Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 1638-1743 [2024-00067]

Agencies

• Wage and Hour Division
• DEPARTMENT OF LABOR

[Federal Register Volume 89, Number 7 (Wednesday, January 10, 2024)]
[Rules and Regulations]
[Pages 1638-1743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00067]



[[Page 1637]]

Vol. 89

Wednesday,

No. 7

January 10, 2024

Part II





Department of Labor





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 Wage and Hour Division





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29 CFR Parts 780, 788, and 795





Employee or Independent Contractor Classification Under the Fair Labor 
Standards Act; Final Rule

Federal Register / Vol. 89 , No. 7 / Wednesday, January 10, 2024 / 
Rules and Regulations

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DEPARTMENT OF LABOR

Wage and Hour Division

29 CFR Parts 780, 788, and 795

RIN 1235-AA43


Employee or Independent Contractor Classification 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 modifying 
Wage and Hour Division regulations to replace its analysis for 
determining employee or independent contractor classification under the 
Fair Labor Standards Act (FLSA or Act) with an analysis that is more 
consistent with judicial precedent and the Act's text and purpose.

DATES: This final rule is effective on March 11, 2024.

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). Alternative formats are available upon request by 
calling 1-866-487-9243. If you are deaf, hard of hearing, or have a 
speech disability, please dial 7-1-1 to access telecommunications relay 
services.
    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

    This final rule addresses how to determine whether a worker is 
properly classified as an employee or independent contractor under the 
Fair Labor Standards Act (FLSA or Act). Congress enacted the FLSA in 
1938 to eliminate ``labor conditions detrimental to the maintenance of 
the minimum standard of living necessary for health, efficiency, and 
general well-being of workers.'' \1\ To this end, the FLSA generally 
requires covered employers to pay nonexempt employees at least the 
Federal minimum wage for all hours worked and at least one and one-half 
times the employee's regular rate of pay for every hour worked over 40 
in a workweek. The Act also requires covered employers to maintain 
certain records regarding employees and prohibits retaliation against 
employees who are discharged or discriminated against after, for 
example, filing a complaint regarding their pay. However, the FLSA's 
protections do not apply to independent contractors.
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    \1\ 29 U.S.C. 202.
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    As used in this rule, the term ``independent contractor'' refers to 
workers who, as a matter of economic reality, are not economically 
dependent on an employer for work and are in business for themselves. 
Such workers play an important role in the economy and are commonly 
referred to by different names, including independent contractor, self-
employed, and freelancer. This rule is not intended to disrupt the 
businesses of independent contractors who are, as a matter of economic 
reality, in business for themselves.
    Determining whether an employment relationship exists under the 
FLSA begins with the Act's definitions. Although the FLSA does not 
define the term ``independent contractor,'' it contains expansive 
definitions of ``employer,'' ``employee,'' and ``employ.'' ``Employer'' 
is defined to ``include[ ] any person acting directly or indirectly in 
the interest of an employer in relation to an employee,'' ``employee'' 
is defined as ``any individual employed by an employer,'' and 
``employ'' is defined to ``include[ ] to suffer or permit to work.'' 
\2\ As detailed below, courts have developed an analysis that 
recognizes that independent contractors are not encompassed within 
these definitions.
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    \2\ 29 U.S.C. 203(d), (e)(1), (g).
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    Since the 1940s, the Department and courts have applied an economic 
reality test to determine whether a worker is an employee or an 
independent contractor under the FLSA, grounded in the Act's broad 
understanding of employment. The ultimate inquiry is whether, as a 
matter of economic reality, the worker is economically dependent on the 
employer for work (and is thus an employee) or is in business for 
themself (and is thus an independent contractor). In assessing economic 
dependence, courts and the Department have historically conducted a 
totality-of-the-circumstances analysis, considering multiple factors to 
determine whether a worker is an employee or an independent contractor, 
with no factor or factors having predetermined weight. There is 
significant and widespread uniformity among federal courts of appeals 
in the adoption and application of the economic reality test, although 
there is slight variation as to the number of factors considered or how 
the factors are framed. These factors generally include the opportunity 
for profit or loss, investment, permanency, control, whether the work 
is an integral part of the employer's business, and skill and 
initiative.
    In January 2021, the Department published a rule titled 
``Independent Contractor Status Under the Fair Labor Standards Act'' 
(2021 IC Rule), providing guidance on the classification of independent 
contractors under the FLSA applicable to workers and businesses in any 
industry.\3\ The 2021 IC Rule marked a departure from the consistent, 
longstanding adoption and application of the economic reality test by 
courts and the Department of how to determine whether a worker is an 
employee or an independent contractor under the FLSA. It identified 
five economic reality factors to guide the inquiry into a worker's 
status as an employee or independent contractor.\4\ Two of the five 
identified factors--the nature and degree of control over the work and 
the worker's opportunity for profit or loss--were designated as ``core 
factors'' that were the most probative and carried greater weight in 
the analysis. The 2021 IC Rule stated that if these two core factors 
pointed towards the same classification, there was a substantial 
likelihood that it was the worker's accurate classification.\5\ The 
2021 IC Rule also identified three less probative non-core factors: the 
amount of skill required for the work, the degree of permanence of the 
working relationship between the worker and the potential employer, and 
whether the work is part of an integrated unit of production.\6\ The 
2021 IC Rule stated that it was ``highly unlikely'' that these three 
non-core factors could outweigh the combined probative value of the two 
core factors.\7\ The 2021 IC Rule also

[[Page 1639]]

limited consideration of investment and initiative to the opportunity 
for profit or loss factor in a way that narrowed, in at least some 
circumstances, the extent to which investment and initiative are 
considered. The facts to be considered under other factors (such as 
control) were also narrowed, and the factor that considers whether the 
work is integral to the employer's business was limited to whether the 
work was part of an integrated unit of production.\8\ Finally, the 2021 
IC Rule provided that the actual practice of the parties involved was 
more relevant than what may be contractually or theoretically 
possible.\9\
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    \3\ 86 FR 1168. The Office of the Federal Register did not amend 
the Code of Federal Regulations (CFR) to include the regulations 
from the 2021 IC Rule because, as explained elsewhere in this 
section, the Department first delayed and then withdrew the 2021 IC 
Rule before it became effective. A district court decision later 
vacated the Department's rules to delay and withdraw the 2021 IC 
Rule, and the Department has (since that decision) conducted 
enforcement in accordance with that decision while the 2021 IC Rule 
has been in effect.
    \4\ Id. at 1246-47 (Sec.  795.105(d)).
    \5\ Id. at 1246 (Sec.  795.105(c)).
    \6\ Id. at 1247 (Sec.  795.105(d)(2)).
    \7\ Id. at 1246 (Sec.  795.105(c)).
    \8\ Id. at 1246-47 (Sec.  795.105(d)(1) and (d)(2)(iii)).
    \9\ Id. at 1247-48 (Sec.  795.110).
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    The effective date of the 2021 IC Rule was March 8, 2021. On March 
4, 2021, the Department published a rule delaying the effective date of 
the 2021 IC Rule (Delay Rule) and on May 6, 2021, it published a rule 
withdrawing the 2021 IC Rule (Withdrawal Rule). On March 14, 2022, in a 
lawsuit challenging the Department's delay and withdrawal of the 2021 
IC Rule, a Federal district court in the Eastern District of Texas 
issued a decision vacating the Delay and Withdrawal Rules.\10\ The 
district court concluded that the 2021 IC Rule became effective on the 
original effective date of March 8, 2021.
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    \10\ See Coal. for Workforce Innovation v. Walsh, No. 1:21-CV-
130, 2022 WL 1073346 (E.D. Tex. Mar. 14, 2022), appeal filed, No. 
22-40316 (5th Cir. May 13, 2022) (``CWI v. Walsh'').
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    On October 13, 2022, the Department published a Notice of Proposed 
Rulemaking (NPRM) regarding employee or independent contractor 
classification under the FLSA, proposing to rescind and replace the 
2021 IC Rule.\11\ The Department explained in its proposal that upon 
further consideration, the Department believed that the 2021 IC Rule 
did not fully comport with the FLSA's text and purpose as interpreted 
by courts and departed from decades of case law applying the economic 
reality test. The NPRM identified provisions of the 2021 IC Rule that 
were in tension with this case law--such as designating two ``core 
factors'' as most probative and predetermining that they carry greater 
weight in the analysis, considering investment and initiative only in 
the opportunity for profit or loss factor, and excluding consideration 
of whether the work performed is central or important to the employer's 
business. The NPRM stated that these provisions narrowed the economic 
reality test by limiting the facts that may be considered as part of 
the test, facts which the Department believes are relevant in 
determining whether a worker is economically dependent on the employer 
for work or in business for themself.
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    \11\ 87 FR 62218.
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    After careful consideration, the Department decided it was 
appropriate to move forward with a proposed rescission of the 2021 IC 
Rule and a replacement regulation. As explained in the NPRM, the 
Department believed that retaining the 2021 IC Rule would have a 
confusing and disruptive effect on workers and businesses alike due to 
its departure from case law describing and applying the multifactor 
economic reality test as a totality-of-the-circumstances test. Further, 
because the 2021 IC Rule departed from legal precedent, it was not 
clear whether courts would adopt its analysis--a question that could 
take years of appellate litigation in different federal courts of 
appeals to sort out, resulting in more uncertainty as to the applicable 
test. The Department also explained in the NPRM that it believed the 
2021 IC Rule's departure from the longstanding test applied by the 
courts could result in greater confusion among employers in applying 
the new analysis, which could place workers at greater risk of 
misclassification as independent contractors due to the new analysis 
being applied improperly, and thus could negatively affect both the 
workers and competing businesses that correctly classify their 
employees.
    The initial deadline for interested parties to submit comments on 
the NPRM was November 28, 2022. In response to requests for an 
extension of the time period for filing written comments, the 
Department lengthened the comment period an additional 15 days to 
December 13, 2022, resulting in a total comment period of 61 days.\12\ 
The Department received approximately 55,400 comments on the proposed 
rule.
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    \12\ 87 FR 64749.
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    As described below, after considering the views expressed by 
commenters, the Department is finalizing its proposal with some 
modifications. For the reasons explained in the NPRM and detailed in 
section III, the Department concludes that it is appropriate to rescind 
the 2021 IC Rule and set forth an analysis for determining employee or 
independent contractor status under the Act that is more consistent 
with existing judicial precedent and the Department's longstanding 
guidance prior to the 2021 IC Rule.

