its head by essentially looking at the 
business's dependence on the worker. As a result, it sends misleading 
signals about employee status.
    Another group of commenters suggested that the factor should 
include an explicit consideration of the location of the work 
performed. The U.S. Chamber of Commerce, for example, suggested that 
the factor should consider whether the worker is performing work ``the 
majority of which is performed off the physical premises of the 
business.''
    Whether the work is performed on the business's physical premises 
may be a consideration under the ``integrated unit'' factor, as it may 
indicate the extent to which the worker is part of an integrated unit 
of production. However, the Department does not believe it is necessary 
to include this consideration as an explicit part of the ``integrated 
unit'' factor. Many businesses have no physical location but 
nevertheless employ employees. In other instances, an employee may be 
part of an integrated unit despite performing work at a different 
location than other employees. See, e.g., Goldberg v. Whitaker House 
Cooperative, Inc., 366 US 28, 32 (1961) (holding that workers who 
produced copies of a sample product at home were employees). Some 
workers perform work on a business's physical premises but perform 
discrete, segregable services unrelated to any integrated process or 
unified purpose. Thus, although the location of the work may be a fact 
that is relevant to the ``integrated unit'' factor, it is not so 
probative that it would be useful to elevate it above other facts that 
may be more relevant in a particular case.
    Several commenters asked that the Department clarify that the 
relevant inquiry is whether the worker is part of an integrated unit of 
production that is part of the potential employer's own processes 
rather than part of a broader supply chain. NRF suggested clarifying 
language that would ``expressly state that merely serving as a link in 
the chain of a company's provision of goods or services'' does not 
indicate employee status. It suggested that such language would make it 
clear that this factor does not indicate employee status where a worker 
is merely one, segregable step in the process of delivering a product 
to a consumer.
    The Department does not believe such a clarification is needed, 
because the text of the final rule states that this factor points 
toward employee status only when the worker performs ``a component of 
the potential employer's integrated production process.'' The relevant 
process is the potential employer's process, not the broader supply 
chain. A worker who performs a segregable step in the process of 
delivering a product but who is not integrated into the employer's own 
production process is not part of an integrated unit of production. 
Multiple businesses, including independent contractors, may perform 
steps in the same supply chain.
    Some commenters suggested that the description of this factor in 
the preamble should define the scope of the ``unified purpose'' toward 
which the potential employer's processes work. WPI requested that the 
Department clarify that the ``unified purpose'' cannot be broader than 
the potential employer's ``core or primary business purpose.'' On the 
other hand, Farmworker Justice urged a broad definition of ``unified 
purpose'' to prevent gamesmanship by which an employer may attempt to 
artificially separate its production process into separate units in 
order to claim that they are segregable rather than parts of a unified 
whole. It cited a hypothetical tomato farmer who could label its tomato 
harvesters as a separate unit rather than as part of the process of 
growing tomatoes.
    The Department rejects these suggestions, because the final rule's 
rejection of the ``integral part'' factor and the question of 
``importance'' or ``centrality'' makes clear that the relevant facts 
are the integration of the worker into the potential employer's 
production processes, rather than the nature of the work performed. As 
explained above, identifying the ``core or primary business purpose'' 
is not a useful inquiry in the modern economy. Falling transaction 
costs and other factors described above allow businesses to hire 
independent contractors to carry out tasks that are part of the 
businesses' core functions, while keeping those functions separate from 
its own production processes. At the same time, seemingly peripheral 
functions may be integrated into an employer's own processes, 
indicating employee status. What matters is the extent of such 
integration rather than the importance or centrality of the functions 
performed, which the Department does not find to be a useful indicator 
of employee or independent contractor status.
    As noted in the NPRM, the Department recognizes that it may be 
difficult to determine the extent to which a worker is part of an 
integrated unit of production. For this reason, this factor is not 
always useful to the economic realities inquiry, and it is less likely 
than the core factors to be determinative. For example, this factor 
would not indicate independent contractor status for Farmworker 
Justice's hypothetical tomato harvesters

[[Page 1196]]

merely because the farmer artificially labeled them a separate unit. As 
has been the case since the concepts underlying the economic realities 
test was articulated, the test does not depend on labels assigned to 
workers. Rutherford Food, 331 U.S. at 729 (``Where the work done, in 
its essence, follows the usual path of an employee, putting on an 
`independent contractor' label does not take the worker from the 
protection of the Act.''). The factor may indicate either employee or 
independent contractor status based on the extent to which the 
harvesters are integrated into the farmer's production process as a 
matter of fact, but most likely the ultimate determination would depend 
more on other factors, such as control and opportunity for profit or 
loss.
    WPI also suggested that the Department clarify language in the 
preamble to the proposed rule stating that employee status would be 
indicated for a worker who performs work closely alongside conceded 
employees. WPI expressed concern that this language could wrongly imply 
that a worker performing different tasks than the conceded employees 
but in close proximity to them would indicate employee status. The 
Department does not believe such clarification is necessary, because 
the preamble stated that employee status is indicated where the worker 
``performs identical or closely interrelated tasks as those 
employees.'' In other words, WPI is correct that if a worker works 
physically close to conceded employees but performs unrelated tasks, 
that fact alone would not indicate employee status.
    Finally, many commenters requested that the Department add examples 
explaining how this factor would apply to specific industries, 
including trucking, construction, financial advising, and personal 
shopping. Others wanted examples to address certain types of 
contractual arrangements, such as multi-sided platforms, franchisees, 
and buy/sell agreements. In response to these requests, the Department 
notes that the facts that inform the ``integrated unit'' factor are too 
circumstance-specific to apply blanket statements to entire industries 
or broad types of employment arrangements. Any particular task that is 
common in a particular industry may be performed in one instance by a 
worker who is part of an integrated unit of production or by a 
segregable unit. In other words, this factor may point in a different 
direction for workers who perform similar duties in the same industry 
but who are more or less integrated into their potential employer's 
processes based on the potential employer's business model. Moreover, 
contractual formalities such as a buy/sell agreement or contracts 
formed using multi-sided platforms could memorialize either employment 
or independent contractor arrangements; the determination would not 
depend on the labels assigned but on the various economic realities 
factors, including the worker's integration into the potential 
employer's production process.
    That said, as explained elsewhere in this preamble, although the 
Department cannot address all industries or all possible factual 
scenarios, it does appreciate that examples are helpful to 
understanding how each factor operates. The new regulatory provision 
added in this final rule to further illustrate several factors, Sec.  
795.115, includes two examples specifically meant to demonstrate how 
facts about whether a worker is part of an integrated unit of 
production should be considered as part of the employment relationship 
analysis.
    For the reasons explained, the Department finalizes Sec.  
795.105(d)(2)(iii) as proposed.
6. Additional Unlisted Factors
    The National Restaurant Association stated that facts and factors 
not listed in Sec.  795.105(d) may be relevant to the question of 
economic dependence even though they would not be as probative as the 
two core factors. This commenter expressed concern that future courts 
may ignore these unlisted but potentially relevant considerations in 
response to this rulemaking and requested that the Department revise 
the regulatory text to explicitly recognize that unlisted factors may 
be relevant.
    While proposed Sec.  795.105(c) already states that the five 
factors listed in Sec.  795.105(d) are ``not exhaustive,'' \43\ the 
Department agrees that it may be helpful to make this point more 
explicit. The Department is thus adding Sec.  795.105(d)(2)(iv), which 
states that additional factors not listed in Sec.  795.105(d) may be 
relevant to determine whether an individual is an employee or an 
independent contractor under the FLSA. As with any fact or factor, such 
additional factors are relevant only to the extent that they help 
answer whether the individual is in business for him- or herself, as 
opposed to being economically dependent on an employer for work. 
Factors that do not bear on this question, such as whether an 
individual has alternate sources of wealth or income and the size of 
the hiring company, are not relevant. These unlisted factors are less 
probative than the core factors listed in Sec.  795.105(d)(1), while 
their precise weight depends on the circumstances of each case and is 
unlikely to outweigh either of the core factors .
---------------------------------------------------------------------------

    \43\ See Silk, 331 U.S. at 716 (``No one [factor] is controlling 
nor is the list complete.'').
---------------------------------------------------------------------------

E. Focusing the Economic Reality Test on Two Core Factors

    Proposed Sec.  795.105(c) was intended to improve the certainty and 
predictability of the economic reality test by focusing the test 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. This 
focus is an important corollary of the sharpened definition of economic 
dependence to include individuals who are dependent on a potential 
employer for work and to exclude individuals who are in business for 
themselves. The NPRM explained that these core factors, listed in 
proposed Sec.  795.105(d)(1), drive at the heart of what is meant by 
being in business for oneself: Such a person typically controls the 
work performed in his or her business and enjoys a meaningful 
opportunity for profit or risk of loss through personal initiative or 
investment. The other economic reality factors--skill, permanence, and 
integration--are also relevant as to whether an individual is in 
business for him- or herself. But they are less probative to that 
determination. For instance, it is not uncommon for comparatively high 
skilled individuals--such as software engineers--to work as employees, 
and for comparatively low skill individuals--such as drivers--to be in 
business for themselves. See, e.g., Saleem, 854 F 3d at 140; Express 
Sixty-Minutes Delivery, 161 F.3d at 306. In contrast, ``[i]n ordinary 
circumstances, an individual `who is in business for him- or herself' 
will have meaningful control over the work performed and a meaningful 
opportunity to profit (or risk loss).'' 85 FR 60618. As such, ``it is 
not possible to properly assess whether workers are in business for 
themselves or are instead dependent on another's business without 
analyzing their control over the work and profit or loss 
opportunities.'' Id.
    The NPRM further explained that focusing on the two core factors is 
also supported by the Department's review of case law. The NPRM 
presented a remarkably consistent trend based on the Department's 
review of the results of appellate decisions since 1975 applying the 
economic reality test. Among those cases, the classification favored by 
the control factor aligned with the worker's

[[Page 1197]]

ultimate classification in all except a handful where the opportunity 
factor pointed in the opposite direction. And the classification 
favored by the opportunity factor aligned with the ultimate 
classification in every case.\44\ These two findings imply that 
whenever the control and opportunity factors both pointed to the same 
classification--whether employee or independent contractor--that was 
the court's conclusion regarding the worker's ultimate 
classification.\45\ See 85 FR 60619. In other words, the Department did 
not uncover a single court decision where the combined weight of the 
control and opportunity factors was outweighed by the other economic 
reality factors. In contrast, the classification supported by other 
economic reality factors was occasionally misaligned with the worker's 
ultimate classification, particularly when the control factor, the 
opportunity factor, or both, favored a different classification. See 
id. at 60621.
---------------------------------------------------------------------------

    \44\ This is not to imply that the opportunity factor 
necessarily aligns with the ultimate classification, but rather that 
the Department is not aware of an appellate case in which 
misalignment occurred.
    \45\ The only cases in which an appellate court's ruling on a 
worker's classification was contrary to the court's conclusions as 
to the control factor were cases in which the opportunity factor 
pointed in the opposite direction. See 85 FR 60619 (citing Paragon 
Contractors, 884 F.3d at 1235-36, and Cromwell, 348 F. App'x at 61).
---------------------------------------------------------------------------

    The NPRM thus provided that, given their greater probative value, 
if both proposed core factors point towards the same classification--
whether employee or independent contractor--there is a substantial 
likelihood that is the individual's correct classification. This is 
because it is quite unlikely for the other, less probative factors to 
outweigh the combined weight of the core factors. In other words, where 
the two core factors align, the bulk of the analysis is complete, and 
anyone who is assessing the classification may approach the remaining 
factors and circumstances with skepticism, as only in unusual cases 
would such considerations outweigh the combination of the two core 
factors.
    Numerous commenters welcomed proposed Sec.  795.105(c)'s sharpening 
of the economic reality test by recognizing the two core factors' 
greater probative value on whether an individual is in business for 
him- or herself. For instance, the U.S. Chamber of Commerce stated that 
``[t]he Department's straightforward focus on two core factors presents 
a concise interpretation of `economic dependency' grounded in the Act's 
statutory definition of `employ' and `employer,' consistent with 
Supreme Court precedent, and well-reasoned courts of appeals' 
decisions.'' The American Bakers Association (ABA) likewise ``supports 
the Department's position that the two most probative `core' factors 
for determining independent contractor status under the FLSA are the 
degree and nature of an individual's control over their work, and the 
opportunity for profit (or loss).'' See also, e.g., ATA; CPIE; National 
Restaurant Association; SHRM. Even one commenter who did not generally 
support this rulemaking ``agreed with the Department that the two main 
factors, control and opportunity for profit or loss, should be given 
greater weight.'' Owner-Operator Independent Driver Association 
(OOIDA).
    Many commenters objected to focusing on the two core factors. 
Broadly speaking, they raised three interrelated concerns. First, 
commenters contended that elevating the two core factors is 
inconsistent with the economic reality test, which they asserted 
requires that factors be either unweighted or weighted equally. See, 
e.g., NELP (objecting to ``elevating two narrow `core' factors''); 
SWACCA; Commissioner Slaughter of the Federal Trade Commission (FTC). 
Second, commenters contended that focusing on two core factors would 
narrow the scope of who is an employee (as opposed to an independent 
contractor) under the FLSA. See, e.g., NELP (``The NPRM narrows the 
FLSA test for employee coverage[.]''); State AGs (``The Proposed Rule's 
interpretation of [employment under] the FLSA is unlawfully narrow.''); 
Appleseed Center (``The Department of Labor is trying to impermissibly 
narrow this definition''); NCFW (objecting to ``agency's proposed 
attempt to narrow the definition of employee''). Third, commenters 
asserted that focusing on two core factors would impermissibly restrict 
the set of circumstances that may be considered when assessing whether 
a worker is an employee or independent contractor under the FLSA. TRLA 
(``proposed reformulation would eliminate . . . any consideration of 
[the skill and permanence] factors''); NELA (objecting to ``a narrow, 
control-dominated inquiry''); State AGs (objecting to proposed rule 
because it ``narrows several areas of inquiry.'').\46\ The Department 
responds to each of the above concerns below, and then addresses other 
requests relating to the focus on the two factors.
---------------------------------------------------------------------------

    \46\ There are two distinct concepts within the economic reality 
test--and any test for employment status--that can be broad or 
narrow. The first concept is the test's standard for employment, 
which is economic dependence. See Bartels, 332 U.S. at 130. The 
second concept is the set of circumstances that may be considered as 
part of the test, which is the ``circumstances of the whole 
activity.'' See Rutherford Food, 331 U.S at 730. The breadth of 
these two concepts are not always logically related. For instance, 
the ABC test states that a worker is an employee unless the hiring 
party can establish that three criteria are met, see, e.g., Dynamex, 
416 P.3d at 35; thus, the ABC test considers a relatively narrow set 
of circumstances while imposing a broad standard for employment. 
While most commenters that objected to the narrowing of the economic 
reality test did not present the standard of employment and 
circumstance that may be considered as separate concepts, the 
Department addresses them separately.
---------------------------------------------------------------------------