Summary of the Major Provisions of the Final Rule

    In addition to rescinding the 2021 IC Rule, the Department is 
adding part 795. Specifically, this final rule modifies the regulatory 
text published on January 7, 2021, at 86 FR 1246 through 1248, 
addressing whether workers are employees or independent contractors 
under the FLSA. Instead of using the ``core factors'' set forth in the 
2021 IC Rule, this final rule returns to a totality-of-the-
circumstances analysis of the economic reality test in which the 
factors do not have a predetermined weight and are considered in view 
of the economic reality of the whole activity. In addition to this 
critical reversion to the longstanding analysis that preceded the 2021 
IC Rule, this final rule returns to the longstanding framing of 
investment as its own separate factor, and the integral factor as one 
that looks to whether the work performed is an integral part of a 
potential employer's business rather than part of an integrated unit of 
production. The final rule also provides broader discussion of how 
scheduling, remote supervision, price setting, and the ability to work 
for others should be considered under the control factor, and it allows 
for consideration of reserved rights while removing the provision in 
the 2021 IC Rule that minimized the relevance of retained rights. 
Further, the final rule discusses exclusivity in the context of the 
permanency factor, and initiative in the context of the skill factor.
    While the above modifications from the 2021 IC Rule were all 
proposed in the NPRM, the Department also made several adjustments to 
the proposed regulations after consideration of the comments received. 
Notably, as discussed further below, the portion of the Department's 
proposal for the control factor stating that control implemented for 
purposes of complying with legal obligations may be indicative of 
control generated many comments. The Department is modifying the 
proposed language to address confusion and concern regarding potential 
unintended consequences.
    Additionally, the Department received many comments regarding the 
investment factor. In response to a number of comments concerning the 
Department's proposal to consider the relative investments of the 
worker and the potential employer, the Department is clarifying in the 
final rule that consideration of the relative investments of the worker 
and the potential employer should be compared not only in terms of 
dollar value or size of the investments, but should focus on whether 
the worker is making similar types of investments as the employer 
(albeit on a smaller scale) that would suggest that the worker is 
operating independently. Further, in response to

[[Page 1640]]

comments regarding the unilateral nature of some costs imposed by 
potential employers on workers, which could appear to be capital or 
entrepreneurial in nature, the Department is including language 
recognizing that costs that are unilaterally imposed are not indicative 
of a worker's capital or entrepreneurial investment.
    Further clarifications and adjustments to the regulatory text that 
reflect a range of comments made by employers; workers; those who view 
themselves as independent contractors, self-employed, or freelancers; 
labor unions; legal services providers; policy and research 
organizations; and counsel for both businesses and employees have been 
made as well and are discussed under the section-by-section analysis 
that follows.
    The final rule reiterates that part 795 contains the Department's 
general interpretations for determining whether workers are employees 
or independent contractors under the FLSA. Further, it reiterates that 
economic dependence is the ultimate inquiry, meaning that a worker is 
an independent contractor as opposed to an employee under the Act if 
the worker is, as a matter of economic reality, in business for 
themself. The final rule explains that the economic reality test is 
comprised of multiple factors that are tools or guides to conduct the 
totality-of-the-circumstances analysis to determine economic 
dependence. The six factors described in the regulatory text should 
guide an assessment of the economic realities of the working 
relationship, but no one factor or subset of factors is necessarily 
dispositive. The final rule provides guidance on how six economic 
reality factors should be considered--opportunity for profit or loss 
depending on managerial skill, investments by the worker and the 
potential employer, the degree of permanence of the work relationship, 
the nature and degree of control, the extent to which the work 
performed is an integral part of the potential employer's business, and 
skill and initiative. Just as under the 2021 IC Rule, and in accordance 
with longstanding precedent and guidance, additional factors may also 
be considered if they are relevant to the overall question of economic 
dependence.
    The Department recognizes that this return to a totality-of-the-
circumstances analysis in which the economic reality factors are not 
assigned a predetermined weight and each factor is given full 
consideration represents a change from the 2021 IC Rule. However, the 
Department believes that this approach is the most beneficial because 
it is aligned with the Department's decades-long approach (prior to the 
2021 IC Rule) as well as with federal appellate case law, and is more 
consistent with the Act's text and purpose as interpreted by the 
courts. The Department believes that this final rule will provide more 
consistent guidance to employers as they determine whether workers are 
economically dependent on the employer for work or are in business for 
themselves, as well as useful guidance to workers on whether they are 
correctly classified as employees or independent contractors. 
Accordingly, the Department believes that the guidance provided in this 
final rule will help protect employees from misclassification. 
Moreover, this final rule recognizes that independent contractors serve 
an important role in our economy and provides a consistent approach for 
those businesses that engage (or wish to engage) independent 
contractors as well as for those who wish to work as independent 
contractors.

II. Background

A. Relevant FLSA Definitions

    Enacted in 1938, the FLSA generally requires that covered employers 
pay nonexempt employees at least the Federal minimum wage (presently 
$7.25 per hour) for every hour worked, and at least one and one-half 
times the employee's regular rate of pay for all hours worked beyond 40 
in a workweek.\13\ Among other protections, the FLSA also regulates the 
employment of children,\14\ prohibits employers from keeping employee 
tips,\15\ and requires employers to provide reasonable break time and a 
place for covered nursing employees to express breast milk at work.\16\ 
Finally, the FLSA requires covered employers to ``make, keep, and 
preserve'' certain records regarding employees, and prohibits 
retaliation against employees who engaged in protected activity, such 
as filing a complaint regarding their pay.\17\
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    \13\ 29 U.S.C. 206(a), 207(a).
    \14\ 29 U.S.C. 212.
    \15\ 29 U.S.C. 203(m)(2)(B).
    \16\ See 29 U.S.C. 218d (added by the PUMP for Nursing Mothers 
Act, Public Law 117-328, 136 Stat. 4459 (Dec. 29, 2022)).
    \17\ 29 U.S.C. 211(c), 215(a)(3).
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    The FLSA's wage-and-hour protections apply to employees. In 
relevant part, section 3(e) of the Act defines the term ``employee'' as 
``any individual employed by an employer.'' \18\ Section 3(d) defines 
the term ``employer'' to ``includ[e] any person acting directly or 
indirectly in the interest of an employer in relation to an employee.'' 
\19\ Finally, section 3(g) provides that the term `` `[e]mploy' 
includes to suffer or permit to work.'' \20\
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    \18\ 29 U.S.C. 203(e)(1).
    \19\ 29 U.S.C. 203(d).
    \20\ 29 U.S.C. 203(g).
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    Interpreting these provisions, the U.S. Supreme Court has stated 
that ``[a] broader or more comprehensive coverage of employees within 
the stated categories would be difficult to frame,'' and that ``the 
term `employee' under the FLSA had been given `the broadest definition 
that has ever been included in any one act.' '' \21\ In particular, the 
Court has noted the ``striking breadth'' of section 3(g)'s ``suffer or 
permit'' language, observing that it ``stretches the meaning of 
`employee' to cover some parties who might not qualify as such under a 
strict application of traditional agency law principles.'' \22\ Thus, 
the Court has repeatedly observed that the FLSA's scope of employment 
is broader than the common law standard often applied to determine 
employment status under other Federal laws.\23\
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    \21\ United States v. Rosenwasser, 323 U.S. 360, 362, 363 n.3 
(1945) (quoting 81 Cong. Rec. 7657 (statement of Senator Hugo 
Black)).
    \22\ Nationwide Mut. Ins. v. Darden, 503 U.S. 318, 326 (1992).
    \23\ Id.; see also, e.g., Walling v. Portland Terminal Co., 330 
U.S. 148, 150-51 (1947) (``[I]n determining who are `employees' 
under the Act, common law employee categories or employer-employee 
classifications under other statutes are not of controlling 
significance. This Act contains its own definitions, comprehensive 
enough to require its application to many persons and working 
relationships, which prior to this Act, were not deemed to fall 
within an employer-employee category.'') (citation omitted).
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    At the same time, the Supreme Court has recognized that the Act was 
``not intended to stamp all persons as employees.'' \24\ Among other 
categories of workers excluded from FLSA coverage, the Court has 
recognized that ``independent contractors'' fall outside the Act's 
broad understanding of employment.\25\ Accordingly, the FLSA does not 
require covered employers to pay an independent contractor the minimum 
wage or overtime pay under sections 6(a) and 7(a) of the Act, or to 
keep records regarding an independent contractor's work under section 
11(c). However, merely ``putting on an `independent contractor' label 
does not take [a] worker from the protection of the [FLSA].'' \26\ 
Courts have thus recognized a need to delineate between

[[Page 1641]]

employees, who fall under the protections of the FLSA, and independent 
contractors, who do not.
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    \24\ Portland Terminal, 330 U.S. at 152.
    \25\ See, e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722, 
729 (1947) (noting 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'').
    \26\ Id.
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    The FLSA does not define the term ``independent contractor.'' While 
it is clear that section 3(g)'s ``suffer or permit'' language 
contemplates a broader coverage of workers compared to what exists 
under the common law, ``there is in the [FLSA] no definition that 
solves problems as to the limits of the employer-employee relationship 
under the Act.'' \27\ Therefore, in articulating the distinction 
between FLSA-covered employees and independent contractors, courts rely 
on a broad, multifactor ``economic reality'' analysis derived from 
judicial precedent.\28\ Unlike the control-focused analysis for 
independent contractors applied under the common law,\29\ the economic 
reality test focuses more broadly on a worker's economic dependence on 
an employer, considering the totality of the circumstances.
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    \27\ Id. at 728.
    \28\ Courts invoke the concept of ``economic reality'' in FLSA 
employment contexts beyond independent contractor status. However, 
as in prior rulemakings, this final rule refers to the ``economic 
reality'' analysis or test for independent contractors as a 
shorthand reference to the independent contractor analysis used by 
courts for FLSA purposes.
    \29\ In distinguishing between employees and independent 
contractors under the common law, courts evaluate ``the hiring 
party's right to control the manner and means by which the product 
is accomplished.'' Community for Creative Non-Violence v. Reid, 490 
U.S. 730, 751 (1989). ``Among the other factors relevant to this 
inquiry are the skill required; the source of the instrumentalities 
and tools; the location of the work; the duration of the 
relationship between the parties; whether the hiring party has the 
right to assign additional projects to the hired party; the extent 
of the hired party's discretion over when and how long to work; the 
method of payment; the hired party's role in hiring and paying 
assistants; whether the work is part of the regular business of the 
hiring party; whether the hiring party is in business; the provision 
of employee benefits; and the tax treatment of the hired party.'' 
Id. (footnotes omitted).
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B. Development of the Economic Reality Test

1. Supreme Court Development of the Economic Reality Test
    In a series of cases from 1944 to 1947, the U.S. Supreme Court 
considered employee or independent contractor status under three 
different Federal statutes that were enacted during the 1930s New Deal 
Era--the FLSA, the National Labor Relations Act (NLRA), and the Social 
Security Act (SSA)--and applied an economic reality test under all 
three laws.
    In the first of these cases, NLRB v. Hearst Publications, Inc., 322 
U.S. 111 (1944), the Court considered the meaning of ``employee'' under 
the NLRA, which defined the term to ``include any employee.'' \30\ In 
relevant part, the Hearst Court rejected application of the common law 
standard, noting that ``the broad language of the [NLRA's] definitions 
. . . leaves no doubt that its applicability is to be determined 
broadly, in doubtful situations, by underlying economic facts rather 
than technically and exclusively by previously established legal 
classifications.'' \31\
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    \30\ 322 U.S. at 118-20; 29 U.S.C. 152(3).
    \31\ Id. at 123-25, 129.
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    On June 16, 1947, the Supreme Court decided United States v. Silk, 
331 U.S. 704 (1947), addressing the distinction between employees and 
independent contractors under the SSA. The Court favorably summarized 
Hearst as setting forth ``economic reality,'' as opposed to ``technical 
concepts'' of the common law standard alone, as the framework for 
determining workers' classification, but acknowledged that not ``all 
who render service to an industry are employees.'' \32\ 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,'' the Court 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.'' \33\ The Court added that 
``[n]o one [factor] is controlling nor is the list complete.'' \34\ The 
Court went on to note that the workers in that case were ``from one 
standpoint an integral part of the businesses'' of the employer, 
supporting a conclusion that some of the workers in that case were 
employees.\35\
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    \32\ 331 U.S. at 712-14.
    \33\ Id. at 716.
    \34\ Id.
    \35\ Id.
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    The same day that the Supreme Court issued its decision in Silk, it 
also issued Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), in 
which it affirmed a federal court of appeals decision that analyzed an 
FLSA employment relationship based on its economic realities.\36\ 
Describing the FLSA as ``a part of the social legislation of the 1930s 
of the same general character as the [NLRA] and the [SSA],'' the Court 
opined that ``[d]ecisions that define the coverage of the employer-
Employee relationship under the Labor and Social Security acts are 
persuasive in the consideration of a similar coverage under the 
[FLSA].'' \37\ Accordingly, the Court rejected an approach based on 
``isolated factors'' and again considered ``the circumstances of the 
whole activity.'' \38\ The Court considered several of the factors that 
it listed in Silk as they related to meat boners on a slaughterhouse's 
production line, ultimately determining that the boners were 
employees.\39\ The Court noted, among other things, that the boners did 
a specialty job on the production line, had no business organization 
that could shift to a different slaughter-house, and were best 
characterized as ``part of the integrated unit of production under such 
circumstances that the workers performing the task were employees of 
the establishment.'' \40\
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    \36\ 331 U.S. at 727.
    \37\ Id. at 723-24.
    \38\ Id. at 730.
    \39\ See id.
    \40\ Id. at 729-30.
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    On June 23, 1947, one week after the Silk and Rutherford decisions, 
the Court decided Bartels v. Birmingham, 332 U.S. 126 (1947), another 
case involving employee or independent contractor status under the SSA. 
Here again, the Court rejected application of the common law control 
test, explaining 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.'' \41\ Rather, 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.'' 
\42\ Thus, in addition to control, ``permanency of the relation, the 
skill required, the investment [in] the facilities for work and 
opportunities for profit or loss from the activities were also 
factors'' to consider.\43\ Although the Court identified these specific 
factors as relevant to the analysis, it explained that ``[i]t is the 
total situation that controls'' the worker's classification under the 
SSA.\44\
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    \41\ 332 U.S. at 130.
    \42\ Id.
    \43\ Id.
    \44\ Id.
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    Following these Supreme Court decisions, Congress responded with 
separate legislation to amend the NLRA and SSA's employment 
definitions. First, in 1947, Congress amended the NLRA's definition of 
``employee'' to clarify that the term ``shall not include any 
individual having the status of an independent contractor.'' \45\ The

[[Page 1642]]

following year, Congress similarly amended the SSA to exclude from 
employment ``any individual who, under the usual common-law rules 
applicable in determining the employer-employee relationship, has the 
status of an independent contractor.'' \46\ The Supreme Court 
interpreted the amendments to the NLRA as having the same effect as the 
explicit definition included in the SSA, which was to ensure that 
employment status would be determined by common law agency principles, 
rather than an economic reality test.\47\
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    \45\ Labor Management Relations (Taft-Hartley) Act, 1947, Public 
Law 80-101, sec. 101, 61 Stat. 136, 137-38 (1947) (codified as 
amended at 29 U.S.C. 152(3)).
    \46\ SSA of 1948, Public Law 80-642, sec. 2(a), 62 Stat. 438 
(1948) (codified as amended at 26 U.S.C. 3121(d)).
    \47\ See NLRB v. United Ins. Co. of Am., 390 U.S. 254, 256 
(1968) (noting that ``[t]he obvious purpose of'' the amendment to 
the definition of employee under the NLRA ``was to have the Board 
and the courts apply general agency principles in distinguishing 
between employees and independent contractors under the Act'').
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    Despite its amendments to the NLRA and SSA in response to Hearst 
and Silk, Congress did not similarly amend the FLSA following the 
Rutherford decision. Thus, when the Supreme Court revisited independent 
contractor status under the FLSA several years later in Goldberg v. 
Whitaker House Co-op., Inc., 366 U.S. 28 (1961), the Court affirmed 
that `` `economic reality' rather than `technical concepts' '' remained 
``the test of employment'' under the FLSA,\48\ quoting from its earlier 
decisions in Silk and Rutherford. The Court in Whitaker House found 
that certain homeworkers were ``not self-employed . . . [or] 
independent, selling their products on the market for whatever price 
they can command,'' but instead were ``regimented under one 
organization, manufacturing what the organization desires and receiving 
the compensation the organization dictates.'' \49\ Such facts, among 
others, established that the homeworkers at issue were FLSA-covered 
employees.
---------------------------------------------------------------------------

    \48\ 366 U.S. at 33 (quoting from Silk, 331 U.S. at 713, and 
Rutherford, 331 U.S. at 729).
    \49\ Id. at 32.
---------------------------------------------------------------------------

    Subsequently, in Nationwide Mutual Insurance Co. v. Darden, 503 
U.S. 318 (1992), the Court again endorsed application of the economic 
reality test to evaluate independent contractor status under the FLSA, 
citing to Rutherford and emphasizing the broad ``suffer or permit'' 
language codified in section 3(g) of the Act.\50\
---------------------------------------------------------------------------

    \50\ Darden, 503 U.S. at 325-26.
---------------------------------------------------------------------------

2. Application of the Economic Reality Test by Federal Courts of 
Appeals
    Since Rutherford, federal courts of appeals have applied the 
economic reality test to distinguish independent contractors from 
employees who are entitled to the FLSA's protections. Recognizing that 
the ``suffer or permit'' language in section 3(g) of the FLSA provides 
a more expansive scope of employment than that which exists at common 
law, courts of appeals have followed the Supreme Court's instruction 
that `` `employees are those who as a matter of economic realities are 
dependent upon the business to which they render service.' '' \51\
---------------------------------------------------------------------------

    \51\ Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311 (5th Cir. 
1976) (quoting Bartels, 332 U.S. at 130).
---------------------------------------------------------------------------

    When determining whether a worker is an employee under the FLSA or 
an independent contractor, federal courts of appeals apply an economic 
reality test using the factors identified in Silk.\52\ No court of 
appeals considers any one factor or combination of factors to 
invariably predominate over the others.\53\ For example, the Eleventh 
Circuit has explained that some of the factors ``which many courts have 
used as guides in applying the economic reality test'' are: (1) the 
degree of the alleged employer's right to control the manner in which 
the work is to be performed; (2) the worker's opportunity for profit or 
loss depending upon their managerial skill; (3) the worker's investment 
in equipment or materials required for their task, or their employment 
of helpers; (4) whether the service rendered requires a special skill; 
(5) the degree of permanence of the working relationship; and (6) the 
extent to which the service rendered is an integral part of the alleged 
employer's business.\54\ Like other federal courts of appeals, the 
Eleventh Circuit repeats the Supreme Court's explanation from Silk that 
no one factor is controlling, nor is the list exhaustive.\55\
---------------------------------------------------------------------------

    \52\ See Brock v. Superior Care, Inc., 840 F.2d 1054, 1058-59 
(2d Cir. 1988); Donovan v. DialAmerica Mktg., Inc., 757 F.2d 1376, 
1382-83 (3d Cir. 1985); McFeeley v. Jackson Street Ent., LLC, 825 
F.3d 235, 241 (4th Cir. 2016); Pilgrim Equip., 527 F.2d at 1311; 
Acosta v. Off Duty Police Servs., Inc., 915 F.3d 1050, 1055 (6th 
Cir. 2019); Sec'y of Labor, U.S. Dep't of Labor v. Lauritzen, 835 
F.2d 1529, 1534-35 (7th Cir. 1987); Walsh v. Alpha & Omega USA, 
Inc., 39 F.4th 1078, 1082 (8th Cir. 2022); Real v. Driscoll 
Strawberry Assocs., Inc., 603 F.2d 748, 754 (9th Cir. 1979); Acosta 
v. Paragon Contractors Corp., 884 F.3d 1225, 1235 (10th Cir. 2018); 
Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311-12 (11th Cir. 
2013); Morrison v. Int'l Programs Consortium, Inc., 253 F.3d 5, 11 
(D.C. Cir. 2001).
    \53\ See, e.g., Parrish v. Premier Directional Drilling, L.P., 
917 F.3d 369, 380 (5th Cir. 2019) (stating that it ``is impossible 
to assign to each of these factors a specific and invariably applied 
weight'') (quoting Hickey v. Arkla Indus., Inc., 699 F.2d 748, 752 
(5th Cir. 1983)); Scantland, 721 F.3d at 1312 n.2 (the relative 
weight of each factor ``depends on the facts of the case'') (quoting 
Santelices v. Cable Wiring, 147 F. Supp. 2d 1313, 1319 (S.D. Fla. 
2001)); Martin v. Selker Bros., 949 F.2d 1286, 1293 (3d Cir. 1991) 
(``It is a well-established principle that the determination of the 
employment relationship does not depend on isolated factors . . . 
neither the presence nor the absence of any particular factor is 
dispositive.'').
    \54\ Scantland, 721 F.3d at 1311-12.
    \55\ Id. at 1312 n.2.
---------------------------------------------------------------------------