1. Focusing on Two Core Factors is Consistent With the Economic Reality 
Test
    Many commenters contended that emphasizing core factors over others 
would violate a requirement that economic reality factors be unweighted 
or weighted equally. According to SWACCA, ``[t]he proposed weighted 
rule is a novel concept and a departure from existing caselaw.'' See 
also, e.g., NELA (objecting to ``emphasizing certain factors over what 
should be the `ultimate inquiry' ''). FTC Commissioner Slaughter 
likewise objected that ``[t]he Proposal takes the Supreme Court's five 
factor test, where all five factors are given equal weight, and narrows 
it down to focus on only two [core] factors.'' See also Appleseed 
Center (``[A]ll are given equal weight.''); Senator Patty Murray 
(suggesting that ``DOL afford [factors] equal weight''). NELP appeared 
to agree with the Department that the economic reality test may focus 
on certain factors over others, but asserted that ``the factor of 
integration into the business of another should be weighed heavily,'' 
rather than the proposed rule's two core factors. Several commenters 
further relied on an age discrimination case to contend that the 
economic reality test ``cannot be rigidly applied'' and that ``[i]t is 
impossible to assign to each of these factors a specific and invariably 
applied weight.'' NELP (quoting Hickley v. Arkla Indus., Inc., 699 F.2d 
748, 752 (5th Cir. 1983)); see also Michigan Regional Council of 
Carpenters (MRCC) (same).
    The Department disagrees that the economic reality test requires 
factors to be unweighted or equally weighted. Each time the Department 
or a court applies the test, it must balance potentially competing 
factors based on their respective probative value to the ultimate 
inquiry of economic dependence. In the very case that announced the 
economic reality factors, the Supreme Court listed five factors that 
are ``important for decision'' but

[[Page 1198]]

did not treat them equally. Silk, 331 U.S. at 716. It instead 
emphasized the most probative factors, while de-emphasizing less 
probative ones in that case. The Court focused on the fact that coal 
unloaders ``had no opportunity to gain or lose'' to conclude they were 
employees under the SSA, while explaining the fact ``[t]hat the 
unloaders did not work regularly was not significant.'' Id. at 717-18. 
The Court further focused on ``the control exercised [and] the 
opportunity for profit from sound management'' to conclude that truck 
drivers were independent contractors, without discussing any of the 
other economic reality factors. Id. at 719. Similarly, the Court in 
Whitaker House concluded that workers at issue in that case were 
employees based primary on considerations relating to control (e.g., 
the workers were ``regimented under one organization, manufacturing 
what the organization desires'') and opportunity for profit (e.g., the 
workers were ``receiving the [piece rate] compensation the organization 
dictates'' rather than ``selling their products on the market for 
whatever price they can command''). 366 U.S. at 32-33.
    As discussed in the NPRM, courts of appeals also emphasized facts 
and factors that are more probative of the economic dependence inquiry. 
See 85 FR 60620. In Saleem, the Second Circuit focused on facts 
relating to drivers' control over their work and their opportunity for 
profit or loss based on initiative or investment to conclude that they 
were independent contractors.\47\ 854 F.3d at 138-39; see also 
Agerbrink v. Model Service LLC, 787 F. App'x 22, 25-27 (2d Cir. 2019) 
(denying summary judgement based solely on disputed facts regarding 
plaintiff's ``control over her work schedule, whether she had the 
ability to negotiate her pay rate, and, relatedly, her ability to 
accept or decline work''). The Third Circuit in Razak v. Uber 
Technologies took a similar approach by emphasizing disputed facts 
regarding ``whether Uber exercises control over drivers'' ' and had 
``the opportunity for profit or loss depending on managerial skill'' to 
deny summary judgment. 951 F.3d at 145-47.\48\ And the Eight Circuit 
recently emphasized a process server's ability to determine his own 
profits by controlling hours, which assignments to take, and for which 
company to work, to affirm a jury verdict that he was an independent 
contractor. See Karlson, 860 F.3d at 1095.
---------------------------------------------------------------------------

    \47\ In particular, the Saleem court focused on: drivers' 
``considerable discretion in choosing the nature and parameters of 
their relationship with the defendant,'' ``significant control over 
essential determinants of profits in [the] business,'' how they 
``invested heavily in their driving businesses,'' and the ``ability 
to choose how much work to perform.'' 854 F.3d at 137-49.
    \48\ The Razak decision also briefly addressed other factors, 
including a footnote on the ``integral'' factor and a discussion 
that was nominally about the permanence factor but actually 
concerned control: ``On one hand, Uber can take drivers offline, and 
on the other hand, Plaintiffs can drive whenever they choose to turn 
on the Driver App, with no minimum amount of driving time 
required.'' 951 F.3d at 147 n.12.
---------------------------------------------------------------------------

    Courts have repeatedly warned against the ``mechanical 
application'' of the economic reality factors when determining whether 
an individual is an employee or independent contractor. See, e.g., 
Saleem, 854 F.3d at 139; Superior Care, 840 F.2d at 1059. Rather, the 
factors should be analyzed with the aim of answering the ultimate 
inquiry under the FLSA: ``Whether an individual is `in business for 
himself' or is `dependent upon finding employment in the business of 
others.' '' Scantland, 721 F.3d at 1312 (quoting Mednick, 508 F.2d at 
301-02). Commenters who object to focusing on the two core factors do 
not dispute this principle, and some affirmatively support it. For 
instance, NELA and the State AGs both stated that economic reality 
``factors `are aids--tools to be used to gauge the degree of dependence 
of alleged employees on the business with which they are connected' '' 
(quoting Pilgrim Equip., 527 F.2d at 1311). NELA nonetheless believed 
that it would be inappropriate to ``emphasiz[e] certain factors over 
what should be the `ultimate inquiry': The worker's economic dependence 
on the putative employer.'' Emphasizing certain factors, however, would 
dilute the ultimate inquiry of economic dependence only if those 
factors were less probative of economic dependence than others. In 
contrast, emphasizing factors that are more probative would not dilute 
but rather focus the analysis on the ultimate inquiry under the FLSA. 
If NELA and the State AGs are correct that the economic reality factors 
must be ``used to gauge the degree of dependence,'' then focusing on 
factors that are more probative measures of economic dependence is not 
only permitted but preferred.
    The Department's review of case law indicates that courts of 
appeals have effectively been affording the control and opportunity 
factors greater weight, even if they did not always explicitly 
acknowledge doing so.\49\ See 85 FR 60619. Among the appellate 
decisions since 1975 that the Department reviewed, whenever the control 
factor and the opportunity factor both pointed towards the same 
classification--whether employee or independent contractor--that was 
the worker's ultimate classification. Put another way: In those cases 
where the control factor and opportunity factor aligned, had the courts 
hypothetically limited their analysis to just those two factors, it 
appears to the Department that the overall results would have been the 
same. One commenter attempted to dispute this finding. TRLA asserted 
that, in the following four cases, farmworkers who were found to be 
employees ``might be reclassified as independent contractors based on 
the NPRM's two core factors:'' Driscoll, 603 F.2d 748; Lauritzen, 835 
F.2d 1529; Perez v. Howes, 7 F. Supp. 3d 715 (W.D. Mich. 2014); and 
Cavazos v. Foster, 822 F. Supp. 438 (W.D. Mich. 1993). However, the 
court in each of these cases actually concluded that the control and 
opportunity factors both favored employee classification,\50\ and thus 
the farmworkers would have been found to be employees even if those 
courts had hypothetically based is decision solely on the core factors. 
These cases therefore reinforce the Department's conclusion that the 
control and opportunity factors have been consistently afforded 
significant weight in the economic dependence inquiry.
---------------------------------------------------------------------------

    \49\ Some courts have explicitly acknowledged that facts related 
to the control factor were more probative than facts related to 
other factors. For instance, the court in Saleem stated that 
``whatever `the permanence or duration' of Plaintiffs' affiliation 
with Defendants, both its length and the `regularity' of work was 
entirely of Plaintiffs' choosing.'' 854 F. 3d at 147 (citation 
omitted). When discussing ``the use of special skills,'' the court 
in Selker Brothers similarly explained that, ``[g]iven the degree of 
control exercised by Selker over the day-to-day operations of the 
stations, this criterion cannot be said to support a conclusion of 
independent contractor status.'' 949 F.2d at 1295.
    \50\ Driscoll, 603 F.2d at 755 (``The appellants' affidavits, 
which must be taken as true for summary judgment purposes, plainly 
disclose that [defendant] possesses substantial control over 
important aspects of the appellants' work''); id. (``The appellants' 
opportunity for profit or loss appears to depend more upon the 
managerial skills of [defendant]''); Lauritzen, 835 F.2d at 1536 
(``The defendants exercise pervasive control over the operation as a 
whole.''); id. (``The Sixth Circuit [in a prior case] found that the 
migrant workers had the opportunity to increase their profits 
through the management of their pickle fields. . . .We do not 
agree.''); Howes 7 F. Supp. 3d at 726, aff'd sub nom. Perez v. D. 
Howes LLC, 790 F.3d 681 (6th Cir. 2015); (``Accordingly, [the 
control] factor weighs in favor of a finding that the workers were 
employees.''); id. (``[W]orkers could simply increase their wages by 
working longer, harder, and smarter--this does not constitute an 
opportunity for profit.''); Cavazos, 822 F. Supp. at 442 (``Their 
lack of control supports plaintiffs' claim that they are 
employees.''); id. at 443 (noting that the work relationship ``does 
not afford plaintiffs an opportunity for profits'').
---------------------------------------------------------------------------

    The consistent empirical trend indicating that the control and 
opportunity factors have been afforded

[[Page 1199]]

greater weight should be unsurprising given their greater probative 
value. As the NPRM explained, those two factors ``strike at the core'' 
of what it means to be in business for oneself, 85 FR 60612, and 
therefore they are more probative of the ultimate inquiry under the 
FLSA: ``whether an individual is `in business for himself' or is 
`dependent upon finding employment in the business of others.' '' 
Scantland, 721 F.3d at 1312 (quoting Mednick, 508 F.2d at 301-02). No 
commenters offered a persuasive counterargument to the commonsense 
logic that, when determining whether an individual is in business for 
him- or herself, the extent of the individual's control over his or her 
work is more useful information than, for example, the skill required 
for that work. Nor did any commenters effectively rebut that the extent 
of an individual's ability to earn profits (or suffers losses) through 
initiative or investment is more useful information than, for example, 
how long that individual has worked for a particular company.
    NELP appeared to agree with the Department that emphasis should be 
given to factors that are most probative to the ultimate inquiry of 
whether an individual is in business for him- or herself, but disagrees 
as to what those factors should be. In particular, NELP asserted that 
``the factor of integration into the business of another should be 
weighed heavily and in fact is ultimately the test. If the work is 
integrated this leads to the conclusion that the worker is not 
independently running a business.'' \51\
---------------------------------------------------------------------------

    \51\ According to NELP, this language is a quotation from AI 
2015-1 that was withdrawn in 2017. But that withdrawn guidance does 
not contain the quoted language.
---------------------------------------------------------------------------

    NELP correctly defines the economic dependence inquiry as ``whether 
a person is in business for themselves and therefore independent, or 
works instead in the business of another and dependent on that business 
for work.'' If a worker is economically dependent on an employer for 
work, the worker is not in business for him- or herself. NELP then 
defines the ``integration factor'' to mean the exact same thing: ``If 
the work is integrated this leads to the conclusion that the worker is 
not independently running a business.'' NELP is correct that, when 
defined as such, ``the factor of integration . . . in fact is the 
ultimate test,'' but that factor would not be helpful in ascertaining a 
worker's employment status because it simply restates the question. The 
Department, courts, and the regulated community would still have to 
determine which factors to analyze to determine whether an individual 
is in business for him- or herself. The Department therefore declines 
to create and give greater weight to NELP's concept of the 
``integration factor'' and continues to believe that the control and 
opportunity factors are the most probative as to whether an individual 
is in business for him- or herself as a matter of economic reality.
    NELP and MRCC quoted dicta from an age-discrimination case that 
``[i]t is impossible to assign to each of [the economic reality] 
factors a specific and invariably applied weight.'' Hickley, 699 F.2d 
at 752.\52\ This proposed rule, however, does not run afoul of 
Hickley's dicta. As an initial matter, neither core factor individually 
has ``a specific and invariably applied weight'' because the proposed 
rule does not state that one necessarily outweighs the other. The 
Department nonetheless recognizes that proposed Sec.  795.105(c)' 
statement that ``each [core factor] is afforded greater weight in the 
analysis than is any other factor'' may be overly rigid. For reasons 
explained above, certain types of facts--i.e., those falling within the 
control and opportunity factors--are more probative than others 
regarding whether an individual is in business for him- or herself. But 
that does not necessarily mean the control or opportunity factors are 
entitle to greater weight in all cases. For example, it may be the case 
that, after all the circumstances have been considered, a core factor 
does not weigh very strongly towards a particular classification 
because considerations within that factor point in different 
directions. See Cromwell, 348 F. App'x at 61 (finding that ``defendants 
here did not control the details of how the plaintiffs performed their 
assign jobs'' but did have ``complete control over [their] schedule and 
pay''). A core factor could even be at equipoise, in which case it 
would not weigh at all in favor of a classification. See Johnson, 371 
F. 3d at 730 (concluding that competing facts regarding plaintiffs' 
opportunity for profit or loss meant that the ``jury could have viewed 
this factor as not favoring either side''). In short, there is a subtle 
but important distinction that was not fully reflected in the NPRM's 
language between a factor's probative value as a general matter and its 
specific weight in a particular case. Probative value refers to the 
extent to which a factor encapsulates types of facts that illuminate 
the ultimate inquiry of whether workers are in business for themselves, 
as opposed to being dependent on an employer for work. The weight 
assigned to a factor in a particular case refers to how strongly 
specific facts within the factor, on balance, favors a particular 
classification. Considerations within a core factor may have 
significant probative value even though that factor, on balance, does 
not weigh heavily towards a classification in a specific case. The 
Department therefore revises Sec.  795.105(c) to more clearly 
distinguish between a core factor's probative value as a general matter 
and its' weight in a specific case and to clarify that the core 
factors' greater probative value means that they typically (but not 
necessarily) carry greater weight . Thus it should be clear that the 
rule does not assign any factor a specific or invariable weight. In 
contrast, the approach favored by some commenters, including the 
Appleseed Center and Commission Slaughter, to give each factor ``equal 
weight'' would ``assign to each of the factors a specific and 
invariably applied weight.'' Hickley, 699 F.2d at 752.
---------------------------------------------------------------------------