    Some courts of appeals have applied the factors with some 
variations. For example, the Fifth Circuit typically does not list the 
``integral part'' factor as one of the considerations that guides its 
analysis.\56\ However, recognizing that its list of enumerated factors 
is not exhaustive, the Fifth Circuit has considered the extent to which 
a worker's function is integral to a business as part of its economic 
realities analysis.\57\ Similarly, the Second and D.C. Circuits vary in 
that they describe the employee's opportunity for profit or loss and 
the employee's investment as a single factor, but they still use the 
same considerations as the other circuits to inform their economic 
realities analysis.\58\
---------------------------------------------------------------------------

    \56\ See Pilgrim Equip., 527 F.2d at 1311.
    \57\ See Hobbs v. Petroplex Pipe & Constr., Inc., 946 F.3d 824, 
836 (5th Cir. 2020) (considering ``the extent to which the pipe 
welders' work was `an integral part' of Petroplex's business''). 
Every other federal court of appeals that has decided an FLSA case 
involving alleged independent contractors includes the ``integral 
part'' factor among the list of enumerated economic reality factors. 
See the cases cited supra at n.52 other than Pilgrim Equipment.
    \58\ See, e.g., Franze v. Bimbo Bakeries USA, Inc., 826 F. App'x 
74, 76 (2d Cir. 2020); Superior Care, 840 F.2d at 1058-59. The D.C. 
Circuit has adopted the Second Circuit's articulation of the 
factors, including treating opportunity for profit or loss and 
investment as one factor. See Morrison, 253 F.3d at 11 (citing 
Superior Care, 840 F.2d at 1058-59).
---------------------------------------------------------------------------

    In sum, since the 1940s, federal courts have analyzed the question 
of employee or independent contractor status under the FLSA using a 
multifactor, totality-of-the-circumstances economic reality test, with 
no factor or factors being dispositive. The courts have examined the 
economic realities of the employment relationship to determine whether 
the worker is economically dependent on the employer for work or is in 
business for themself, even if they have varied slightly in their 
articulations of the factors. Despite such variation, all courts have 
looked to the factors first articulated in Silk as useful guideposts 
while acknowledging that those factors are not exhaustive and should 
not be applied mechanically.
3. The Department's Application of the Economic Reality Test
    The Department has applied a multifactor economic reality test 
since the Supreme Court's opinions in Rutherford and Silk. For example, 
on June 23, 1949, the Wage and Hour Division (WHD) issued an opinion 
letter

[[Page 1643]]

distilling six ``primary factors which the Court considered 
significant'' in Rutherford and Silk: ``(1) the extent to which the 
services in question are an integral part of the `employer[']s' 
business; (2) the amount of the so-called `contractor's' investment in 
facilities and equipment; (3) the nature and degree of control by the 
principal; (4) opportunities for profit and loss; . . . (5) the amount 
of initiative judgment or foresight required for the success of the 
claimed independent enterprise[;] and [(6)] permanency of the 
relation.'' \59\ The guidance cautioned that no single factor is 
controlling, and ``[o]rdinarily a definite decision as to whether one 
is an employee or an independent contractor under the [FLSA] cannot be 
made in the absence of evidence as to [the worker's] actual day-to-day 
working relationship with [their] principal. Clearly a written contract 
does not always reflect the true situation.'' \60\
---------------------------------------------------------------------------

    \59\ WHD Op. Ltr. (June 23, 1949).
    \60\ Id.
---------------------------------------------------------------------------

    Subsequent WHD opinion letters addressing employee or independent 
contractor status under the FLSA have provided similar recitations of 
the Silk factors, sometimes omitting one or more of the six factors 
described in the 1949 opinion letter, and sometimes adding (or 
substituting) a seventh factor: the worker's ``degree of independent 
business organization and operation.'' \61\ Numerous opinion letters 
have emphasized that employment status is ``not determined by the 
common law standards relating to master and servant,'' and that ``[t]he 
degree of control retained by the principal has been rejected as the 
sole criterion to be applied.'' \62\
---------------------------------------------------------------------------

    \61\ See, e.g., WHD Op. Ltr. (Oct. 12, 1965) (discussing degree 
of independent business organization); WHD Op. Ltr. (Feb. 18, 1969) 
(same); WHD Op. Ltr. FLSA-314 (Dec. 21, 1982) (discussing three of 
the Silk factors); WHD Op. Ltr. FLSA-164 (Jan. 18, 1990) (discussing 
four of the Silk factors).
    \62\ See, e.g., WHD Op. Ltr. FLSA-106 (Feb. 8, 1956); WHD Op. 
Ltr. (July 20, 1965); WHD Op. Ltr. (Sept. 1, 1967); WHD Op. Ltr. 
(Feb. 18, 1969); WHD Op. Ltr. FLSA-31 (Aug. 10, 1981); WHD Op. Ltr. 
(June 5, 1995).
---------------------------------------------------------------------------

    In 1962, the Department revised the regulations in 29 CFR part 788, 
which generally provides interpretive guidance on the FLSA's exemption 
for employees in small forestry or lumbering operations, and added a 
provision addressing the distinction between employees and independent 
contractors.\63\ Citing to Silk, Rutherford, and Bartels, the 
regulation advised that ``an employee, as distinguished from a person 
who is engaged in a business of his own, is one who `follows the usual 
path of an employee' and is dependent on the business which he 
serves.'' \64\ To ``aid in assessing the total situation,'' the 
regulation then identified a partial list of ``characteristics of the 
two classifications which should be considered,'' including ``the 
extent to which the services rendered are an integral part of the 
principal's business; the permanency of the relationship; the 
opportunities for profit or loss; the initiative, judgment or foresight 
exercised by the one who performs the services; the amount of 
investment; and the degree of control which the principal has in the 
situation.'' \65\ Implicitly referring to the Bartels decision, the 
regulation advised that ``[t]he Court specifically rejected the degree 
of control retained by the principal as the sole criterion to be 
applied.'' \66\
---------------------------------------------------------------------------

    \63\ See 27 FR 8032; 29 U.S.C. 213(b)(28) (previously codified 
at 29 U.S.C. 213(a)(15)).
    \64\ 27 FR 8033 (29 CFR 788.16(a)).
    \65\ Id.
    \66\ 27 FR 8033-34 (29 CFR 788.16(a)).
---------------------------------------------------------------------------

    In 1972, the Department added similar guidance on independent 
contractor status at 29 CFR 780.330(b), in a provision addressing the 
employment status of sharecroppers and tenant farmers.\67\ This 
regulation was nearly identical to the independent contractor guidance 
for the logging and forestry industry previously codified at 29 CFR 
788.16(a), including an identical description of the same six economic 
reality factors.\68\ Both provisions--29 CFR 780.330(b) and 788.16(a)--
remained unchanged until 2021.
---------------------------------------------------------------------------

    \67\ See 37 FR 12084, 12102 (introducing 29 CFR 780.330(b)).
    \68\ Id.
---------------------------------------------------------------------------

    In 1997, the Department promulgated a regulation applying a 
multifactor economic reality analysis for distinguishing between 
employees and independent contractors under the Migrant and Seasonal 
Agricultural Worker Protection Act (MSPA), which notably incorporates 
the FLSA's ``suffer or permit'' definition of employment by 
reference.\69\ The regulation (which has not since been amended) 
advises that 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. The regulation elaborates that ``[t]his 
determination is based upon an evaluation of all of the circumstances, 
including the following: (i) The nature and degree of the putative 
employer's control as to the manner in which the work is performed; 
(ii) The putative employee's opportunity for profit or loss depending 
upon his/her managerial skill; (iii) The putative employee's investment 
in equipment or materials required for the task, or the putative 
employee's employment of other workers; (iv) Whether the services 
rendered by the putative employee require special skill; (v) The degree 
of permanency and duration of the working relationship; (vi) The extent 
to which the services rendered by the putative employee are an integral 
part of the putative employer's business.'' \70\ This description of 
six economic reality factors was very similar to the earlier 
description of six economic reality factors provided in 29 CFR 
780.330(b) and 788.16(a).
---------------------------------------------------------------------------

    \69\ See 62 FR 11734 (amending 29 CFR 500.20(h)(4)); see also 29 
U.S.C. 1802(5) (``The term `employ' has the meaning given such term 
under section 3(g) of the [FLSA]'').
    \70\ 29 CFR 500.20(h)(4).
---------------------------------------------------------------------------

    Also in 1997, WHD issued Fact Sheet #13, ``Employment Relationship 
Under the Fair Labor Standards Act (FLSA).'' \71\ Like WHD opinion 
letters, Fact Sheet #13 advises that an employee, as distinguished from 
a person who is engaged in a business of their own, is one who, as a 
matter of economic reality, follows the usual path of an employee and 
is dependent on the business which they serve. The fact sheet 
identifies the six familiar economic realities factors, as well as 
consideration of the worker's degree of independent business 
organization and operation.
---------------------------------------------------------------------------

    \71\ See WHD Fact Sheet #13 (1997) https:/web.archive.org/web/19970112162517/http:/www.dol.gov/dol/esa/public/regs/compliance/whd/whdfs13.htm). WHD made minor revisions to Fact Sheet #13 in 2002 and 
2008, before a more substantial revision in 2014. In 2018, WHD 
reverted back to the 2008 version of Fact Sheet #13, which--apart 
from the addition of an advisory note referring to the 2021 IC 
Rule--is identical to the current March 2022 version (available at 
https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship).
---------------------------------------------------------------------------

    On July 15, 2015, WHD issued additional subregulatory guidance, 
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).\72\ AI 2015-1 reiterated that the economic 
realities of the relationship are determinative and that the ultimate 
inquiry is whether the worker is economically dependent on the employer 
or truly in business for themself. It identified six economic realities 
factors that followed the six factors used by most federal courts of

[[Page 1644]]

appeals: (1) the extent to which the work performed is an integral part 
of the employer's business; (2) the worker's opportunity for profit or 
loss depending on their managerial skill; (3) the extent of the 
relative investments of the employer and the worker; (4) whether the 
work performed requires special skills and initiative; (5) the 
permanency of the relationship; and (6) the degree of control exercised 
or retained by the employer. AI 2015-1 further emphasized that the 
factors should not be applied in a mechanical fashion and that no one 
factor was determinative. AI 2015-1 was withdrawn on June 7, 2017.\73\
---------------------------------------------------------------------------

    \72\ AI 2015-1 is available at 2015 WL 4449086 (withdrawn June 
7, 2017).
    \73\ See News Release 17-0807-NAT, ``US Secretary of Labor 
Withdraws Joint Employment, Independent Contractor Informal 
Guidance'' (June 7, 2017), https://www.dol.gov/newsroom/releases/opa/opa20170607 (last visited November 20, 2023).
---------------------------------------------------------------------------

    In 2019, WHD issued an opinion letter, FLSA2019-6, regarding 
whether workers who worked for companies operating self-described 
``virtual marketplaces'' were employees covered under the FLSA or 
independent contractors.\74\ Like the Department's prior guidance, the 
letter stated that the determination depended on the economic realities 
of the relationship and that the ultimate inquiry was whether the 
workers depend on someone else's business or are in business for 
themselves. The letter identified six economic realities factors that 
differed slightly from the factors typically articulated by the 
Department previously: (1) the nature and degree of the employer's 
control; (2) the permanency of the worker's relationship with the 
employer; (3) the amount of the worker's investment in facilities, 
equipment, or helpers; (4) the amount of skill, initiative, judgment, 
and foresight required for the worker's services; (5) the worker's 
opportunities for profit or loss; and (6) the extent of the integration 
of the worker's services into the employer's business.\75\ The 
Department later withdrew Opinion Letter FLSA2019-6 on February 19, 
2021.\76\
---------------------------------------------------------------------------

    \74\ See WHD Op. Ltr. FLSA2019-6, 2019 WL 1977301 (Apr. 29, 
2019) (withdrawn Feb. 19, 2021).
    \75\ See id. at *4. Opinion Letter FLSA2019-6's ``extent of the 
integration'' factor was a notable recharacterization of the factor 
traditionally considered by courts and the Department regarding the 
extent to which work is ``an integral part'' of an employer's 
business.
    \76\ See note at https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA (last visited November 20, 2023).
---------------------------------------------------------------------------

C. The Department's 2021 Independent Contractor Rule

1. Overview
    On January 7, 2021, the Department published the 2021 IC Rule, with 
an effective date of March 8, 2021.\77\ The 2021 IC Rule set forth 
regulations to be added to a new part (part 795) in title 29 of the 
Code of Federal Regulations titled ``Employee or Independent Contractor 
Classification under the Fair Labor Standards Act,'' providing guidance 
on the classification of independent contractors under the FLSA 
applicable to workers and businesses in any industry.\78\ The 2021 IC 
Rule also addressed the Department's prior interpretations of 
independent contractor status in 29 CFR 780.330(b) and 788.16(a)--both 
of which applied to specific industries--by cross-referencing part 
795.\79\
---------------------------------------------------------------------------

    \77\ See 86 FR 1168. The Department initially published a NPRM 
soliciting public comment on September 25, 2020. See 85 FR 60600. 
The final rule adopted ``the interpretive guidance set forth in the 
[NPRM] largely as proposed.'' 86 FR 1168.
    \78\ 86 FR 1246-48.
    \79\ Id. at 1246.
---------------------------------------------------------------------------

    The Department explained that the purpose of the 2021 IC Rule was 
to establish a ``streamlined'' economic reality test that improved on 
prior articulations described as ``unclear and unwieldy.'' \80\ It 
stated that the existing economic reality test applied by the 
Department and courts suffered from confusion regarding the meaning of 
``economic dependence,'' a lack of focus in the multifactor balancing 
test, and confusion and inefficiency caused by overlap between the 
factors.\81\ The 2021 IC Rule asserted that shortcomings and 
misconceptions associated with the economic reality test were more 
apparent in the modern economy and that additional clarity would 
promote innovation in work arrangements.
---------------------------------------------------------------------------

    \80\ Id. at 1172, 1240.
    \81\ Id. at 1172-75.
---------------------------------------------------------------------------

    The 2021 IC Rule explained that independent contractors are not 
employees under the FLSA and are therefore not subject to the Act's 
minimum wage, overtime pay, or recordkeeping requirements. It adopted 
an economic reality test under which a worker is an employee of an 
employer if that worker is economically dependent on the employer for 
work and is an independent contractor if the worker is in business for 
themself.\82\
---------------------------------------------------------------------------

    \82\ Id. at 1246 (Sec.  795.105(a)-(b)).
---------------------------------------------------------------------------

    The 2021 IC Rule identified five economic realities factors to 
guide the inquiry into a worker's status as an employee or independent 
contractor, while acknowledging that the factors were not exhaustive, 
no one factor was dispositive, and additional factors could be 
considered if they ``in some way indicate whether the [worker] is in 
business for him- or herself, as opposed to being economically 
dependent on the potential employer for work.'' \83\ In contrast to 
prior guidance and contrary to case law, the 2021 IC Rule designated 
two of the five factors--the nature and degree of control over the work 
and the worker's opportunity for profit or loss--as ``core factors'' 
that should carry greater weight in the analysis. Citing the goal of 
providing greater certainty and predictability in the economic reality 
test, the 2021 IC Rule determined that these two factors were more 
probative of economic dependence than other economic realities factors. 
If both of those core factors indicate the same classification, as 
either an employee or an independent contractor, the 2021 IC Rule 
stated that there was a ``substantial likelihood'' that the indicated 
classification was the worker's correct classification.\84\
---------------------------------------------------------------------------

    \83\ Id. at 1246-47 (Sec.  795.105(c) and (d)(2)(iv)).
    \84\ Id. at 1246 (Sec.  795.105(c)).
---------------------------------------------------------------------------

    The 2021 IC Rule's first core factor was the nature and degree of 
control over the work, which indicated independent contractor status to 
the extent that the worker exercised substantial control over key 
aspects of the performance of the work, such as by setting their own 
schedule, by selecting their projects, and/or through the ability to 
work for others, which might include the potential employer's 
competitors.\85\ The 2021 IC Rule provided that requiring the worker 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) did not constitute control for purposes of 
determining employee or independent contractor classification.\86\
---------------------------------------------------------------------------

    \85\ Id. at 1246-47 (Sec.  795.105(d)(1)(i)).
    \86\ Id.
---------------------------------------------------------------------------

    The 2021 IC Rule's second core factor was the worker's opportunity 
for profit or loss.\87\ The Rule stated that this factor indicates 
independent contractor status to the extent the worker has an 
opportunity to earn profits or incur losses based on either (1) their 
exercise of initiative (such as managerial skill or business acumen or 
judgment) or (2) their management of investment in or capital 
expenditure on, for example, helpers or equipment or material to 
further the work. While the effects of the worker's exercise of 
initiative and management of investment were both considered under this 
factor, the worker did not need to have an opportunity for profit or 
loss based on both initiative

[[Page 1645]]

and management of investment for this factor to weigh towards the 
worker being an independent contractor. This factor indicated employee 
status to the extent that the worker was unable to affect their 
earnings or was only able to do so by working more hours or faster.
---------------------------------------------------------------------------

    \87\ Id. (Sec.  795.105(d)(1)(ii)).
---------------------------------------------------------------------------

    The 2021 IC Rule also identified three other non-core factors: the 
amount of skill required for the work, the degree of permanence of the 
working relationship between the worker and the employer, and whether 
the work is part of an integrated unit of production (which it 
cautioned is ``different from the concept of the importance or 
centrality of the individual's work to the potential employer's 
business'').\88\ The 2021 IC Rule provided that these other factors 
were ``less probative and, in some cases, may not be probative at all'' 
of economic dependence and were ``highly unlikely, either individually 
or collectively, to outweigh the combined probative value of the two 
core factors.'' \89\
---------------------------------------------------------------------------

    \88\ Id. (Sec.  795.105(d)(2)).
    \89\ Id. at 1246 (Sec.  795.105(c)).
---------------------------------------------------------------------------

    The 2021 IC Rule also stated that the actual practice of the 
parties involved is more relevant than what may be contractually or 
theoretically possible, and provided five ``illustrative examples'' 
demonstrating how the analysis would apply in particular factual 
circumstances.\90\ Finally, the 2021 IC Rule rescinded any ``prior 
administrative rulings, interpretations, practices, or enforcement 
policies relating to classification as an employee or independent 
contractor under the FLSA'' to the extent that such items ``are 
inconsistent or in conflict with the interpretations stated in this 
part,'' and explained that the 2021 IC Rule would guide WHD's 
enforcement of the FLSA.\91\
---------------------------------------------------------------------------

    \90\ Id. at 1247-48 (Sec. Sec.  795.110-.115).
    \91\ Id. at 1246 (Sec.  795.100).
---------------------------------------------------------------------------

    On January 19, 2021, WHD issued Opinion Letters FLSA2021-8 and 
FLSA2021-9 applying the Rule's analysis to specific factual scenarios. 
WHD subsequently withdrew those opinion letters on January 26, 2021, 
explaining that the letters were issued prematurely because they were 
based on a rule that had yet to take effect.\92\
---------------------------------------------------------------------------

    \92\ See https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA (last visited November 20, 2023), noting the withdrawal 
of Opinion Letters FLSA2021-8 and FLSA2021-9.
---------------------------------------------------------------------------

2. Delay and Withdrawal
    On February 5, 2021, the Department published a proposal to delay 
the 2021 IC Rule's effective date until May 7, 2021--60 days after the 
Rule's original March 8, 2001, effective date.\93\ On March 4, 2021, 
after considering the approximately 1,500 comments received in response 
to that proposal, the Department published a final rule delaying the 
effective date of the 2021 IC Rule as proposed.\94\
---------------------------------------------------------------------------

    \93\ 86 FR 8326.
    \94\ 86 FR 12535.
---------------------------------------------------------------------------

    On March 12, 2021, the Department published a NPRM proposing to 
withdraw the 2021 IC Rule.\95\ On May 5, 2021, after reviewing 
approximately 1,000 comments submitted in response to the NPRM, the 
Department announced a final rule withdrawing the 2021 IC Rule.\96\ In 
explaining its decision to withdraw the 2021 IC Rule, the Department 
stated that the Rule was inconsistent with the FLSA's text and purpose 
and would have had a confusing and disruptive effect on workers and 
businesses alike due to its departure from longstanding judicial 
precedent. The Withdrawal Rule stated that it took effect immediately 
upon its publication in the Federal Register on May 6, 2021.\97\
---------------------------------------------------------------------------

    \95\ 86 FR 14027.
    \96\ 86 FR 24303.
    \97\ Id. at 24320.
---------------------------------------------------------------------------

3. Litigation
    On March 14, 2022, in a lawsuit challenging the Department's Delay 
and Withdrawal Rules under the Administrative Procedure Act (APA), a 
district court in the Eastern District of Texas issued a decision 
vacating the Department's Delay and Withdrawal Rules.\98\ While 
acknowledging that the Department engaged in separate notice-and-
comment rulemakings in promulgating both of these rules, the district 
court concluded that the Department ``failed to provide a meaningful 
opportunity for comment in promulgating the Delay Rule,'' \99\ failed 
to show ``good cause for making the [Delay Rule] effective immediately 
upon publication,'' \100\ and acted in an arbitrary and capricious 
manner in its Withdrawal Rule by ``fail[ing] to consider potential 
alternatives to rescinding the Independent Contractor Rule.'' \101\ 
Accordingly, the district court vacated the Delay and Withdrawal Rules 
and concluded that the 2021 IC Rule ``became effective as of March 8, 
2021, the rule's original effective date, and remains in effect.'' 
\102\ The district court's ruling did not address the validity of the 
2021 IC Rule; rather, the case was focused solely on the validity of 
the Delay and Withdrawal Rules.
---------------------------------------------------------------------------