    \52\ The court in Hickley applied the economic reality test in 
the context of the Age Discrimination in Employment Act of 1967, 29 
U.S.C. 621-34, without opining whether that was the correct test 
under the ADEA. 699 F.2d at 752 (``Finding . . . there was no 
evidence . . . that Hickey was an employee under the more liberal 
`economic realities' test used in FLSA cases, [but] express[ing] no 
opinion on whether it or one of the tests used in Title VII cases 
should ultimately be used to determine employee status in ADEA 
cases.''). Hickley's ``specific and invariably applied weight'' 
dicta appears in one FLSA case, Parrish, 719 F.3d at 380, as a see 
also parenthetical to support the proposition that economic reality 
factors should not be applied mechanically.
---------------------------------------------------------------------------

    At bottom, the final rule's focus on two core factors thus does not 
depart from the economic reality test--it merely elucidates the 
factors' respective probative values that have always existed but never 
been explained. Cf. Lauritzen, 835 F.2d at 1539 (``Why keep [employers] 
in the dark about the legal consequences of their deeds.'' 
(Easterbrook, J., concurring)). As explained in more detail below, 
providing such clarification for the regulated community would not 
narrow the scope of who is an FLSA employee as opposed to an 
independent contractor. Nor would it narrow the circumstances that may 
be considered under the economic reality test.
2. The Proposed Rule Would Not Narrow the Standard for FLSA Employment
    A number of commenters argued that focusing the economic reality 
test on the control and opportunity factors would narrow the standard 
for employment under the FLSA. The FLSA defines ``employ'' as including 
``to suffer or permit to work,'' 29 U.S.C. 203(g), and these commenters 
argued this definition should be interpreted to provide broad coverage 
in light of the Act's remedial

[[Page 1200]]

purpose. See, e.g., AFL-CIO; NELA; NELP; Senator Patty Murray; State 
AGs. Most of these commenters argued that the proposed rule is 
incompatible with the Act's broad definition of employment because 
focusing on the control factor would effectively adopt the narrower 
scope of employment under the common law control test. One commenter, 
however, had a different view: UPS argued that the proposed rule would 
adopt a narrower standard for employment by giving the control factor 
too little weight.
    Discussing the proposed rule's consistency with the FLSA's standard 
for employment first requires an understanding of the Act's 
definitions. Commenters point out that the Act defines ``employ'' as 
including ``to suffer or permit to work,'' 29 U.S.C. 203(g), but the 
Supreme Court has observed that, although broad, the Act's definitions 
are not clear regarding the scope of relationships that are included. 
Rutherford Food, 331 U.S. at 728 (``[T]here is in the [FLSA's text] no 
definition that solves problems as to the limits of the employer-
employee relationship under the Act.''). Courts of appeals have 
likewise found the definitions not to clearly indicate the precise 
contours of FLSA employment. See, e.g., Solis v. Laurelbrook Sanitarium 
& Sch., Inc., 642 F.3d 518, 522 (6th Cir. 2011); Steelman v. Hirsch, 
473 F.3d 124, 128 (4th Cir. 2007).
    As commenters also noted, the Supreme Court relied on the FLSA's 
purpose and legislative history to interpret the ``suffer and permit'' 
language to encompass a more inclusive definition of employment than 
that of the common law. Rutherford Food, 331 U.S. at 727 (affirming 
that FLSA employment is not limited to the ``common law test of 
control, as the act concerns itself with the correction of economic 
evils through remedies which were unknown at common law''); see also 
Darden, 503 U.S. at 326. The Supreme Court has ``consistently construed 
the Act liberally in recognition that broad coverage is essential to 
accomplish [its] goal,'' Tony & Susan Alamo, 471 U.S. at 296, but at 
the same time, the Court also recognized that the ``suffer or permit'' 
definition ``does have its limits.'' Id. at 295; see also Portland 
Terminal, 330 U.S. at 152 (``The definition `suffer or permit to work' 
was obviously not intended to stamp all persons as employees.''). No 
court has suggested that applying such limits (including the limit that 
bona fide independent contractors are not employees under the Act) 
cannot be reconciled with the Act's remedial purpose. Cf. Encino 
Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018) (Encino II) 
(warning against relying on ``flawed premise that the FLSA `pursues' 
its remedial purpose `at all costs''' when interpreting the Act). 
Ultimately, ``[t]he test of employment under the Act is one of 
`economic reality.''' Tony & Susan Alamo, 471 U.S. at 301 (quoting 
Whitaker House, 366 U.S. at 33)). This rule applies such a test and 
does so with sufficient breadth consistent with the Act's remedial 
purpose.
    While the phrase ``economic reality'' is on its face no clearer 
than the ``suffer or permit'' language, see Lauritzen, 835 F.2d at 1539 
(Easterbrook J., concurring), decades of case law has refined its 
meaning. The Court determined that employees include ``those who as a 
matter of economic reality are dependent upon the business to which 
they render service.'' Bartels, 332 U.S. at 130. Courts of appeals have 
subsequently used Bartels's concept of economic dependence to determine 
employment under the FLSA. See, e.g., Saleem, 854 F.3d at 139; Mr. W 
Fireworks, 814 F.2d at 1054; DialAmerica, 757 F.2d at 1385. Thus, the 
courts have interpreted the scope of employment under the Act's 
definition to include any individual who is ``dependent upon finding 
employment in the business of others,'' and to exclude any individual 
who is ``in business for himself.'' Scantland, 721 F.3d at 1312.\53\ 
However, as noted in the need for rulemaking discussion, this principle 
has not always been applied consistently.
---------------------------------------------------------------------------

    \53\ Courts apply this economic dependence standard for 
employment in the employee-versus-independent contractor context, 
but use different approaches in other contexts. See, e.g., Glatt v. 
Fox Searchlight Pictures, 811 F.3d 528 (2d Cir. 2016).
---------------------------------------------------------------------------

    The Department agrees with this interpretation and further believes 
that the economic dependence standard developed by courts comports with 
the ``suffer or permit'' statutory text. As the NPRM explained: ``An 
individual who depends on a potential employer for work is an employee 
whom the employer suffers or permits to work. In contrast, an 
independent contractor does not work at the sufferance or permission of 
an employer because, as a matter of economic reality, he or she is in 
business for him- or herself.'' 85 FR 60606 (citing Saleem, 854 F.3d at 
139). Commenters generally agreed that employee versus independent 
contractor status under the FLSA is determined by the worker's economic 
dependence, and several of the above-mentioned commenters affirmatively 
supported this standard. For example, NELA stated that ``[i]t is 
dependence that indicates employee status'' (quoting Usery, 527 F.2d at 
1311). And the State AGs explain that ``[t]he ultimate concern is 
whether, as a matter of economic reality, the workers depend on someone 
else's business . . . or are in business for themselves'' (quoting 
Superior Care, 840 F.2d at 1059).
    Most commenters who objected to focusing the economic reality test 
on the two core factors were concerned that such an approach would 
narrow FLSA employment to the common law standard. For instance, NELA 
stated that ``[b]y affording the control factor greater weight in the 
economic reality analysis, the Department slides back toward the common 
law agency test.'' See, e.g., AFL-CIO (``[T]he proposed rule 
effectively collapses the FLSA's definition into the common law 
definition by giving primacy and controlling weight to the two factors 
of control and opportunity for profit and loss.''). The implied logic 
behind this concern is that if one test gives greater weight to a 
factor that is also given greater weight by a second test, the two 
tests necessarily have an equal scope of employment. But that does not 
follow.
    A comparison with the ABC test is illustrative. That test creates a 
presumption of employee status, which can be overridden only if all 
three factors are established. One of the ABC test's factors is 
``whether the worker is free from the control and direction of the 
hiring entity.'' This factor is given dispositive weight under certain 
circumstances: If the worker is controlled by the hiring party, then he 
or she is automatically an employee, regardless of other 
considerations. The common law control test also gives control 
dispositive weight. While both tests afford control greater weight than 
the economic reality test, one test (ABC) has a broader scope of 
employment than the economic reality test and the other (common law) 
has a narrower scope. The relative weight attached to a particular 
factor does not, by itself, determine whether the ultimate scope of 
employment is broad or narrow. Accordingly, it is not possible to 
compare the breadth of the standards for employment used by two tests 
simply by comparing the weight attached to a shared factor. Rather, it 
is necessary to consider how each test's factors are actually applied.
    Under the common law control test, control is the ultimate inquiry: 
If an individual controls the work, then he or she would be an 
independent contractor rather than an employee. However, such control 
by itself would be insufficient to establish the worker as an 
independent contractor under the Department's rule.

[[Page 1201]]

Other considerations, including the second core factor of opportunity 
for profit or loss, can outweigh the control factor and result in a 
classification of employee status. That is precisely what happened in 
Paragon Contractors, wherein the control and integral part factors 
weighed in favor of independent contractor classification but the court 
nonetheless held that the worker was an employee because the remaining 
factors, including opportunity for profit or loss, favored 
classification as an employee. See 884 F.3d at 1238. And even if the 
individual both controls the work and has a meaningful opportunity for 
profit or loss, he or she still would not necessarily be classified as 
an independent contractor under the Department's rule because other 
factors may outweigh those two core factors in rare cases. In short, 
because the ultimate inquiry under the common law control test is the 
worker's right to control the manner and means by which the work is 
performed, such control by the worker disqualifies the worker from 
being an employee under that test, but more is needed under the rule's 
articulation of the economic reality test because economic dependence 
is the ultimate inquiry. Thus, the rule's standard for employment 
remains broader than the common law standard. Nor does the rule 
``slide[ ] back toward the common law agency test,'' as NELA contends, 
or otherwise narrow the standard of employment under the FLSA. As 
explained above, the standard for determining whether an individual is 
an employee under the FLSA or an independent contractor has always been 
economic dependence. The two core factors are more probative than other 
factors regarding whether an individual is in business for him- or 
herself, as opposed to being dependent on an employer for work. Neither 
NELA nor likeminded commenters dispute this specific claim. NELA 
further recognized that economic reality factors must be ``used to 
gauge the degree of dependence.'' If so, the test should focus on core 
factors that are more probative measures of dependence. Doing otherwise 
would serve no purpose other than to make regulations more confusing, 
thereby reducing compliance and driving up the transaction cost of a 
lawful business practice.
    UPS expressed the opposite concern as NELA and likeminded 
commenters, asserting that the proposed rule did not give enough weight 
to the control factor. According to UPS, treating control as a factor 
to be balanced rather than giving it dispositive weight ``leaves open 
the possibility that a worker could be classified as an `independent 
contractor' even when the common-law control factor indicated employee 
status.'' The potential for such an outcome implies that FLSA 
employment may be narrower than the common law standard in certain 
circumstances.
    As an initial matter, UPS's concern that the control factor may be 
outweighed by other considerations even when it indicates employee 
status also applies to every prior articulation of the economic reality 
test--indeed more so--because none of them gave the control factor 
greater weight, much less dispositive weight. The rule addresses UPS's 
concern because it explicitly identifies control as a core factor that 
is less likely to be outweighed by other factors. More importantly, 
UPS's concern could materialize only if the control factor were 
balanced against other factors without regard for the ultimate inquiry 
for FLSA employment. Courts have cautioned against such ``mechanical 
application'' of the economic reality factors and have instead 
instructed that all factors should guide the analysis of whether the 
individual is in business for him or herself or is dependent on others 
for work. See, e.g., Saleem, 854 F.3d at 140. For these reasons, the 
Department does not share UPS's concern that not giving dispositive 
weight to the control factor results in a standard for employment that 
is narrower than the common law.\54\
---------------------------------------------------------------------------

    \54\ In any event, courts have foreclosed UPS's requested remedy 
of giving the control factor dispositive weight to determine 
employee status. See, e.g., Silk, 331 U.S. at 716 (``No one factor 
is controlling); Keller, 781 F.3d at 807 (``No one factor is 
determinative.''); Baker, 37 F.3d at 1440 (``None of the factors 
alone is dispositive.'').
---------------------------------------------------------------------------

3. The Rulemaking Will Not Restrict the Range of Considerations Within 
Economic Reality Test
    A number of commenters contend that the proposed rule's focus on 
the two core factors is inconsistent with case law requiring the 
``circumstances of the whole activity'' to be considered as part of the 
inquiry into economic dependence. State AGs (quoting Rutherford Food, 
331 U.S. at 730); see also, e.g., NELA (``The economic reality inquiry 
therefore cannot be answered without `employ[ing] a totality-of-the-
circumstances approach.' '' (quoting Baker, 137 F.3d at 1441)); see 
also Senator Patty Murray (``No one test factor is controlling, nor is 
the list exhaustive.''); TRLA (same).
    The Department agrees with commenters that the circumstances of the 
whole activity should be considered as part of the economic reality 
inquiry. See 85 FR 60621 (``Other factors may also be probative as part 
of the circumstances of the whole activity''). While all circumstances 
must be considered, it does not follow that all circumstances or 
categories of circumstance, i.e., factors, must also be ``given equal 
weight.'' See e.g., FTC Commissioner Slaughter; Appleseed Center. 
Assigning one factor less weight than another does not restrict the 
circumstances being considered because the very act of determining 
relative weight requires considering both factors.
    As explained above, each factor should be analyzed in accordance 
with its probative value to the ultimate inquiry of whether an 
individual is in business for him or her-self. To be sure, the specific 
weight of the factors depends on specific circumstances. The control 
and opportunity factors are nonetheless more probative than other 
factors in determining whether an individual is in business for him- or 
herself. As such, it is appropriate to recognize, as the proposed rule 
does, that these two more probative factors should typically carry 
greater weight than other factors. Doing so would not, as TRLA 
contends, ``eliminate . . . any consideration of [other] factors that 
have often been regarded as probative in the farm labor context.'' The 
proposed rule explicitly permits other factors to outweigh the two core 
factors if the specific circumstances of the case--whether in the farm 
labor context or another contexts--warrants such a result. In order to 
determine whether the combined weight of the two core factors are 
outweighed or not by other factors, it is necessary to consider both 
sets of factors. Nor would it make any ``single factor determinative by 
itself.'' Hopkins, 545 F.3d at 343. Neither of the core factors can be 
``determinative by itself'' because there is a second core factor 
against which each is balanced. Even when both core factors align, they 
are not ``controlling'' because their combined weight can still be 
outweighed by other considerations.
4. Other Comments Regarding the Focus on the Two Core Factors
    PAM and Global Tranz requested that the Department create a 
``bright-line test'' that ``would be limited to the two `core factors' 
already identified in the Proposed Rule: (1) the nature and degree of 
the individual's control over the work, and (2) the individual's 
opportunity for profit or loss.'' See also Cetera Financial Group (CFG) 
(``we believe it would be appropriate for the Department to limit the 
criteria employed in the economic dependence analysis to the two Core 
factors and

[[Page 1202]]

eliminate the others''). According to these commenters, a two-factor 
test would be even clearer and simpler than the proposal to focus the 
test on the two core factors, while still considering other factors. 
Other commenters requested that the Department eliminate one or more of 
the non-core factors listed in Sec.  795.105(d)(2) from the economic 
reality test because such factors have little to no probative value in 
some circumstance, and may sometimes send misleading signals regarding 
an individual's classification. CWI and the National Restaurant 
Association asked the Department to eliminate the skill required 
factor; SHRM and the U.S. Chamber of Commerce were among several 
commenters who suggested that the Department eliminate the permanence 
factor; and ATA, NDHA, and others requested eliminating the integrated 
unit factor.
    The Department believes that the two core factors of control and 
opportunity are always probative as to whether an individual is in 
business for him- or herself. The Department further agrees with the 
above commenters that the other factors are less probative and may have 
little to no probative value in some circumstances. See, e.g., Silk, 
331 U.S. at 718 (``That the unloaders did not work regularly is not 
significant.''). However, ``circumstances of the whole activity should 
be examined'' as part of the economic reality test, meaning that the 
other factors should be considered in all cases even if they are not 
always probative once considered. DialAmerica Mktg., Inc., 757 F.2d at 
1382. If a factor is probative in some situations but not in others, 
there is still a need to consider that factor to determine whether it 
is probative in a particular case. Eliminating the non-core factors 
from consideration would therefore be warranted only if those factors 
lacked probative value in all circumstances--that is, if there was 
never a need to even consider whether they had probative value.
    Because non-core factors are probative in many circumstances, the 
Department believes it would be inappropriate to eliminate them. In 
response to commenters' concern that non-core factors may not always be 
probative, the Department is making non-substantive revisions to 
clarify that the two core factors are always probative as to whether an 
individual is in business for him- or herself, but there may be 
circumstances where one or more of the non-core factors, upon 
consideration, has little or no probative value.
    Several commenters requested that the Department revise Sec.  
795.105(c) to state that if the two core factors point towards the same 
classification, there is no need to consider any other factors. See 
e.g., NRF (``if both of the core factors point in the same direction, 
then a court may consider only those two factors and end the analysis 
without examining the three additional possible factors identified by 
DOL''); SHRM (requesting revision ``to ensure that if the Core Factors 
indicate the same status of the worker, no further analysis is 
necessary''). According to the SHRM, such an approach would ``create 
clear expectations and stable grounds to build working relationships.''
    The Department believes that the economic reality test cannot be 
rigidly applied and concludes that its approach of giving certain 
factors greater weight and other factors lesser weight while retaining 
flexibility as to the degree of weight depending on the facts of the 
case best accounts for all of the circumstances that work relationships 
present. Commenters' requests would require the Department to state 
that the combined probative value of the two core factors--whatever 
that might be--always outweighs the combined probative value of other 
factors. The Department believes that will usually be the case, but 
does not rule out the possibility that, in some circumstances, the core 
factors could be outweighed by particularly probative facts related to 
other factors.
    Several commenters effectively requested that the Department assign 
a specific relative weight to one core factor as compared to the other. 
CWI requested that the Department always weigh the two core factors 
equally, while the HR Policy Institute requested that the control 
factor always be given greater weight than the opportunity factor. The 
Department declines to implement both requests. The Department's review 
of U.S. Courts of Appeals cases since 1975 did not indicate that the 
control and opportunity factors should be weighed equally. Nor did that 
review indicate that the control factor should always outweigh the 
opportunity factor. Indeed, in the few cases reviewed by the Department 
where the control and opportunity factors pointed towards different 
classifications, the ultimate classification aligned with the 
opportunity for factor. See 85 FR 60619 (citing Paragon Contractors, 
884 F.3d at 1235-36, and Cromwell, 348 F. App'x at 61). Ultimately, the 
Department is confident in its conclusion that the two core factors are 
more probative than all other factors and that framework is logical, as 
described above. But the Department declines to assign an invariable 
relative weight between the two core factors.
    Several commenters requested that the Department revise Sec.  
795.105(c) to establish a rebuttable presumption of employee or 
independent contractor status if both core factors indicate the same 
classification. Such a presumption would be rebuttable only by 
``substantial evidence to the contrary under all three [other 
factors].'' ATA. According to ATA, a rebuttable presumption ``[w]ould 
further reduce the possibility of courts unnecessarily and potentially 
selectively applying and weighing the three additional factors for 
preferred policy outcomes, which has been a concern with regard to the 
current test in some instances.'' As the NPRM explained, the Department 
considered but did not propose a rebuttable presumption based on 
alignment of the two core factors because it was concerned a formal 
presumption may be needlessly complex or burdensome. See 85 FR 60621. 
The Department further believes that emphasizing the importance of the 
two core factors provides sufficient clarity. As such, the Department 
declines to adopt a presumption-based framework.
    CWI requested that the ``the Final Rule spell out specifically that 
each of the Core Factors should be analyzed independently of the other, 
without overlap.'' The Department agrees with CWI that overlaps between 
economic reality factors, core or otherwise, should be minimized. As 
discussed in the NPRM and in this preamble, reducing such overlap is 
one of the reasons for this rulemaking. That said, the Department 
believes specific regulatory instructions against overlapping analysis 
of the two core factors is not necessary and may be confusing. The 
Department believes proposed Sec.  795.105(d)(1) articulates the two 
core factors without apparent overlap, and CWI does not identity any 
specific considerations that risk being analyzed under both factors. 
Language in the regulatory text warning against overlapping analysis 
may therefore confuse members of the regulated community by priming 
them to look for potential overlapping considerations when there are 
none. The Department therefore declines to add CWI's requested 
language.
    In summary, the economic reality test examines the circumstances of 
the whole activity to determine whether an individual is in business 
for him- or herself, as opposed to being economically deponent on 
others for work. Not all facts or factors are equally probative (if 
they are probative at all) as

[[Page 1203]]

to whether, as a matter of economic reality, an individual is in 
business for him- or herself. Treating them all as equal would not 
focus the inquiry on economic dependence, but rather would distort that 
analysis. In contrast, highlighting factors that are more probative 
would sharpen the test's focus on economic dependence.
    The NPRM presented reasoning and evidence based on the Department's 
review of case law indicating that control and opportunity factors are 
more probative to whether an individual is in business for him- or 
herself, as opposed to being economically dependent. While not all 
commenters agree with this approach, commenters who object to it have 
not convinced the Department to change its original assessment. The 
Department therefore believes that it is appropriate to focus the 
economic reality test on the two core factors that are more probative 
to the test's ultimate inquiry. Such focus appropriately guides how 
factors should be balanced, while retaining flexibility in the test.

F. Proposed Guidance Regarding the Primacy of Actual Practice

    Proposed Sec.  795.110 stated that the actual practice of the 
parties involved--both of the worker (or workers) at issue and of the 
potential employer--is more relevant than what may be contractually or 
theoretically possible. The proposed rule explained that this principle 
is derived from the Supreme Court's holding that `` `economic reality' 
rather than `technical concepts' is to be the test of employment'' 
under the FLSA. Whitaker House, 366 U.S. at 33; see also Tony & Susan 
Alamo, 471 U.S. at 301 (``The test of employment under the [FLSA] is 
one of `economic reality' '' (citing Whitaker House, 366 U.S. at 33)).
    Several commenters expressed support for proposed Sec.  795.110. 
For example, ATA wrote that ``[t]he general principle also is almost 
black letter law--substance is always more important than form--under 
virtually every regulation WHD enforces.'' The Center for Workplace 
Compliance described the language as ``consistent with historical 
interpretation of the economic reality test by Federal courts and 
DOL.'' Other commenters complimented the proposal with little or no 
further explanation, see NHDA; New Jersey Civil Justice Institute; WPI, 
while HR Policy Association urged the final rule to go further by 
entirely disregarding the relevance of unexercised contractual or 
theoretical possibilities. WFCA supported proposed Sec.  795.110, but 
asked the Department to elaborate in the final rule that ``best 
indicator of the actual practices is whether a significant segment of 
the industry has traditionally treated similar workers as independent 
contractors or employees.''
    No worker advocacy organizations specifically commented in support 
of the provision, but several groups, including NELA, the Pacific 
Northwest Regional Council of Carpenters, and the Public Justice 
Center, quoted Judge Frank Easterbrook's observation from Lauritzen, 
835 F.2d at 1545, that ``[t]he FLSA is designed to defeat rather than 
implement contractual arrangements.'' The International Brotherhood of 
Teamsters similarly asserted that Congress ``chose to define 
`employment' in a manner that would allow the Act to be applied 
flexibly so that employers could not simply recalibrate their 
contractual arrangements with workers to evade coverage.'' Finally, 
NELP and 32 other organizations quoted Judge Learned Hand's observation 
from Lehigh Valley Coal Co. v. Yensavage, 218 F. 547 (2d Cir. 1914), 
cert. denied, 235 U.S. 705 (1915), that employment statutes from the 
early 20th century were intended to ``upset the freedom of contract'' 
between workers and businesses. Id. at 553.
    Some business commenters expressed general support for proposed 
Sec.  795.110, but requested edits to discount the relevance of 
voluntary choices on the part of an individual worker that implicate 
one or more of the economic reality factors described in proposed Sec.  
795.105(d), such as choosing to work exclusively for one business, 
accepting all available work assignments from the business, or 
declining to negotiate prices. See, e.g., American Bakers Association; 
ATA; New Jersey Warehousemen & Movers Association (NJWMA); NRF; Private 
Care Association; Scopelitis, Garvin, Light, Hanson & Feary; U.S. 
Chamber of Commerce (``[T]he Chamber urges the Department clarify that 
so long as a business does not take actions to foreclose an individual 
from exercising certain rights, that the individual's choice to not 
exercise those rights does not diminish their indicia of independence 
in the relationship.''). Some of these commenters asserted that 
allowing voluntary worker practices to influence classification 
outcomes would lead to costly and inefficient business decisions. See 
Dart Transit Company (``[T]he practical effect of [proposed Sec.  
795.110] is to require independent contractors to arbitrarily switch 
routes and carriers . . . simply in order to preserve their independent 
status''); Minnesota Trucking Association (``In effect, the motor 
carrier would have to restrict offering to the independent owner 
operator a route both find beneficial in order to ensure that the 
independent owner operator performs services for other motor 
carriers.''). Others asserted that considering voluntary worker 
practices would lead to classification discrepancies between workers 
with similar contractual freedoms. See NRF; SHRM.
    Some business commenters were flatly opposed to proposed Sec.  
795.110. SHRM wrote that ``[a] focus on `practice' as opposed to the 
contractual `rights,' of the parties . . . unnecessarily de-emphasizes 
voluntariness of the contract itself and places ambiguity over parties' 
negotiations.'' The Customized Logistics and Delivery Association 
objected that worker classifications could turn on voluntary worker 
practices that a business may not know about (e.g., whether particular 
workers perform labor for other companies), asserting that proposed 
Sec.  795.110 ``essentially shift[s] the burden of proof to the alleged 
employer to establish a worker's status as an IC'' and ``could force 
mass reclassifications of ICs for motor carriers, and many other 
industries.''
    Finally, several commenters representing workers, as well as 
Senator Patty Murray and the State AGs, voiced opposition to proposed 
Sec.  795.110 on the basis that emphasizing the primacy of an alleged 
employer's practices would establish an employee classification 
standard impermissibly narrower than the common law, which evaluates an 
alleged employer's ``right to control.'' \55\ In this regard, the State 
AGs compared proposed Sec.  795.110 to the Department's interpretation 
in its recent Joint Employer final rule that ``[a] potential joint 
employer must actually exercise--directly or indirectly--one or more . 
. . indicia of control to be jointly liable'' (85 FR 2859). Winebrake & 
Santillo, LLC asserted that proposed Sec.  795.110 conflicts with a 
statement from a recent Third Circuit opinion that ``actual control of 
the manner of work is not essential; rather, it is the right to control 
which is determinative,'' Razak, 951 F.3d at 145, while Edward. 
Tuddenham commented that ``[a]ll of the cases [the Department cited in 
its NPRM] to support the primacy of `actual practice' are referring to 
the actual practices of workers and are not discussing analysis of 
employer controls.'' In rejecting the proposed rule's distinction 
between a potential employer's contractual

[[Page 1204]]

authority to control workers and control that they actually exercise, 
Senator Murray asserted that contractual authority ``provides a 
potential employer an incredible amount of de facto control over a 
worker . . . induc[ing] a worker to perform the work in the manner the 
employer prefers, suggests, recommends, or hints at, even if the 
employer does not ever command it.'' See also State AGs (``[R]eserved 
authority in an agreement, like the looming sword of Damocles, will 
often influence what the parties do[.]'').
---------------------------------------------------------------------------

    \55\ Restatement (Second) of Agency Sec.  2(3); see also Commun. 
for Non-Violence v. Reid, 490 U.S. 730, 751 (1989) (describing ``the 
hiring party's right to control the manner and means by which the 
product is accomplished'' as the overarching focus of the common law 
standard).
---------------------------------------------------------------------------

    The Department has carefully considered the views and arguments 
expressed by commenters and decided to implement Sec.  795.110 as 
proposed. As emphasized in the NPRM, and as the plain language of Sec.  
795.110 makes clear, unexercised powers, rights, and freedoms are not 
irrelevant in determining the employment status of workers under the 
economic reality test; \56\ such possibilities are merely less relevant 
than powers, rights, and freedoms which are actually exercised under 
the economic reality test.\57\ Affording equal relevance to reserved 
control and control that is actually exercised--by either party--would 
ignore the Supreme Court's command to focus on the ``reality'' of the 
work arrangement, Silk, 331 U.S. at 713, which places a greater 
importance on what actually happens than what a contract suggests may 
happen. Several Federal courts of appeals decisions have explicitly 
made this observation. See, e.g., Saleem, 854 F.3d at 142 (``[P]ursuant 
to the economic reality test, it is not what [Plaintiffs] could have 
done that counts, but as a matter of economic reality what they 
actually do that is dispositive.'') (citations omitted); Parrish, 917 
F.3d at 387 (``The analysis is focused on economic reality, not 
economic hypotheticals.''); Scantland, 721 F.3d at 1311 (``It is not 
significant how one `could have' acted under the contract terms. The 
controlling economic realities are reflected by the way one actually 
acts.'' (citations omitted)). Moreover, as some commenters pointed out, 
prioritizing substance over form is consistent with the Department's 
general interpretation and enforcement of the FLSA. See, e.g., 29 CFR 
541.2 (``A job title alone is insufficient to establish the exempt 
status of an employee.''); 29 CFR 541.603(a) (providing that employers 
violate the salary basis requirement for certain employees exempt under 
Sec. 13(a)(1) of the Act only when they demonstrate ``an actual 
practice of making improper deductions''); \58\ 29 CFR 778.414 
(``[W]hether a contract which purports to qualify an employee for 
exemption under section 7(f) meets the requirements . . . will in all 
cases depend not merely on the wording of the contract but upon the 
actual practice of the parties thereunder.'').
---------------------------------------------------------------------------