    \98\ CWI v. Walsh, 2022 WL 1073346.
    \99\ Id. at *9. The court specifically faulted the Department's 
use of a shortened 19-day comment period in its proposal to delay of 
the 2021 IC Rule's original effective date (instead of 30 days), and 
for failing to consider comments beyond its proposal to delay the 
2021 IC Rule's effective date. Id. at *7-10.
    \100\ Id. at *11.
    \101\ Id. at *13.
    \102\ Id. at *20.
---------------------------------------------------------------------------

    The Department filed a notice of appeal of the district court's 
decision.\103\ In response to requests by the Department informing the 
court of this rulemaking, the Fifth Circuit Court of Appeals has 
entered successive orders staying the appeal. The Fifth Circuit's most 
recent order was dated October 9, 2023 and stayed the appeal for an 
additional 120 days.
---------------------------------------------------------------------------

    \103\ See Fifth Circuit No. 22-40316 (appeal filed, May 13, 
2022).
---------------------------------------------------------------------------

D. The Department's Proposal

    Following a series of stakeholder forums on the classification of 
workers as employees or independent contractors under the FLSA, the 
Department published an NPRM on October 13, 2022 proposing to rescind 
the 2021 IC Rule and replace it with new part 795 regulations.\104\ In 
the NPRM, the Department proposed to add a new part 795 to Title 29 of 
the Code of Federal Regulations providing guidance regarding whether 
workers are employees or independent contractors, which would be 
different in notable respects from the regulatory text in the 2021 IC 
Rule, published at 86 FR 1246 through 1248. In contrast to the 2021 IC 
Rule's creation of elevated ``core factors,'' the Department proposed 
returning to a totality-of-the-circumstances analysis of the economic 
reality test in which the factors do not have a predetermined weight 
and are considered in view of the economic reality of the whole 
activity. Additional proposed differences from the 2021 IC Rule 
included restoring consideration of investment as a separate factor, 
providing additional analysis of the control factor (including detailed 
discussions of how scheduling, supervision, price-setting, and the 
ability to work for others should be considered), and returning to the 
longstanding interpretation of the integral factor, which considers 
whether the work performed is integral to the employer's business.
---------------------------------------------------------------------------

    \104\ See 87 FR 62218.
---------------------------------------------------------------------------

E. Comments

    The initial deadline for interested parties to submit comments on 
the NPRM was November 28, 2022. In response to requests for an 
extension of the time period for filing written comments, the 
Department lengthened the comment period an additional 15

[[Page 1646]]

days to December 13, 2022, resulting in a total comment period of 61 
days.\105\
---------------------------------------------------------------------------

    \105\ 87 FR 64749. Although several commenters requested a 
longer extension or otherwise objected that the comment period was 
inadequately short, the resulting 61-day comment period was more 
than twice as long as the 30-day comment period for the NPRM for the 
2021 IC Rule, when the Department initially proposed regulatory 
guidance on employee and independent contractor status under the 
FLSA. See 85 FR 60600. The Department declined several requests to 
extend the comment period for the 2020 NPRM. See https://www.regulations.gov/document/WHD-2020-0007-0193.
---------------------------------------------------------------------------

    The Department received approximately 55,400 comments on the NPRM. 
Comments were submitted by a diverse array of stakeholders, including 
employees, self-identified independent contractors, businesses, trade 
associations, labor unions, advocacy groups, law firms, members of 
Congress, state and local government officials, and other interested 
members of the public. This section provides a high-level summary of 
commenter views. Significant issues raised in the comments received are 
discussed in subsequent sections of this preamble, along with the 
Department's response to those comments and a discussion of resulting 
changes that have been made in the final rule's regulatory text. All 
comments received may be viewed on the https://www.regulations.gov 
website, docket ID WHD-2022-0003.
    Many of the comments the Department received can be characterized 
in the following ways: (1) very general statements of support or 
opposition; (2) personal anecdotes that did not address a specific 
aspect of the proposal; or (3) identical or nearly identical 
``campaign'' comments sent in response to comment initiatives sponsored 
by various groups.\106\ Other comments provided specific data, views, 
and arguments, which are described throughout this preamble. Commenters 
expressed a wide variety of views on the merits of the Department's 
proposal. Acknowledging that there are strong views on the issues 
presented in this rulemaking, the Department has carefully considered 
the comments submitted.
---------------------------------------------------------------------------

    \106\ Campaign comments, both in favor and opposed to the 
proposal, were received from a variety of groups, including, for 
example, court reporters, construction industry employers, DoorDash 
workers, professional translators, truckers, financial advisors, and 
healthcare professionals.
---------------------------------------------------------------------------

    As a general matter, most employees, labor unions, worker advocacy 
groups, and other affiliated stakeholders generally expressed support 
for the NPRM, asserting that its proposed guidance was more consistent 
with judicial precedent and would better protect employees from 
misclassification than the 2021 IC Rule. By contrast, most commenters 
who identified as independent contractors, business entities, and 
commenters affiliated with those constituencies generally expressed 
opposition to the NPRM, criticizing the Department's proposed economic 
reality test as ambiguous and biased against independent contracting.
    The Department received several comments addressing topics that are 
beyond the scope of this rulemaking. For example, numerous individuals 
submitted comments expressing support or opposition to the ``Protecting 
the Right to Organize Act'', H.R. 842, 117th Cong. (2021), proposed 
legislation that would amend the NLRA. Other commenters expressed views 
on possible legislative reforms to extend wage-and-hour protections and 
other employment benefits to workers classified as independent 
contractors. See, e.g., Center for Cultural Innovation (``CCI'') 
(discussing collective bargaining rights and sector wage standards as 
``two promising approaches to guaranteeing [wage-and-hour] protections 
to independent workers''); DoorDash (``[L]aws should be updated to 
preserve the independence workers like Dashers value, while clearing 
the way for new protections and benefits that independent contractors 
have historically lacked.''); Uber (``We look forward to working with 
the Department to address the shortcomings of existing laws, including 
unlocking access to benefits for independent contractors such as app-
based workers.''). Such legislative efforts are beyond the scope of 
this rulemaking as they would require congressional action; the scope 
of this regulation is limited to providing guidance regarding employee 
or independent contractor classification under the FLSA as currently 
enacted.
    Some commenters addressed the rulemaking's potential effect on 
workers other than those classified as independent contractors. For 
example, the Labor Relations and Employment Law Society at St. John's 
University School of Law requested the Department to apply the NPRM's 
proposed economic reality test to evaluate the employment status of 
unpaid student interns. Similarly, Boulette Golden & Marin L.L.P. 
asserted that the NPRM's proposed guidance creates a ``false 
dichotomy'' where ``every worker in the United States is either an 
employee or an `independent business.' '' To clarify, this rulemaking 
specifically addresses the legal distinction between FLSA-covered 
employees and independent contractors; it does not replace or supplant 
the analyses that courts and the Department apply when evaluating FLSA 
coverage of other kinds of workers, such as unpaid interns, students, 
trainees, or volunteers.\107\ Coverage for these types of workers is 
not addressed in this rule.
---------------------------------------------------------------------------

    \107\ See, e.g., WHD Fact Sheet #71: Internship Programs Under 
The Fair Labor Standards Act (describing the analysis applied by 
courts and the Department to evaluate the FLSA employment status of 
students and interns).
---------------------------------------------------------------------------

    Finally, some commenters opined on potential compliance or 
enforcement measures. For example, the Sheet Metal and Air Conditioning 
Contractors' National Association (``SMACNA'') requested that the 
Department introduce a mandatory ``Notice of Independent Contractor 
Status'' form for businesses and independent contractors in the 
construction industry, to notify ``true independent contractors'' of 
their tax obligations and help enforcement against misclassification. 
This suggestion, however, is outside the scope of this rulemaking, 
which has not proposed any mandatory notice and focuses specifically on 
the legal distinction between FLSA-covered employees and independent 
contractors. Further, some commenters raised compliance with employment 
verification requirements under the Immigration Reform and Control Act 
(IRCA), both to note that some employers are incentivized to 
misclassify immigrant workers as independent contractors in part 
because they do not have to verify the work authorization of 
independent contractors, see, e.g., Equal Justice Center; SMACNA, and 
to note that being able to operate as an independent contractor or in 
business for oneself provides economic opportunity for people who lack 
work authorization, see TheDream.US. Because this rulemaking pertains 
only to the question of employee classification under the FLSA, it does 
not address employers' compliance obligations with respect to employees 
as determined under other laws, such as IRCA. The FLSA's various worker 
protections apply to FLSA-covered employees regardless of their 
citizenship or immigration or work authorization status.