    \56\ Entirely disregarding unexercised contractual rights and 
authorities would not be consistent with the Supreme Court's 
instruction in Rutherford Food to evaluate ``the circumstances of 
the whole activity.'' 331 U.S. at 730; see also Mid-Atl. 
Installation, 16 F. App'x at 107 (determining that cable installers 
were independent contractors in part because they had a ``right to 
employ [their own] workers''); Keller, 781 F.3d at 813 (citing as 
relevant ``the fact that Miri never explicitly prohibited Keller 
from performing installation services for other companies'' and 
finding ``a material dispute as to whether Keller could have 
increased his profitability had he improved his efficiency or 
requested more assignments'').
    \57\ In this respect, Sec.  795.110's emphasis on actual 
practice differs from the treatment of control in the Department's 
partially invalidated Joint Employer rule, which provided that ``[a] 
potential joint employer must actually exercise--directly or 
indirectly--one or more . . . indicia of control to be jointly 
liable.'' 85 FR 2859 (emphasis added).
    \58\ In a 2004 final rule amending this language, the Department 
rejected commenter arguments that the mere existence of a policy 
permitting improper deductions should disqualify an employer from 
claiming the Section 13(a)(1) exemption for salaried employees whose 
earnings and job duties otherwise qualify for exemption. ``[Such an] 
approach . . . would provide a windfall to employees who have not 
even arguably been harmed by a `policy' that a manager has never 
applied and may never intend to apply[.]'' 69 FR 22122, 22180.
---------------------------------------------------------------------------

    The Department disagrees with commenters who assert that 
prioritizing the actual practice of the parties involved makes the 
economic reality test impermissibly narrower than the common law 
control test. In many instances, the actual practices of the parties 
will establish the existence of an employment relationship despite what 
a ``skillfully devised'' contract might suggest on paper. Silk, 331 
U.S. at 715; see, e.g., Scantland, 721 F.3d at 1313-14 (``Though 
plaintiffs' `Independent Contractor Service Agreements' provided that 
they could `decline any work assignments,' plaintiffs testified that 
they could not reject a route or a work order within their route 
without threat of termination or being refused work in the following 
days.''); Hobbs, 946 F.3d at 833 (dismissing the fact that welders 
determined to be employees ``could hypothetically negotiate their rate 
of pay''). In any event, because the ultimate inquiry of the economic 
reality test is ``economic dependence,'' the test ensures coverage over 
more workers in the aggregate than the common law control test, 
notwithstanding its more nuanced interpretation of the control factor 
itself. See Silk, 331 U.S. at 716 (listing ``degrees of control'' as 
one of several non-dispositive factors in the economic reality test) 
(emphasis added).
    It is true that, under the economic reality test, some workers 
subject to a potential employer's ``right to control'' may nevertheless 
qualify as bona fide independent contractors for other reasons. To the 
extent that this excludes some workers who might qualify as 
``employees'' under a traditional common law test,\59\ this is the 
logical outcome of a multifactor test where ``no one [factor] is 
controlling.'' Silk, 331 U.S. at 716; see also, e.g., Selker Bros., 949 
F.2d at 1293 (``It is a well-established principle that . . . neither 
the presence nor the absence of any particular factor is 
dispositive.''). Moreover, the Supreme Court arrived at precisely this 
outcome in two of its seminal cases applying the economic reality test.
---------------------------------------------------------------------------

    \59\ See Commun. for Non-Violence v. Reid, 490 U.S. 730, 751 
(1989) (``In determining whether a hired party is an employee under 
the general common law of agency, we consider the hiring party's 
right to control the manner and means by which the product is 
accomplished.'') (emphasis added).
---------------------------------------------------------------------------

    First, in Silk, the Court evaluated the employment status of owner-
operator truck drivers who contracted to perform services exclusively 
for a motor carrier company, subject to a ``manual of instructions . . 
. purport[ing] to regulate in detail the conduct of the truckmen in the 
performance of their duties.'' 331 U.S. at 709-710. Before reaching its 
own conclusion, the Court excerpted an analysis from the appellate 
court below noting that, ``[w]hile many provisions of the manual, if 
strictly enforced, would go far to establish an employer-employee 
relationship between the Company and its truckmen . . . there was 
evidence to justify the [district] court's disregarding of it,'' 
including testimony that the manual was ``impractical and was not 
adhered to.'' Id. at 716 n.11 (quoting Greyvan Lines v. Harrison, 156 
F.2d 412, 415 (7th Cir. 1946)). Although the Court acknowledged ``cases 
. . . where driver-owners of trucks or wagons have been held employees 
in accident suits at tort'' (under the common law), the Court said it 
``agree[d] with the decisions below'' that the owner-operator truck 
drivers were independent contractors, as ``the total situation, 
including . . . the control exercised . . . marks these driver-owners 
as independent contractors.'' Id. at 718-19 (emphasis added).
    The Court in Bartels, even more clearly illustrated of how the 
economic reality test's emphasis on actual practice may indicate 
independent contractor. There, the Court found that band members were 
not employees of a public dance hall that hired them for

[[Page 1205]]

short-term gigs, despite a contract provision stipulating that the 
dance hall ``shall at all times have complete control of the services 
which the [band members] will render under the specifications of this 
contract.'' 332 U.S. at 128. Again applying the economic reality test, 
the Court noted that a worker's employment 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 or workers.'' Id. at 130 (emphasis added). While 
the Court made clear that other economic reality factors (e.g., skill, 
permanence, profit) indicated that the band members were independent 
contractors, id. at 132, the Court implicitly found that the control 
factor did as well, noting that it was the band leader (and not the 
dance hall) which ``organizes and trains the band . . . [and] selects 
[its] members.'' Id. at 132. In other words, notwithstanding the dance 
hall's contractual authority to ``complete[ly] control'' the band 
members, the actual practice of the parties made clear that the band 
members themselves controlled the work, as a matter of economic 
reality.
    Contrary to the argument put forth by several worker advocacy 
commenters, the outcome and reasoning of the Supreme Court's decisions 
in Silk and Bartels show that the common law control test does not 
establish an irreducible baseline of worker coverage for the broader 
economic reality test applied under the FLSA. In other words, while the 
economic reality test is broad in the sense that it covers more workers 
as a general matter, it does not necessarily include every worker 
considered an employee under the common law.
    At the same time, the Department disagrees with the interpretation 
suggested by various business commenters that only worker practices 
which are affirmatively coerced by a potential employer may indicate 
employee status. Such a reading conflicts with the definition of 
``employ'' in section 3(g) of the Act, which makes clear that the FLSA 
was intended to cover employers who passively ``suffer or permit'' work 
from individuals.\60\ Accordingly, courts applying the economic reality 
test have not hesitated to consider voluntary worker practices where 
such practices indicate economic dependence. See Keller, 781 F.3d at 
814 (``[A] reasonable jury could find that the way that [the defendant] 
scheduled [the worker's] installation appointments made it impossible 
for [the worker] to provide installation services for other 
companies.''). To be sure, the Department agrees that 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 voluntary 
worker practices (e.g., the mere existence of an exclusive work 
arrangement, the fact that a worker rarely turn down available work, 
etc.), but coercive action on the part of the potential employer is not 
a prerequisite for such worker practices to have import.
---------------------------------------------------------------------------

    \60\ 29 U.S.C. 203(g). See also 83 C.J.S. Suffer (1953) (``[T]o 
suffer work requires no affirmative act by a putative employer.'').
---------------------------------------------------------------------------

    The Department believes that commenters' concerns that proposed 
Sec.  795.110 will cause workers with similar contractual freedoms to 
be classified differently are overstated. Consistent with evaluating 
the ``the circumstances of the whole activity'' in a work arrangement, 
Rutherford Food, 331 U.S. at 730, courts have often considered the 
rights and practices of similarly situated workers affiliated with a 
particular business, arriving at a single classification outcome for 
the group of workers at issue. See, e.g., Freund, 185 F. App'x. at 784 
(finding independent contractor status in part because ``although 
Freund did not hire any workers, other of Hi-Tech's installers did''); 
Express Sixty-Minutes Delivery, 161 F.3d at 305 (finding independent 
contractor status in part because ``[t]he majority of drivers work for 
Express for a short period of time''); cf. Mr. W Fireworks, 814 F.2d at 
1048-51 (finding employee status in part because ``the overwhelming 
majority of operators did not engage in independent advertising'' and 
``the vast majority of operators made only minor investments in the 
business''). Even where meaningful factual differences exist between 
workers, courts may separate them into multiple groups for separate 
collective analyses instead of making individualized determinations. 
See, e.g., Off Duty Police, 915 F.3d at 1055-1062 (separate collective 
analyses of ``sworn officers'' and ``nonsworn officers'' who provide 
security and traffic control services); DialAmerica, 757 F.2d at 1383-
88 (separate collective analyses of home researchers and distributors). 
Judicial application of the economic reality test to groups of workers 
has shown that classification outcomes cannot turn on one factor alone. 
See, e.g., Silk, 331 U.S. at 719 (``In one instance they haul for a 
single business, in the other for any customer. The distinction, though 
important, is not controlling. It is the total situation . . . that 
marks these driver-owners as independent contractors.'').
    In summary, finalized Sec.  795.110's emphasis on the actual 
practices of the parties involved is not a one-way ratchet, applying 
selectively either for or against a finding of independent contractor 
status. Instead, as the examples in Sec.  795.110 illustrate, the 
principle applies to every potentially relevant factor, and can weigh 
in favor of either an employee or independent contractor relationship. 
In some cases, the actual practice of the parties involved may suggest 
that the worker or workers are employees. See, e.g., Sureway Cleaners, 
656 F.2d at 1371 (``[T]he fact that Sureway's `agents' possess, in 
theory, the power to set prices, determine their own hours, and 
advertise to a limited extent on their own is overshadowed by the fact 
that in reality the `agents' work the same hours, charge the same 
prices, and rely in the main on Sureway for advertising.''); 
DialAmerica, 757 F.2d at 1387 (concluding that evidence showing workers 
were not doing similar work for any other businesses ``although they 
were free to do so'' indicates employee status). In other cases, it may 
suggest that the worker or workers at issue are independent 
contractors. See Saleem, 854 F.3d at 143 (concluding that black-car 
drivers were independent contractors in part because ``many Plaintiffs 
. . . picked up passengers via street hail, despite TLC's (apparently 
under-enforced) prohibition of this practice''); see also Silk, 331 
U.S. at 718-19; Bartels, 332 U.S. at 129. Section 795.110's focus on 
actual practice is a neutral interpretive principle, consistent with 
the way courts and the Department have long applied the FLSA's economic 
reality test. Accordingly, and contrary to the concerns expressed by 
some commenters, it should not disrupt specific industries or result in 
substantial worker reclassifications in either direction (i.e., from 
employee to independent contractor status, or vice versa).

G. Other Comments

    Many substantive comments were not directed towards a specific 
provision of the proposed rule but rather the rule as a whole. These 
comments addressed the following topics: (1) Whether the proposed rule 
would create confusion or clarity for the regulated community; (2) 
whether the proposed rule would exacerbate or ameliorate 
misclassification of employees; (3) whether the rule is consistent with 
the FLSA's purpose; (4) whether

[[Page 1206]]

Congressional inaction prohibits this rulemaking; and (5) whether the 
Department may depart from its prior practice.
1. Whether the Rulemaking Will Create Confusion or Clarity
    Commenters from the business and freelance community generally 
expressed the view that the proposed rule would improve clarity 
regarding which workers are independent contractors versus employees 
under the FLSA. For example, the U.S. Chamber of Commerce stated that 
``[t]he Proposed Rule would provide long-awaited and much needed 
structure and clarity to the evaluation of worker relationships under 
the Act.'' SHRM agreed that ``[t]he Proposed Rule is necessary to 
provide certainty and consistency to businesses and workers.'' See also 
CWI; WPI; ATA; NRF; National Restaurant Association. Freelancers and 
groups that represent them echoed this message, with the CPIE, for 
instance, stating that ``[w]e believe the proposed guidance would 
provide greater clarity and predictability in the application of the 
`economic realities' test to independent entrepreneurs and their 
clients.'' See also Fight for Freelancers. Individual commenters who 
identified themselves as freelancers or small business owners 
overwhelmingly agreed that the rule would improve legal clarity. For 
example, one individual commenter who believed that ``independent 
contracting . . . kept [her] family afloat when [she] unexpectedly 
became a single mom'' stated that ``[t]his proposed rule is simple to 
understand and provides necessary clarity for both employers and 
individuals like myself that want to engage in freelancing.'' Another 
individual who identified himself as a small business owner believed 
that ``[t]he regulations proposed seem to provide clarity for 
determining an individual's status as an employee or independent 
contractor under the Fair Labor Standards Act.''
    Some government and union commenters took the opposite view. The 
State AGs, for instance, asserted that ``this rule will create 
confusion, not clarity'' in part because they believe it ``departs from 
the statutory text and Supreme Court precedent and is contrary to 
established application of the economic reality test.'' FTC 
Commissioner Slaughter expressed concern that the proposed rule would 
``create legal confusion around the labor exemption to the antitrust 
laws.'' The AFL-CIO argued that ``the proposal is likely to increase 
rather than decrease confusion because it does not clearly define `an 
integrated unit of production.' ''
    The Department continues to believe that the rule will improve 
clarity because it clarifies the meaning of economic dependence, which 
determines FLSA employment, and aligns the economic reality test to 
more accurately analyze that concept by, among other things, 
highlighting the two core factors that are most probative to the 
inquiry. The rule does not depart from the statutory text, which courts 
have interpreted to define FLSA employment based on the concept of 
economic dependence on which this rule focuses. Nor does the rule 
depart from any Supreme Court precedent because it continues to 
consider the circumstances of the activity as a whole to analyze 
whether workers, as a matter of economic reality, depend on another 
business for work, or are in business for themselves. The Department 
further disagrees with the State AGs that the rule departs from the 
``established application of the economic reality test.'' The final 
rule takes into account facts and factors that have historically been 
part of the economic reality test, and decades of appellate decisions 
indicating that the two core factors frequently align with the ultimate 
determination of economic dependence or lack thereof. See 85 FR 60619-
21. As one comment stated, the rulemaking ``synthesizes previous 
understandings of the independent contractor rule,'' as opposed to 
departing from them. See Farren and Mitchell.
    The Department does not believe this final rule will cause 
confusion regarding the labor exemption to antitrust laws because, as 
explained by FTC Commissioner Slaughter, that exemption is governed 
``[u]nder the Clayton Act and the Norris-La Guardia Act.'' In contrast, 
this rule's application is limited to the FLSA, and therefore, would 
not affect the labor exemption to antitrust laws established by other 
statutes. Finally, for reasons explained in the NPRM and this preamble, 
the Department believes this rule's articulation of the ``integrated 
unit'' is clearer than the prior ``integral part'' articulation. For 
added clarity, the Department added a pair of examples in Sec.  795.115 
to further illustrate application of the ``integrated unit'' factor.
    For these reasons, the Department believes the final rule will 
result in greater clarity.
2. Whether the Rulemaking Exacerbates or Ameliorates Misclassification
    Many commenters expressed concern that the proposed rule would 
exacerbate the misclassification of employees as independent 
contractors. See, e.g., Equal Justice Center; Employee Rights Center; 
NELP; State AGs; TRLA. According to these commenters, the proposed rule 
would make it easier for an unscrupulous employer to classify its 
employees as independent contractors, and they cite statistics that 
purport to show high rates of misclassification in support of that 
contention. Several other commenters took the opposite position and 
asserted, for example, that ``[c]larifying the application of the test 
for independent contractor status will promote compliance with labor 
standards under the FLSA and, in turn, reduce worker 
misclassification.'' Opportunity Solutions Project (OSP); see also, 
e.g., TCA (``[t]he increased clarity provided by the [proposed rule] 
would likely lead to reduced misclassification.''); IAW (``This rule 
will clear up misclassifications''); Financial Services Institute (``we 
agree that it will reduce worker misclassification and litigation''). 
These commenters also presented reports that dispute the widespread 
occurrence of misclassification. See, e.g. CWI; U.S. Chamber of 
Commerce; WPI.
    FLSA employee versus independent contractor status is determined in 
terms of economic dependence. Misclassification occurs when an 
individual who is economically dependent on a business is classified by 
that business as an independent contractor and treated as such. This 
can occur inadvertently because the business misunderstands the concept 
of economic dependence or incorrectly analyzes factors to assess the 
concept. It can also occur intentionally. This final rule clearly 
defines economic dependence and explains how to assess facts and 
factors to evaluate whether that dependence exists. It discards 
misleading and confusing interpretations of that concept developed over 
the years and emphasizes the essential aspects. A clearer test means 
more businesses will better understand their obligations under the FLSA 
and thereby inadvertently misclassify fewer workers. As one commenter 
who identified himself as a small business owner explained: ``We want 
to comply [with the FLSA] but we need guidance that allows us to know 
how to comply.'' A clearer test also means more workers will understand 
their rights under the FLSA and thereby will be better positioned to 
combat intentional misclassification through, for example, private 
litigation or complaints to the Department. Unscrupulous employers

[[Page 1207]]

may also be deterred from intentional misclassification in the first 
place if workers better understand their legal rights. For these 
reasons, the Department believes the final rule is likely to reduce 
both inadvertent and intentional FLSA misclassification.
    While several commenters asserted that the proposed rule will 
facilitate misclassification, the Department does not agree. The 
Department's final rule makes clear that a business may classify a 
worker as an independent contractor with greater confidence if the 
worker has control over key aspects of the work and a meaningful 
opportunity for profit or loss based on initiative or investment. 
Except in unusual cases, a worker who enjoys substantial control over 
the work and has opportunity for profit in abundant measures is, as a 
matter of economic reality, in business for him- or herself, and thus 
properly classified as an independent contractor. The rule thus makes 
it easier for a business and its workers to structure their work 
arrangements to create bona fide independent contractor relationships. 
But that effect of the final rule will help avoid misclassification, 
not encourage it.
    As discussed in greater detail in the RIA at Section VI(D)(6), the 
Department has concerns regarding the reliability of statistics cited 
by commenters regarding the prevalence of misclassification. Even 
assuming commenters' statistics are accurate, however, they would 
merely estimate the current rate of misclassification rather than how 
that rate would change as a result of this rule. Insofar as the final 
rule will reduce misclassification, these statistics make this 
rulemaking even more urgent.
    For the above reasons, the Department believes this rule will 
ameliorate rather than exacerbate misclassification of employees under 
the FLSA.
3. Whether the Rulemaking Is Consistent With the FLSA's Remedial 
Purpose
    A number of commenters asserted that this rule ``conflicts with the 
FLSA's remedial purposes of protecting workers.'' State AGs; see also, 
e.g., Pacific Northwest Council of Carpenters (``the Proposed Rule . . 
. is contrary to the statutory definitions and remedial purpose of the 
FLSA''). NELP, for instance, stated that ``DOL's proposed test would 
leave behind workers in high growth sectors with high rates of wage 
theft, contrary to the purposes of the FLSA.'' And NELA indicated that, 
because ``the FLSA is a remedial statute'' its coverage should be 
construed liberally to adopt a standard for employment that is even 
broader than economic dependence.\61\ Commenters that supported the 
proposed rule pointed that the FLSA is not intended to cover all 
workers and that ``Congress intended to cut off [the FLSA's] coverage 
at a certain point to preserve the freedom of workers to operate as 
independent contractors.'' Scalia School; see also WPI (``Nothing in 
the text or legislative history of any Federal employment law indicates 
that Congress intended to supplant or displace independent work and 
require instead for all workers to be employees.'').
---------------------------------------------------------------------------

    \61\ NELA specifically urged the Department to adopt the ``ABC'' 
test to determine whether a worker is an independent contractor or 
an employee under the FLSA. The Regulatory Alternative discussion at 
Section VI(G) provide further explanation why the Department is not 
adopting that test.
---------------------------------------------------------------------------

    The Supreme Court has cautioned against the ``flawed premise that 
the FLSA `pursues' its remedial purpose `at all costs' '' when 
interpreting the Act. Encino, 138 S. Ct. at 1142. The Encino II Court 
rejected the principle that FLSA's remedial purpose required exemptions 
to be narrowly construed, id, and courts of appeal have followed that 
logic to reject the corollary principle, articulated above by NELA, 
that the Act's remedial purpose requires its coverage to be construed 
broadly. See Sec'y United States Dep't of Labor v. Bristol Excavating, 
Inc., 935 F.3d 122, 135 (3d Cir. 2019) (rejecting broad reading of the 
FLSA based its remedial purpose); Diaz v. Longcore, 751 F. App'x 755, 
758 (6th Cir. 2018) (same). Rather, `` `a fair reading' of the FLSA, 
neither narrow nor broad, is what is called for.'' Bristol, 935 F.3d at 
135 (quoting Encino, 138 S. Ct. at 1142); Diaz, 751 F. App'x at 758 
(``We must instead give the FLSA a `fair' interpretation.'').
    ``The principal congressional purpose in enacting the Fair Labor 
Standards Act of 1938 was to protect all covered workers from 
substandard wages and oppressive working hours.'' Barrentine v. 
Arkansas-Best Freight Sys., Inc., 450 U.S. 728, 739 (1981) (emphasis 
added). The Supreme Court, however, has long recognized held that the 
FLSA ``was obviously not intended to stamp all persons as employees.'' 
Portland Terminal Co., 330 U.S. at 152. As the State AGs stated, the 
``the FLSA must be interpreted with its `remedial and humanitarian 
purpose . . . purpose' in mind to protect `those who sacrifices a full 
measure of their freedom and talents to the use and profit of others.' 
'' State AGs (quoting Tenn. Coal, Iron. R. Co. v. Muscoda Local No. 
123, 321 U.S. 590, 598 (1944)). Workers who are economically dependent 
on an employer for work have sacrificed ``freedom and talents to the 
use of profits of others,'' and therefore are covered by the Act as 
employees. But independent contractors use their ``freedom and 
talents'' to operate their own businesses, and thus fall outside of the 
FLSA's coverage. See Saleem, 854 F.3d 131, 139-40 (2d Cir. 2017) 
(noting that independent contractors are separate from employees in the 
context of the FLSA); Karlson, 860 F.3d 1089, 1092 (8th Cir. 2017) 
(``FLSA wage and hour requirements do not apply to true independent 
contractors.''); Scantland, 721 F.3d at 1311 (``[The Act's] `broad' 
definitions do not, however, bring `independent contractors' within the 
FLSA's ambit.''); Hopkins, 545 F.3d at 342 (observing that the ``FLSA 
applies to employees but not to independent contractors'').
    The Department believes the line between economically dependent 
workers who are covered by the FLSA and independent contractors who are 
not comports with the Act's purpose to ``protect all covered workers 
from substandard wages and oppressive working hours.'' Barrentine, 450 
U.S. at 739. Independent contractors who are in business for themselves 
do not need protection against ``oppressive working hours'' because 
they are not economically dependent on any employer who could oppress 
them. Nor do they need protection from ``substandard wages'' because 
they are not economically dependent on an employer that sets wages. 
Forcing workers who are in business of themselves into the FLSA's 
coverage would not protect them, and would instead unduly restrict 
their ability to operate their own businesses. Indeed, numerous 
individuals who identified as freelancers or independent contractors 
commented that being classified as an employee would undermine their 
ability to operate their own business. For example, one freelance 
translator lamented that ``many of my clients became unwilling to work 
with me'' when a state law required her to be classified as clients' 
employee. Another commenter identified himself ``[a]s a self employed 
professional [who] do[es] NOT want to be forced into employment.'' As a 
final illustrative example, another commenter stated that ``I have no 
desire to be an employee . . . . If I was required to be an employee, I 
would no longer be able to make money for my family from my home on my 
own schedule.''
    The Supreme Court has explained that the FLSA's ``exemptions are as 
much a part of the FLSA's purpose as

[[Page 1208]]

the [Act's] requirement[s].'' Encino, 138 S. Ct. at 1134. By the same 
logic, respecting the independence of workers whom the FLSA does not 
cover is as much a part of the Act's purpose as extending the Act's 
coverage to workers who need its protection. Denying FLSA coverage to 
workers who are economically dependent on an employer for work would 
result in workers loosing needed protection ``from substandard wages 
and oppressive working hours.'' Barrentine, 450 U.S. at 739. But 
extending the Act's coverage to workers who, as a matter of economic 
reality, are in business for themselves would unduly restrict 
independent workers who neither need nor benefit from the Act's 
provisions. This rule sharpens the distinction between these two 
categories of worker and thereby furthers the Act's purpose to protect 
employee who need protection without burdening independent contractors 
who do not.
4. Whether Congressional Inaction Prohibits This Rulemaking
    The American Federation of State, County, and Municipal Employees, 
AFL-CIO (AFSCME) asserted that, ``[b]ecause Congress has legislatively 
ratified the existing six-factor Economic Reality test, the Secretary 
and Administrator are powerless to alter the standard. This also means 
the Proposed Rule would fail the first step of the Chevron deference 
analysis and would be entitled to no deference by the courts.'' 
According to AFSCME, ``when Congress re-enacts a statute without 
change, it is presumed to be aware of administrative and judicial 
interpretation of that statute and to have adopted those 
interpretations.'' Based on this principle, AFSCME reasoned that, 
because Congress did not revise the definition of ``employ'' when it 
amended the FLSA in 1966, it must have adopted the ``integrated unit of 
production'' factor articulated in Rutherford Food, 331. U.S. 730. 
Additionally, AFSCME asserted that Congress's 1983 decision to adopt 
the FLSA's definition of ``employ'' without revision in MSPA indicates 
that Congress implicitly adopted the ``six-factor test [that] was well 
embedded as the interpretation of the FLSA's `employ.' ''
    AFSCME's ratification argument is based entirely on the fact that 
Congress has not amended the FLSA's definition of ``employ.'' The 
Supreme Court, however, has ``criticized . . . reliance on 
congressional inaction'' as a tool of statutory interpretation, 
cautioning that, ``[a]s a general matter . . . these arguments deserve 
little weight in the interpretive process.'' Central Bank of Denver, 
N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 187 
(1994). ``And when . . . Congress has not comprehensively revised a 
statutory scheme but has made only isolated amendments, [the Court has] 
spoken more bluntly: `It is impossible to assert with any degree of 
assurance that congressional failure to act represents affirmative 
congressional approval of the Court's statutory interpretation.' '' 
Alexander v. Sandoval, 532 U.S. 275, 292, (2001) (quoting Patterson v. 
McLean Credit Union, 491 U.S. 164, 175 n.1 (1989)). Congress has not 
``comprehensively revised'' the Act's statutory scheme in a manner that 
would indicate Congressional approval of a judicially created six-
factor test as the standard for FLSA employment.
    Even if some insight could be gleaned from Congressional inaction, 
that insight would not support ratifying a specific and definitive six-
factor test because there has never been a uniform test for Congress to 
ratify. The Supreme Court has never articulated a six-factor test, and 
courts of appeals articulate the test differently. As discussed 
earlier, the Second Circuit combines two of the factors. The Fifth 
Circuit omits one factor, while the remaining circuits use a sixth, 
``integral part'' factor that departs from the Supreme Court's 
consideration of ``integrated unit of production.'' Some circuits 
analyze a ``skill and initiative'' factor, while others consider just 
``skill required.'' Some circuits analyze the investment factor by 
comparing the dollar value of the worker's investment against that of 
the hiring entity, while others analyze whether the worker's investment 
creates opportunities for profit or loss. Simply put, there is no 
single test that Congress could have impliedly ratified, nor did AFSCME 
suggest one.
    For these reasons, Congress's inaction does not demonstrate that it 
ratified a specific six-factor economic reality test.
5. Whether the Rulemaking Improperly Departs From Prior Practice
    Several commenters, including NELA, contended that the proposed 
rule would be an improper departure from the Department's prior 
practice. The rule is consistent with the Department's prior position 
that the ultimate inquiry for determining employee versus independent 
contractor status under the FLSA is whether an individual is, as a 
matter of economic reality, economically dependent on another for work 
or is instead in business for him- or herself. The rule is further 
consistent with the Department's longstanding position that all 
economic reality factors should be analyzed when answering that 
ultimate inquiry.
    The Department acknowledges that the rule's focus on two core 
factors that are most probative to that ultimate inquiry is different 
from how the Department articulated the economic reality test in the 
past. ``Agencies are free to change their existing policies as long as 
they provide a reasoned explanation for the change.'' Encino Motorcars, 
LLC v. Navarro, 136 S. Ct. 2117, 2125 (2016). The Department has 
explained its reasoning for focusing the economic reality test on two 
core factors throughout the NPRM and this preamble. The Department 
further acknowledges that the rule lists economic reality factors in 
Sec.  795.105(d) that correspond with how the Department has 
articulated those factors in the past, with a few modifications. The 
Department explained its reasons for these modifications in the NPRM 
and in this preamble. This rule does not improperly depart from the 
Department's prior positions.