III. Need for Rulemaking

    The Department recognizes that independent contractors and small 
businesses play an important role in our economy. It is also 
fundamental to the Department's obligation to administer and enforce 
the FLSA that workers who should be covered under the Act are able to 
receive its protections. In the FLSA context, employees misclassified 
as independent contractors are denied

[[Page 1647]]

basic workplace protections, including the rights to minimum wage and 
overtime pay.\108\ Meanwhile, employers that comply with the law are 
placed at a competitive disadvantage compared to other businesses that 
misclassify employees, contravening the FLSA's goal of eliminating 
``unfair method[s] of competition in commerce.'' \109\
---------------------------------------------------------------------------

    \108\ Workers who are employees under the FLSA but are 
misclassified as independent contractors remain legally entitled to 
the Act's wage-and-hour protections and are protected from 
retaliation for attempting to assert their rights under the Act. See 
29 U.S.C. 215(a)(3). However, many misclassified employees may not 
be aware that such rights and protections apply to them or face 
obstacles when asserting those rights.
    \109\ 29 U.S.C. 202; see also Tony & Susan Alamo Found. v. Sec'y 
of Labor, 471 U.S. 290, 302 (1985) (noting that allowing workers who 
are employees under the Act to work as non-employees ``would affect 
many more people than those workers directly at issue . . . and 
would be likely to exert a general downward pressure on wages in 
competing businesses'').
---------------------------------------------------------------------------

    As explained in the NPRM, the Department believes that the 2021 IC 
Rule did not fully comport with the FLSA's text and purpose as 
interpreted by the courts. The Department further believes that leaving 
the 2021 IC Rule in place would have a confusing and disruptive effect 
on workers and businesses alike due to its departure from decades of 
case law describing and applying the multifactor economic reality test 
as a totality-of-the-circumstances test. While the Department agrees 
that the 2021 IC Rule identified a need to further develop and center 
the concept of economic dependence, the 2021 IC Rule included 
provisions that are in tension with longstanding case law, such as 
designating two ``core factors'' as most probative and predetermining 
that they carry greater weight in the analysis; considering investment 
and initiative only as part of the opportunity for profit or loss 
factor; and excluding consideration of whether the work performed is 
central or important to the potential employer's business. These and 
other provisions in the 2021 IC Rule narrowed the economic reality test 
by limiting the facts that may be considered as part of the test--facts 
which the Department believes are relevant in determining whether a 
worker is economically dependent on the employer for work or is in 
business for themself. As the NPRM explained, this novel narrowing of 
the test under which certain factors are always elevated and other 
facts are essentially precluded from consideration may result in 
misapplication of the economic reality test and an increased risk of 
FLSA-covered employees being misclassified as independent contractors. 
Moreover, the 2021 IC Rule did not address the potential risks to 
workers of such misclassification.\110\
---------------------------------------------------------------------------

    \110\ 86 FR 1225; see also id. at 1206-07.
---------------------------------------------------------------------------

    The Department previously explained these concerns about the 2021 
IC Rule at length in the Withdrawal Rule,\111\ which was vacated by a 
district court (the Department's appeal of the district court's order 
is pending). The Department now believes it is appropriate to rescind 
the 2021 IC Rule and replace it with an analysis for determining 
employee or independent contractor status under the Act that is more 
consistent with existing judicial precedent and the Department's 
longstanding guidance prior to the 2021 IC Rule. While prior to the 
2021 IC Rule the Department primarily issued subregulatory guidance in 
this area, the NPRM explained that rescinding the 2021 IC Rule and 
replacing it with detailed regulations addressing the multifactor 
economic reality test--in a way that both more fully reflects the case 
law and continues to be relevant to the evolving economy--would be 
helpful for workers and businesses alike. Specifically, the Department 
explained that its proposed guidance would protect workers from 
misclassification while at the same time provide a consistent approach 
for those businesses that engage (or wish to engage) with properly 
classified independent contractors.
---------------------------------------------------------------------------

    \111\ See 86 FR 24307-18.
---------------------------------------------------------------------------

    In the NPRM, the Department acknowledged that its proposal departed 
from the approach taken in the 2021 IC Rule, and further discussed the 
rationale used in the 2021 IC Rule and why the Department had carefully 
reconsidered that reasoning and determined that modifications were 
necessary.\112\ As the NPRM noted, the Department had identified four 
reasons underlying the need to promulgate the 2021 IC Rule: (1) 
confusion regarding the meaning of ``economic dependence'' because the 
concept is ``underdeveloped''; (2) lack of focus in the multifactor 
balancing test; (3) confusion and inefficiency due to overlapping 
factors; and (4) the shortcomings of the economic reality test that are 
more apparent in the modern economy.\113\ The 2021 IC Rule had also 
suggested as a fifth reason that the economic reality test hindered 
innovation in work arrangements.\114\ As discussed further below, the 
Department explained in the NPRM that it believed that the proposed 
rule's approach offers a better framework for understanding and 
applying the concept of economic dependence by explaining how the 
touchstone of whether an individual is in business for themself is 
analyzed within each of the six economic realities factors. Further, 
the Department believed that the proposal's discussion of how courts 
and the Department's previous guidance apply the factors brings the 
multifactor test into focus, reduces confusion as to the overlapping 
factors, and provides a better basis for understanding how the test has 
the flexibility to be applied to changes in the modern economy, such 
that the Department no longer viewed the concerns articulated in the 
2021 IC Rule as impediments to using the economic reality test 
formulated by the courts and the Department's longstanding guidance.
---------------------------------------------------------------------------

    \112\ See 87 FR 62226 (citing FCC v. Fox Television Stations, 
Inc., 556 U.S. 502, 515 (2009)).
    \113\ Id. (citing 86 FR 1172-75).
    \114\ Id. (citing 86 FR 1175).
---------------------------------------------------------------------------

    Thousands of commenters opined on this rulemaking. Most commenters 
that expressed support for the NPRM--including labor unions, worker 
advocacy organizations, and workers--were highly critical of the 2021 
IC Rule, often referencing or attaching earlier comments filed in 
opposition to that rule when it was proposed. See, e.g., American 
Federation of Labor and Congress of Industrial Organizations (``AFL-
CIO''); National Women's Law Center (``NWLC''); Northwest Worker 
Justice Project; United Brotherhood of Carpenters and Joiners of 
America (``UBC''). Using common template language, several dozen 
advocacy organizations and local unions affiliated with the United Food 
and Commercial Workers (``UFCW'') characterized the 2021 IC Rule as an 
``anti-worker rule'' which ``narrowed the scope of who is considered an 
employee under the FLSA.'' Many of these commenters also asserted that 
the 2021 IC Rule ``contravenes the [FLSA's] statutory definitions and 
Supreme Court precedent.'' Additionally, numerous commenters supportive 
of the Department's rulemaking asserted that replacing the 2021 IC Rule 
with the NPRM's proposed economic reality test would reduce the 
misclassification of employees as independent contractors, given the 
proposed test's fuller consideration of facts that were minimized or 
excluded under the 2021 IC Rule. See, e.g., AARP; Joint Comment of the 
National Electrical Contractors Association and the International 
Brotherhood of Electrical Workers (``NECA & IBEW''); REAL Women in 
Trucking.
    A number of commenters supportive of the NPRM also stated that the 
economic reality test applied by courts is not only compatible with the 
modern

[[Page 1648]]

economy, but preferable to the 2021 IC Rule's elevation of certain 
factors as controlling. See, e.g., AARP (``It is precisely because work 
arrangements are more varied and complex in today's economy that no one 
factor should be controlling or exclusive to others.''); Coalition of 
State Attorneys General and State Labor Departments (``State AGs'') 
(``As State AGs who enforce and defend state wage and hour laws, we 
know that a flexible standard that considers the totality of the 
circumstances is required to address changing work arrangements.''). 
Some business stakeholders expressed support for the NPRM, but for 
different reasons. For example, some employers--including Alto 
Experience, Inc., Gale Healthcare Solutions, IntelyCare, Inc., and 
various union-affiliated contractor associations--expressed support for 
the NPRM on the grounds that its guidance would better prevent rival 
businesses from obtaining an unfair competitive advantage through the 
misclassification of employees as independent contractors, consistent 
with the FLSA's goal of eliminating unfair methods of competition in 
commerce. Additionally, some business stakeholders stated that they 
preferred the economic reality test applied by courts to the 2021 IC 
Rule. See, e.g., Ho-Chunk Inc. (supporting the proposed analysis 
because the 2021 IC Rule ``deviat[ed] from established case law''); 
Small Business Legislative Council (``SBLC'') (``While the SBLC has not 
taken a position on whether the economic realities test strikes the 
right balance, applying a test like the economic realities test that 
has been fleshed out over years through case law and administrative 
guidance certainly makes this complex issue easier to navigate.''); see 
also Opera America (``The `totality-of-the-circumstances' approach 
allows for the nuance necessary to truly evaluate the nature of an 
employment or contractor relationship''); Texas Association for Home 
Care and Hospice (``We support the reiteration in the [NPRM] that the 
enumerated factors should each be equally relevant, including any 
additional relevant factors that indicate economic dependence or 
independence.'').
    Other commenters, including most business-affiliated stakeholders 
and many self-identified independent contractors, disagreed with the 
Department's proposal to rescind and replace the 2021 IC Rule. Many of 
these commenters argued that the 2021 IC Rule was based on judicial 
precedent. See e.g., Coalition for Workforce Innovation (``CWI''); 
Independent Bakers Association (``IBA''); Pacific Legal Foundation. 
Commenters opposed to this rulemaking further stated that the 2021 IC 
Rule's analysis is clearer than the NPRM's proposed economic reality 
test, asserting that returning to a totality-of-the-circumstances 
analysis would increase litigation and deter businesses from engaging 
with independent contractors. See, e.g., American Society of Travel 
Advisors (``ASTA''); Financial Services Institute (``FSI''); U.S. 
Chamber of Commerce (``U.S. Chamber''). While many commenters opposed 
to the NPRM acknowledged that the misclassification of employees as 
independent contractors might be a problem in some industries, several 
commenters disputed the need for generally applicable guidance that (in 
their view) could be disruptive to businesses and legitimate 
independent contractors in their particular industries. See, e.g., 
American Translators Association; IMC Companies, LLC; see also HR 
Policy Association. Finally, many self-identified independent 
contractors and advocacy groups asserted that the Department's proposal 
would ``misclassify'' independent contractors as employees. See, e.g., 
American Society of Journalists and Authors; Cambridge Investment 
Research, Inc.; Fight for Freelancers; Transportation Intermediaries 
Association (``TIA'').
    Commenters opposed to this rulemaking agreed with the 2021 IC 
Rule's assessment that the economic reality test traditionally applied 
by courts is incompatible with the modern economy. See, e.g., Institute 
for the American Worker (``I4AW''); Society for Human Resources 
Management (``SHRM''); TIA. Several commenters pointed to differences 
in the economy today compared to the 1930s and 1940s, when the FLSA was 
enacted and the Supreme Court first endorsed the economic reality test. 
See, e.g., Flex Association (``Flex'') (``It is no longer 1938, when 
Congress enacted the FLSA. Today, independent contractors can leverage 
app-based technology to build their own businesses in ways we could not 
have conceived even 20, let alone 84, years ago.''); National 
Association of Professional Insurance Agents (``[I]n many ways, the 
1938 Congress could not have conceived of the present-day global 
economy or the variations among worker statuses that have emerged and 
continue to evolve therefrom.'').
    Several commenters stated that the Department's proposal would 
deter businesses from engaging with independent contractors, which in 
turn would have disruptive economic consequences. In a joint comment, 
33 business advocacy organizations and over 100 local Chambers of 
Commerce (``Coalition of Business Stakeholders'') asserted that, under 
the NPRM, ``the only scenario in which a hiring entity can be sure it 
is safe from an enforcement action by the DOL is when it classifies, or 
misclassifies, its workers as employees'' and concluded that the NPRM 
would ``upend millions of legitimate, productive independent contractor 
relationships.'' See also, e.g., California Association of Realtors 
(C.A.R.) (``This proposal as is would seriously disrupt the current and 
historical choices of the real estate industry that have been in place 
for at least fifty years.''); FSI (``Changes in laws or regulations 
that substantially limited or prohibited the use of independent 
contracting in financial services would harm those who currently work 
as independent contractors, harm consumers by reducing their financial 
literacy and thus their ability to accumulate wealth and save for 
retirement, and harm the economy overall.'').
    Upon consideration of the comments and as described throughout this 
preamble, the Department continues to believe that this final rule's 
approach offers a better framework for understanding and applying the 
concept of economic dependence by explaining how the touchstone of 
whether an individual is in business for themself is analyzed within 
each of the six economic reality factors. This rule's discussion of how 
courts and the Department's previous guidance apply the factors brings 
the multifactor test into focus, reduces confusion as to the 
overlapping factors, and provides a more consistent basis for 
understanding how the test has the flexibility to be applied to changes 
in the modern economy. Accordingly, the Department no longer views the 
concerns articulated in the 2021 IC Rule as impediments to using the 
economic reality test formulated by the courts and the Department's 
longstanding guidance.
    The Department is, however, retaining its longstanding 
interpretation, as it did in the 2021 IC Rule, that economic dependence 
is the ultimate inquiry, and that an employee is someone who, as a 
matter of economic reality, is economically dependent on an employer 
for work--not for income.\115\