H. Examples

    As discussed above, many commenters requested that the regulatory 
text contain examples of how the economic reality test would apply in 
the context of their specific industries or practices. The Department, 
however, prefers to adopt generally applicable principles as opposed to 
attempting to provide guidance for every potential scenario. The later 
approach would require the regulation be drafted as an exhaustive 
treatise that is neither accessible nor helpful for most members of the 
regulated community. It would also invariably omit many important types 
of circumstances and be more difficult to adapt to future industries 
and practices that neither the Department nor commenters could have 
conceived.
    While the Department cannot provide examples for every conceivable 
scenario, it is adding Sec.  795.115 to provide six illustrative 
examples that involve a variety of industries and specific facts. Due 
to the complexities of balancing multiple factors that encompass 
countless facts that are part of the totality of the circumstances, the 
Department does not believe it would be helpful to provide examples 
that make conclusions regarding workers' ultimate classifications. 
Rather, each illustrative example focuses on the classification favored 
by a specific economic reality factor within the context of the fact-
specific scenario. The first example concerns the control factor in the 
context of the long-haul transportation industry. The second example 
concerns

[[Page 1209]]

the opportunity factor in the context of the gig economy. The third 
example concerns the opportunity factor in the context of the 
construction industry and clarifies the concept of economic dependence. 
The fourth example concerns the permanence factor within the context of 
a seasonal hospitality industry. The fifth example concerns the 
reframed ``integrated unit'' factor within the context of the 
journalism industry. The sixth example also concerns the new 
``integrated unit'' factor within the context of the journalism 
industry and is designed to work with the fifth example to elucidate 
the distinction between when this factor favors classification as an 
employee versus independent contractor.

I. Severability

    The Department proposed to include a severability provision in part 
795 so that, if one or more of the provisions of part 795 is held 
invalid or stayed pending further agency action, the remaining 
provisions would remain effective and operative. The Department did not 
receive any comments on this provision, and finalizes it as proposed.

J. Amendments to Existing Regulatory Provisions at Sec. Sec.  
780.330(b) and 788.16(a)

    Finally, in addition to the proposed addition of part 795, the 
Department proposed to amend existing regulatory provisions addressing 
independent contractor status under the FLSA in narrower contexts at 29 
CFR 780.330(b) (tenants and sharecroppers) and 29 CFR 788.16(a) 
(certain forestry and logging workers). Specifically, the Department 
proposed to replace descriptions of the six economic reality factors 
WHD has historically used to evaluate independent contractor status 
under the FLSA with a cross-reference to the guidance provided in new 
part 795. While some commenters invoked the existing provisions at 
Sec. Sec.  780.330(b) and 788.16(a) to justify opposition to proposed 
part 795, the Department did not receive any commenter feedback 
regarding the proposed amendment of these provisions. Accordingly, the 
Department finalizes amendments to these provisions as proposed.

V. Paperwork Reduction Act

    The Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501 et seq., 
and its attendant regulations, 5 CFR part 1320, require the Department 
to consider the agency's need for its information collections, their 
practical utility, the impact of paperwork and other information 
collection burdens imposed on the public, and how to minimize those 
burdens. In the NPRM, the Department invited public comment on its 
determination that the proposal did not contain a collection of 
information subject to OMB approval under the PRA. A few commenters, 
while not referencing the PRA directly, discussed records in their 
public comments. However, this was merely to note agreement that 
section 11 of the FLSA does not require the keeping of records 
regarding workers who are independent contractors. This final rule does 
not contain a collection of information subject to OMB approval under 
the PRA.

VI. Executive Order 12866, Regulatory Planning and Review; and 
Executive Order 13563, Improved Regulation and Regulatory Review

A. Introduction

    Under Executive Order 12866, OMB's Office of Information and 
Regulatory Affairs determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
Executive Order and OMB review.\62\ Section 3(f) of Executive Order 
12866 defines a ``significant regulatory action'' as a regulatory 
action that is likely to result in a rule that may: (1) Have an annual 
effect on the economy of $100 million or more, or adversely affect in a 
material way a sector of the economy, productivity, competition, jobs, 
the environment, public health or safety, or state, local or tribal 
governments or communities (also referred to as economically 
significant); (2) create serious inconsistency or otherwise interfere 
with an action taken or planned by another agency; (3) materially alter 
the budgetary impact of entitlements, grants, user fees or loan 
programs or the rights and obligations of recipients thereof; or (4) 
raise novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in the Executive 
Order. Because the annual effect of this rule is estimated to be 
greater than $100 million, this rule will be economically significant 
under section 3(f) of Executive Order 12866.\63\
---------------------------------------------------------------------------

    \62\ See 58 FR 51735 (Sept. 30, 1993).
    \63\ The entirety of the estimated costs from this deregulatory 
action, which exceed the $100 million threshold and relate strictly 
to familiarization, fall in the first year alone. The Department's 
Regulatory Impact Analysis further explains that these one-year 
costs are more than offset by continuing annual cost-savings of 
$495.8 million per year, accruing to the same parties that face the 
familiarization costs.
---------------------------------------------------------------------------

    Executive Order 13563 directs agencies to, among other things, 
propose or adopt a regulation only upon a reasoned determination that 
its benefits justify its costs; that it is tailored to impose the least 
burden on society, consistent with obtaining the regulatory objectives; 
and that, in choosing among alternative regulatory approaches, the 
agency has selected those approaches that maximize net benefits. 
Executive Order 13563 recognizes that some costs and benefits are 
difficult to quantify and provides that, when appropriate and permitted 
by law, agencies may consider and discuss qualitatively values that are 
difficult or impossible to quantify, including equity, human dignity, 
fairness, and distributive impacts.

B. Overview of Analysis

    The Department believes this rule is likely to improve the welfare 
of both workers and businesses on the whole. With respect to 
businesses, the Department believes that the improved clarity offered 
by the rule will increase the efficiency of the labor market, allowing 
businesses to be more productive and decreasing their litigation 
burden. With respect to workers, broadly speaking, this rule is likely 
to have four categories of potential effects.
    First, this rulemaking makes it easier for the millions of 
individuals who currently work as independent contractors and those who 
hire them to comply with the law. See Farren and Mitchell (``The 
proposed rule will likely reduce the cost of complying with the 
relevant Federal regulations.''). Compliance cost savings will be 
shared between the independent contractors and businesses for which 
they work. Id. (``labor regulations are generally paid for by 
reductions in workers' total compensation'').
    Second, as explained above, the legal clarity from this rule is 
likely to reduce occurrences of misclassification by enabling firms and 
workers to better understand their respective obligations and rights 
under the FLSA. The Department agrees with commenters that 
misclassification harms workers and believes this rule will reduce 
those harms by facilitating compliance.
    Third, legal clarity may encourage firms to create independent 
contractor arrangements for roles that did not previously exist, which 
may attract workers who otherwise would not work in that field. Such 
job creation unambiguously benefits workers and firms alike. See Dr. 
Liya Palagashvili (``[W]e got the impression from our interviews that 
the primary concern for startups in terms of labor regulation or policy 
is mostly with regulation of independent contractors.''), and Fuller et 
al. (``[M]ore than two-thirds of [women with advanced degrees or high-

[[Page 1210]]

honors BAs] who drop out of the workforce would not have done so if 
they'd had access to more-flexible job arrangements.'').\64\
---------------------------------------------------------------------------

    \64\ Joseph B. Fuller, et al., Rethinking the On-Demand 
Workforce, Harvard Business Review (Oct. 20, 2020).
---------------------------------------------------------------------------

    Fourth, as a result of the improved clarity of the rule, businesses 
might convert existing positions from employee to independent 
contractor. This rule provides the most legal certainty to employers 
classifying a worker as an independent contractor if the worker 
substantially controls the work and has a meaningful opportunity for 
profit or loss based on initiative or investment. As such, a job 
conversion attributable to the legal clarity provided by this rule is 
likely to satisfy the control and opportunity criteria.\65\ Businesses 
could reclassify existing employees as independent contractors by 
modifying their working relationship under the criteria of this rule, 
and would only be expected to do so upon determination that the clarity 
provided by this rule materially shifts the balance of tradeoffs. 
Business could also reclassify positions because the increased clarity 
of the rule confirms that their workers are actually already 
effectively independent contractors because their workers have 
substantial control over the work and have an opportunity for 
profit.\66\ Any benefit to businesses of modified classifications would 
need to outweigh the costs, including any autonomy they cede to workers 
in such arrangements and any costs associated with implementation or 
modifying the classification itself, and such a relationship would need 
to be compatible with their business models. Further, generally 
speaking, workers have a choice of whether to agree to the new 
independent contractor arrangement. The overall effect of job 
conversion on workers is ambiguous and could vary from worker to 
worker, as discussed in more detail in section VI(D)(7) below. Impacts 
resulting from litigation avoidance due to increased clarity are 
discussed in section VI(F)(2).
---------------------------------------------------------------------------

    \65\ Section 795.105(c) indicates that a worker who lacks both 
control and opportunity is most likely an employee. As such, the 
Department believes this rule would discourage employers from 
converting such workers from employee to independent contractor 
status. Section 795.105(c) would not give an employer sufficient 
confidence that it could change the classification of a worker who 
has only control but not opportunity, or vice versa.
    \66\ The Department notes that the final rule does not, by its 
operation, change the classification of any employee. 
Notwithstanding the assertions of several commentators, as explained 
throughout the analysis, the rule does not narrow the definition of 
who is an employee under the FLSA.
---------------------------------------------------------------------------

    The Department did not attempt to quantify all aspects of these 
four categories of potential impacts. In particular, the Department 
believes that significant uncertainty surrounds any attempt to quantify 
the number or nature of new independent contractor relationships that 
could arise as a result of this rule. Although the Department assumes 
that there will be an increase in the number of independent contracting 
relationships, the Department did not attempt to put a specific number 
on this figure and did not attempt to estimate how new independent 
contractors might differ from existing independent contractors. The 
Department is uncertain with respect to several key questions, 
including how many new workers will be added and what their 
characteristics will be, how many existing employee relationships may 
be converted to independent contractor status, and which industries, 
type or sizes of employers would be most impacted. Absent these data, 
the Department is not well positioned to generate a constructive 
estimate or model of impact on the change in independent contracting 
relationships due to the rule. Notwithstanding, the Department 
quantified certain other impacts associated with the final rule, 
including those to current independent contractors and businesses where 
sufficient data and theory afforded greater confidence in the resulting 
estimates.
    Regarding the employees who may be negatively impacted by this 
rule, the Department has ascertained certain characteristics that it 
expects will be representative across this group. This rule provides a 
sharpening of the economic realities test, which is a marginal change 
that may impact firms' assessment of legal risk, leading to an 
increased chance that some employers will choose to reclassify certain 
positions from employee to independent contractor relationships. 
Because this analysis attempts to quantify the marginal impacts of this 
rule, if the only change is increased legal clarity, any resulting 
change in classification will most likely be limited to workers who 
already possess characteristics associated with independent contractor 
status, including control and opportunity for profit or loss.\67\ Due 
to the customary negotiation between firms and workers, most workers 
whose positions are converted will be in a position to influence the 
tradeoffs between employee and independent contractor status. The one 
group of workers for whom these assumptions may not apply is those 
workers paid the minimum wage, and whose positions already resemble 
characteristics of independent contractors. Workers earning the minimum 
wage may lack the bargaining power to fully offset the adverse effects 
triggered by the job conversion; however, independent contractor status 
often carries flexibilities that may further offset some of these 
effects, albeit non-monetarily. Further, on one hand, these workers 
likely do not have extensive benefits coverage, but on the other hand, 
they may qualify for access to benefits from other means. There are 
approximately 370,000 workers over the age of 19 who earn the minimum 
wage, which represents 0.24 percent of the workforce. It is unclear how 
many of these jobs could be converted to independent contractor status 
without material modifications to the position or substantive 
negotiation on overall compensation, but it is not likely to be many. 
Further, many of these workers may have access to health insurance 
coverage via a spouse or partner, a parent, or a government program 
(Medicaid, Medicare, Tricare, etc.). For these reasons, the Department 
does not expect there to be many current employees whose positions are 
converted to independent contractor relationships without meaningful 
ability to influence the terms of the new position in a way that 
mitigates deleterious impacts of the resulting tradeoffs.
---------------------------------------------------------------------------

    \67\ For greater discussion on this and other points in this 
summary, please see Section XXXX on Job Conversion.
---------------------------------------------------------------------------

    The Department estimates there were 10.6 million workers who worked 
at any given time as independent contractors as their primary jobs in 
the United States in 2017 (6.9 percent of all workers), the most recent 
year of data available. Including independent contracting on secondary 
jobs results in an estimate of 18.9 million independent contractors 
(12.3 percent of all workers). The Department discusses other studies 
estimating the total number of independent contractors, ranging from 
6.1 percent to 14.1 percent of workers (see Table 2 in VI.C.2). Due to 
uncertainties regarding magnitude and other factors, the Department has 
not quantified the potential change to the aggregate number of 
independent contractors that may occur as a result of this rule. 
Furthermore, the Department's analysis relies on data collected prior 
to 2020, which reflects the state of the economy prior to the COVID-19 
pandemic. The Department acknowledges that data on independent 
contractors could look different during the pandemic and following its

[[Page 1211]]

economic effects, but does not yet have information to determine how 
the number of independent contractors could change nor whether these 
changes would be lasting or a near term market distortion.\68\
---------------------------------------------------------------------------

    \68\ Recent studies and news reports suggest that more 
individuals are working under freelance or independent contractor 
arrangements during the pandemic. See, e.g., Press Release, New 
Upword Study Finds 36% of the U.S. Workforce Freelance Amid the 
COVID-19 Pandemic, Sep. 15, 2020, available at https://www.upwork.com/press/releases/new-upwork-study-finds-36-of-the-us-workforce-freelance-amid-the-covid-19-pandemic; Kim Mackrael, In the 
Covid Economy, Laid-Off Employees become New Entrepreneurs, Wall 
Street Journal, Nov. 18, 2020; Uri Berliner, Jobs in the Pandemic: 
More Are Freelance and may stay that way forever, NPR, Sep. 16, 
2020; Jon Younger, A New Payoneer Report Shows Covid 19 is 
Accelerating Freelance Growth, Forbes, Sep. 1., 2020.
---------------------------------------------------------------------------

    The Department estimates regulatory familiarization costs to be 
$370.9 million in the first year. The Department estimates cost savings 
due to increased clarity to be $447.1 million per year, and cost 
savings due to reduced litigation to be $48.7 million per year. This 
results in a 10-year annualized net cost savings of $452.4 million 
using a 3 percent discount rate and $443.0 million using a 7 percent 
discount rate.\69\ For purposes of Executive Order 13771, the 
Department calculated the difference between the total cost savings and 
the total costs in $2016, discounted over a perpetual time horizon 
using a 7 percent discount rate beginning in 2021 when the rule will 
take effect. This results in an annualized net cost savings over a 
perpetual time horizon of $315.5 million.\70\ Other anticipated costs, 
benefits, and cost savings are discussed qualitatively.
---------------------------------------------------------------------------

    \69\ Discount rates are directed by OMB. See Circular A-4, OMB 
(Sept. 17, 2003).
    \70\ $332.9 million-$17.4 million = $315.5 million. Per OMB 
guidelines, Executive Order 13771 data is represented in 2016 
dollars, inflation-adjusted for when the rule will take effect.

                                        Table 1--Summary of Rule Impacts
                                                [$2019 Millions]
----------------------------------------------------------------------------------------------------------------
                                                                                       Annualized values \a\
                     Impact                           Year 1        Years 2-10   -------------------------------
                                                                                    7% Discount     3% Discount
----------------------------------------------------------------------------------------------------------------
Regulatory Familiarization Costs:
    Establishments..............................          $152.3            $0.0           $21.7           $17.9
    Independent Contractors.....................           218.6             0.0            31.1            25.6
                                                 ---------------------------------------------------------------
        Total...................................           370.9             0.0            52.8            43.5
Cost Savings from Increased Clarity:
    Employers...................................           369.0           369.0           369.0           369.0
    Independent Contractors.....................            78.1            78.1            78.1            78.1
                                                 ---------------------------------------------------------------
        Total...................................           447.1           447.1           447.1           447.1
Cost Savings from Reduced Litigation............            48.7            48.7            48.7            48.7
Total Cost Savings..............................           495.8           495.8           495.8           495.8
Net Cost Savings (Cost Savings--Costs)..........           125.0           495.8           443.0           452.4
----------------------------------------------------------------------------------------------------------------
\a\ Annualized over 10-years.

C. Independent Contractors: Size and Demographics

    The Department extrapolated from U.S. Census Bureau data to 
estimate that there are 15.6 to 22.1 million individuals who work as 
independent contractors as either a primary or secondary job. This 
estimated figure could be higher or lower depending on different data 
sources and methodologies discussed below. The Department used the 
median of the above range, 18.9 million, for its estimates to avoid 
overestimation by accounting for a number of criteria, which are 
presented in this section.
1. Current Number of Independent Contractors
    The Department estimated the number of independent contractors. 
There are a variety of estimates of the number of independent 
contractors spanning a wide range depending on methodologies and how 
the population is defined. The Department believes that the Current 
Population Survey (CPS) Contingent Worker Supplement (CWS) offers an 
appropriate lower bound for the number of independent contractors; 
however, there are potential biases in these data that will be noted. 
Additionally, estimates from other sources will be presented to 
demonstrate the potential range.
    The U.S. Census Bureau conducts the CPS and it is published monthly 
by the Bureau of Labor Statistics (BLS). The sample includes 
approximately 60,000 households and is nationally representative. 
Periodically since 1995, and most recently in 2017, the CPS has 
included a supplement to the May survey to collect data on contingent 
and alternative employment arrangements. Based on the CWS, there were 
10.6 million independent contractors in 2017, amounting to 6.9 percent 
of workers.\71\ The CWS measures those who say that their independent 
contractor job is their primary job and that they worked at the 
independent contractor job in the survey's reference week. However, 
while the Department refers to the CWS measure of independent 
contractors throughout this analysis, due to the survey's design it 
should be uniformly recognized as representing a constrained subsection 
of the entire independent contractor pool. Due to its clear 
methodological constraints, the CWS measure should be differentiated 
from other, more comprehensive measures.
---------------------------------------------------------------------------

    \71\ Bureau of Labor Statistics, ``Contingent and Alternative 
Employment Arrangements--May 2017,'' USDL-18-0942 (June 7, 2018), 
https://www.bls.gov/news.release/pdf/conemp.pdf.
---------------------------------------------------------------------------

    The BLS's estimate of independent contractors includes ``[w]orkers 
who are identified as independent contractors, independent consultants, 
or freelance workers, regardless of whether they are self-employed or 
wage and salary workers.'' BLS asks two questions to identify 
independent contractors: \72\
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    \72\ The variables used are PES8IC=1 for self-employed and 
PES7=1 for other workers.
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     Workers reporting that they are self-employed are asked: 
``Are you self-employed as an independent contractor, independent 
consultant, freelance worker, or something else (such as a shop or 
restaurant owner)?'' (9.0 million independent contractors.) We refer to 
these workers as ``self-employed

[[Page 1212]]

independent contractors'' in the remainder of the analysis.
     Workers reporting that they are wage and salary workers 
are asked: ``Last week, were you working as an independent contractor, 
an independent consultant, or a freelance worker? That is, someone who 
obtains customers on their own to provide a product or service.'' (1.6 
million independent contractors.) We refer to these workers as ``other 
independent contractors'' in the remainder of the analysis.
    It is important to note that independent contractors are identified 
in the CWS in the context of the respondent's ``main'' job (i.e., the 
job with the most hours).\73\ Therefore, the estimate of independent 
contractors does not include those who may be defined as an employee 
for their primary job, but may work as an independent contractor for a 
secondary or tertiary job.\74\ For example, Lim et al. (2019) estimate 
that independent contracting work is the primary source of income for 
48 percent of independent contractors.\75\ Applying this estimate to 
the 10.6 million independent contractors estimated from the CWS, 
results in 22.1 million independent contractors (10.6 million / 0.48). 
Alternatively, a survey of independent contractors in Washington found 
that 68 percent of respondents reported that independent contract work 
was their primary source of income.\76\ Applying that estimate to the 
10.6 million independent contractors from the CWS results in an 
estimated 15.6 million independent contractors (10.6 million / 0.68).
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    \73\ While self-employed independent contractors are identified 
by the worker's main job, other independent contractors answered yes 
to the CWS question about working as an independent contractor last 
week. Although the survey question does not ask explicitly about the 
respondent's main job, it follows questions asked in reference to 
the respondent's main job.
    \74\ Even among independent contractors, failure to report 
multiple jobs in response to survey questions is common. For 
example, Katz and Krueger (2019) asked Amazon Mechanical Turk 
participants the CPS-style question ``Last week did you have more 
than one job or business, including part time, evening or weekend 
work?'' In total, 39 percent of respondents responded affirmatively. 
However, these participants were asked the follow-up question ``Did 
you work on any gigs, HITs or other small paid jobs last week that 
you did not include in your response to the previous question?'' 
After this question, which differs from the CPS, 61 percent of those 
who indicated that they did not hold multiple jobs on the CPS-style 
question acknowledged that they failed to report other work in the 
previous week. As Katz and Krueger write, ``If these workers are 
added to the multiple job holders, the percent of workers who are 
multiple job holders would almost double from 39 percent to 77 
percent.'' See L. Katz and A. Krueger, ``Understanding Trends in 
Alternative Work Arrangements in the United States,'' RSF: The 
Russell Sage Foundation Journal of the Social Sciences 5(5), p. 132-
46 (2019).
    \75\ K. Lim, A. Miller, M. Risch, and E. Wilking, ``Independent 
Contractors in the U.S.: New Trends from 15 years of Administrative 
Tax Data,'' Department of Treasury, p. 61 (Jul. 2019), https://www.irs.gov/pub/irs-soi/19rpindcontractorinus.pdf.
    \76\ Washington Department of Commerce, ``Independent Contractor 
Study,'' p. 21 (Jul. 2019), https://deptofcommerce.app.box.com/v/independent-contractor-study.
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    The Coalition for Workforce Innovation (CWI) submitted a survey 
they conducted of 600 self-identified independent contractors. The 
survey found that independent contracting is the primary source of 
income for 71 percent of respondents.\77\ This is consistent with the 
prior estimate from Washington State. Applying this estimate to the 
10.6 million primary independent contractors estimated from the CWS, 
results in 14.9 million independent contractors (10.6 million / 0.71).
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    \77\ Coalition for Workforce Innovation. ``National Survey of 
600 Self-Identified Independent Contractors'' (January 2020), 
https://rilastagemedia.blob.core.windows.net/rila-web/rila.web/media/media/pdfs/letters%20to%20hill/hr/cwi-report-final.pdf.
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    The CWS's large sample size results in small sampling error. 
However, the questionnaire's design may result in some non-sampling 
error. For example, one potential source of bias is that the CWS only 
considers independent contractors during a single point in time--the 
survey week (generally the week prior to the interview).
    These numbers will thus underestimate the prevalence of independent 
contracting over a longer timeframe, which may better capture the size 
of the population.\78\ For example, Farrell and Greig (2016) used a 
randomized sample of 1 million Chase customers to estimate prevalence 
of the Online Platform Economy.\79\ They found that ``[a]lthough 1 
percent of adults earned income from the Online Platform Economy in a 
given month, more than 4 percent participated over the three-year 
period.'' Additionally, Collins et al. (2019) examined tax data from 
2000 through 2016 and found that the number of workers who filed a form 
1099 grew substantially over that period, and that fewer than half of 
these workers earned more than $2,500 from 1099 work in 2016. The 
prevalence of lower annual earnings implies that most workers who 
received a 1099 did not work as an independent contractor every 
week.\80\
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    \78\ In any given week, the total number of independent 
contractors would have been roughly the same, but the identity of 
the individuals who do it for less than the full year would likely 
vary. Thus, the number of unique individuals who work at some point 
in a year as independent contractors would exceed the number of 
independent contractors who work within any one-week period as 
independent contractors.
    \79\ D. Farrell and F. Greig, ``Paychecks, Paydays, and the 
Online Platform,'' JPMorgan Chase Institute (2016), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2911293.
    \80\ B. Collins, A. Garin, E. Jackson, D. Koustas, and M. Payne, 
``Is Gig Work Replacing Traditional Employment? Evidence from Two 
Decades of Tax Returns,'' IRS SOI Joint Statistical Research Program 
(2019) (unpublished paper), https://www.irs.gov/pub/irs-soi/19rpgigworkreplacingtraditionalemployment.pdf.
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    The CWS also uses proxy responses, which may underestimate the 
number of independent contractors. The RAND American Life Panel (ALP) 
survey conducted a supplement in 2015 to mimic the CWS questionnaire, 
but used self-responses only. The results of the survey were summarized 
by Katz and Krueger (2018).\81\ This survey found that independent 
contractors comprise 7.2 percent of workers.\82\ Katz and Krueger 
identified that the 0.5 percentage point difference in magnitude 
between the CWS and the ALP was due to both cyclical conditions, and 
the lack of proxy responses in the ALP.\83\ Therefore, the Department 
believes a reasonable upper-bound on the potential bias due to the use 
of proxy responses in the CWS is 0.5 percentage points (7.2 versus 
6.7).84 85
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    \81\ See Katz and Krueger (2018), supra note 12.
    \82\ Id. at 49. The estimate is 9.6 percent without correcting 
for overrepresentation of self-employed workers or multiple job 
holders. Id. at 31.
    \83\ Id. at Addendum (``Reconciling the 2017 BLS Contingent 
Worker Survey'').
    \84\ Note that they estimate 6.7 percent of employed workers are 
independent contractors using the CWS, as opposed to 6.9 percent as 
estimated by the BLS. This difference is attributable to changes to 
the sample to create consistency.
    \85\ In addition to the use of proxy responses, this difference 
is also due to cyclical conditions. The impacts of these two are not 
disaggregated for independent contractors, but if we applied the 
relative sizes reported for all alternative work arrangements, we 
would get 0.36 percentage point difference due to proxy responses. 
Additionally, it should be noted that this may not entirely be a 
bias. It stems from differences in independent contracting reported 
by proxy respondents and actual respondents. As Katz and Krueger 
explain, this difference may be due to a ``mode'' bias or proxy 
respondents may be less likely to be independent contractors. Id. at 
Addendum p. 4.
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    Another potential source of bias in the CWS is that some 
respondents may not self-identify as independent contractors, and 
others who self-identify may themselves be improperly classified. There 
are reasons to believe that some workers, who are legally considered 
independent contractors, would not self-identify as such. For example, 
if the worker has only one employer/client, or did not actively pursue 
the employer/client, then they may not agree that they ``[obtain] 
customers on their own to provide a product or service.'' Additionally, 
individuals who do only

[[Page 1213]]

informal work may not view themselves as independent contractors.\86\ 
This population could be substantial. Abraham and Houseman (2019) 
confirmed this in their examination of the Survey of Household 
Economics and Decision-making. They found that 28 percent of 
respondents reported doing informal work for money over the past 
month.\87\ Conversely, some workers who are improperly classified by 
their employers as independent contractors may answer in the 
affirmative, despite not truly being independent contractors. The 
prevalence of misclassification is unknown, but it likely occurs across 
numerous sectors in the economy.\88\ Because reliable data on the 
potential magnitude of these biases are unavailable, and so the net 
direction of the biases is unknown, the Department has not attempted to 
calculate how these biases may impact the estimated number of 
independent contractors.
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    \86\ The Department believes that including data on informal 
work is useful when discussing the magnitude of independent 
contracting, although not all informal work is done by independent 
contractors. The Survey of Household Economics and Decision-making 
asked respondents whether they engaged in informal work sometime in 
the prior month. It categorized informal work into three broad 
categories: Personal services, on-line activities, and off-line 
sales and other activities, which is broader than the scope of 
independent contractors. These categories include activities like 
house sitting, selling goods online through sites like eBay or 
craigslist, or selling goods at a garage sale. The Department 
acknowledges that the data discussed in this study might not be a 
one-to-one match with independent contracting, but it nonetheless 
provides useful data for this purpose.
    \87\ K. Abraham, and S. Houseman. ``Making Ends Meet: The Role 
of Informal Work in Supplementing Americans' Income.'' RSF: The 
Russell Sage Foundation Journal of the Social Sciences 5(5): 110-31 
(2019), https://www.aeaweb.org/conference/2019/preliminary/paper/QreAaS2h.
    \88\ See, e.g., U.S. Gov't Accountability Off., GAO-09-717, 
Employee Misclassification: Improved Coordination, Outreach, and 
Targeting Could Better Ensure Detection and Prevention 10 (2008) 
(``Although the national extent of employee misclassification is 
unknown, earlier national studies and more recent, though not 
comprehensive, studies suggest that employee misclassification could 
be a significant problem with adverse consequences.'').
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    Because the CWS estimate represents only the number of workers who 
worked as independent contractors on their primary job during the 
survey reference week, the Department applied the research literature 
and adjusted this measure to include workers who are independent 
contractors in a secondary job or who were excluded from the CWS 
estimate due to other factors. As noted above, integrating the 
estimated pr