[[Page 1649]]

Consistent with the 2021 IC Rule and as explained in the NPRM, the 
Department continues to believe that, as compared to the economic 
realities analysis generally, the particular concept of economic 
dependence is underdeveloped in the case law. As noted in the 2021 IC 
Rule, the Department and most courts have historically applied a 
``dependence-for-work'' approach which considers whether the worker is 
dependent on the employer for work or depends on the worker's own 
business for work. However, a minority of courts have applied a 
``dependence-for-income'' approach that considers whether the worker 
has other sources of income or wealth or is financially dependent on 
the employer.\116\ Further, rather than giving primacy to only two 
factors as indicators of economic dependence, the Department believes 
that developing the concept of economic dependence is better 
accomplished by, in addition to elaborating on the general meaning of 
economic dependence, explaining how each of the six factors can 
illuminate the distinction between economic dependence on the employer 
for work and being in business for oneself. By focusing on that 
distinction in its discussion of each factor, the Department expects 
that this rule will provide clarity on the concept of economic 
dependence that the 2021 IC Rule indicated would be welcomed by workers 
and businesses, but will do so in a way that is consistent with case 
law and the Department's prior guidance.
---------------------------------------------------------------------------

    \115\ See 86 FR 1246 (Sec.  795.105(b) (``An employer suffers or 
permits an individual to work as an employee if, as a matter of 
economic reality, the individual is economically dependent on that 
employer for work.''); see also infra section V.B.; 29 CFR 
795.105(b) (``An `employee' under the Act is an individual whom an 
employer suffers, permits, or otherwise employs to work. . . . [This 
is] meant to encompass as employees all workers who, as a matter of 
economic reality, are economically dependent on an employer for 
work. . . . Economic dependence does not focus on the amount of 
income earned, or whether the worker has other sources of 
income.'').
    \116\ See 86 FR 1172-73.
---------------------------------------------------------------------------

    Regarding commenters that stated that the 2021 IC Rule provided 
more clarity in distinguishing between factors, the Department 
believes, upon further consideration, that any purported confusion and 
inefficiency due to overlapping factors was overstated in the 2021 IC 
Rule. Moreover, when each factor is viewed under the framework of 
whether the worker is economically dependent or in business for 
themself, the rationale for considering facts under more than one 
factor is clearer. The Department explains in more detail in section V 
why considering certain facts under more than one factor is consistent 
with the totality-of-the-circumstances approach of the economic 
realities analysis used by courts. And the Department provides guidance 
regarding how to consider certain facts, such as the ability to work 
for others and whether the working relationship is exclusive, under 
more than one factor. The Department believes that this flexible 
approach is supported by the case law and preferable to rigidly and 
artificially limiting facts to only one factor, as the 2021 IC Rule 
did.
    Concerning comments that the 2021 IC Rule was better suited to the 
modern economy, the Department believes that this final rule is well-
equipped to address a wide array of traditional and emerging work 
relationships, as discussed throughout section V of this preamble. In 
the 2021 IC Rule, the Department stated that ``technological and social 
changes have made shortcomings of the economic realities test more 
apparent in the modern economy,'' thus justifying the 2021 IC Rule's 
characterization of the integral, investment, and permanence factors as 
less important in determining a worker's classification.\117\ Upon 
further consideration, however, the Department believes that the 
multifactor economic reality test relied on by courts where no one 
factor or set of factors is presumed to carry more weight is the most 
helpful tool for evaluating modern work arrangements. The test's 
vitality is confirmed by its application over seven decades that have 
seen monumental shifts in the economy. Modern work arrangements 
utilizing applications or other technology are best addressed using the 
underlying economic reality test, which considers the totality of the 
circumstances in each working arrangement and offers a flexible, 
comprehensive, and appropriately nuanced approach which can be adapted 
to disparate industries and occupations. It can also encompass 
continued social changes because it does not presume which aspects of 
the work relationship are most probative or relevant and leaves open 
the possibility that changed circumstances may make certain factors 
more important in certain cases or future scenarios.
---------------------------------------------------------------------------

    \117\ 86 FR 1175.
---------------------------------------------------------------------------

    The Department's response to commenter feedback on the potential 
economic consequences of this rulemaking is discussed in the regulatory 
impact analysis provided in section VII. However, the Department 
continues to believe that proper application of the FLSA in the modern 
economy requires the flexibility of an economic reality test that does 
not predetermine the probative value of particular factors and which is 
adaptable to different industries and workers. As further explained in 
sections III.C and VII, commenter assertions of economic disruption 
related to this rulemaking are belied by the fact that this rulemaking 
merely aligns the Department's interpretive guidance with the same 
legal standard courts have been applying for decades--and are 
continuing to apply today.
    The discussion that follows sets forth the Department's explanation 
of the need for this rulemaking and responds to relevant commenter 
feedback.

A. The 2021 IC Rule's Test Is Not Supported by Judicial Precedent or 
the Department's Historical Position and Is Not Fully Aligned With the 
Act's Text as Interpreted by the Courts

    In the NPRM, the Department explained that it was proposing to 
rescind and replace the 2021 IC Rule in part because that rule was not 
fully aligned with the FLSA's text as interpreted by the courts or the 
Department's longstanding analysis, as well as decades of case law 
describing and applying the multifactor economic reality test. In 
relevant part, the NPRM explained that the Department had three primary 
and overlapping legal concerns with the 2021 IC Rule: (1) its creation 
of two ``core factors'' as the ``most probative'' in the economic 
reality analysis; (2) the oversized role of the control factor in its 
analysis; and (3) its altering of several economic reality factors to 
minimize or exclude key facts commonly analyzed by courts.\118\
---------------------------------------------------------------------------

    \118\ See 87 FR 62227-29. The Department had previously 
identified and discussed these three concerns in its 2021 Withdrawal 
Rule. See 86 FR 24307-15.
---------------------------------------------------------------------------

    After considering the comments, the Department continues to believe 
that the 2021 IC Rule marked a departure from the way in which courts 
and the Department adopted and applied the multifactor, totality-of-
the-circumstances economic reality test in which the factors do not 
have a predetermined weight and are considered in view of the economic 
reality of the whole activity. The Department also continues to believe 
that the 2021 IC Rule's departure from longstanding precedent unduly 
narrowed the economic reality test by limiting facts that may be 
considered as part of the test that are relevant in determining whether 
a worker is economically dependent on the employer for work or is in 
business for themself. By doing so, the 2021 IC Rule artificially 
restricted the Act's expansive definitions of ``employer,'' 
``employee,'' and ``employ,'' undermining the Act's text and purposes, 
as interpreted by courts and the Department's longstanding 
interpretation of the economic reality test.

[[Page 1650]]

1. The 2021 IC Rule's Elevation of Control and Opportunity for Profit 
or Loss as the ``Most Probative'' Factors in Determining Employee 
Status Under the FLSA
    As the NPRM explained, the 2021 IC Rule set forth a new 
articulation of the economic reality test, elevating two factors 
(control and opportunity for profit or loss) as ``core'' factors above 
other factors, asserting that the two core factors have ``greater 
probative value'' in determining a worker's economic dependence.\119\ 
Notably, the 2021 IC Rule further provided that if both core factors 
point toward the same classification--either employee or independent 
contractor--then there is a ``substantial likelihood'' that this is the 
worker's correct classification.\120\ Although it identified three 
other factors as additional guideposts and acknowledged that additional 
factors may be considered, it made clear that non-core factors ``are 
less probative and, in some cases, may not be probative at all, and 
thus are highly unlikely, either individually or collectively, to 
outweigh the combined probative value of the two core factors.'' \121\ 
The NPRM explained that the Department believes that the 2021 IC Rule's 
elevation of the control and opportunity for profit or loss factors was 
in tension with the language of the Act as well as the longstanding 
judicial precedent, expressed by the Supreme Court and in appellate 
cases from across the circuits, that no single factor is determinative 
in the analysis of whether a worker is an employee or an independent 
contractor, nor is any factor or set of factors necessarily more 
probative of whether the worker is in fact economically dependent on 
the employer for work as opposed to being in business for themself.
---------------------------------------------------------------------------

    \119\ 87 FR 62227 (citing 86 FR 1246 (Sec.  795.105(c) and 
(d))).
    \120\ 86 FR 1246 (Sec.  795.105(c)); see also id. at 1201 
(advising that other factors would only outweigh the two core 
factors ``in rare cases'').
    \121\ Id. at 1246 (Sec.  795.105(c)).
---------------------------------------------------------------------------

    Many commenters expressed concerns about the 2021 IC Rule's 
elevation of two ``core factors'' and supported the Department's 
proposal to restore a totality-of-the-circumstances analysis where no 
factor (or set of factors) is given a predetermined weight. Several 
commenters asserted that the use of core factors was contrary to 
Supreme Court precedent. See, e.g., International Association of 
Machinists and Aerospace Workers, AFL-CIO; Laborers' International 
Union of North America (``LIUNA''); National Employment Law Project 
(``NELP'). The AFL-CIO and the North America's Building Trades Unions 
(``NABTU'') further commented that the 2021 IC Rule's elevation of 
control and opportunity for profit or loss effectively (and 
impermissibly) adopted a common law test for independent contractor 
status. The Signatory Wall and Ceiling Contractors Alliance 
(``SWACCA'') stated that ``[b]y giving greater emphasis to these two 
factors . . . the [2021 IC Rule] improperly narrows the analysis of the 
facts and circumstances surrounding the business-worker relationship, 
thereby reducing the scope of the FLSA's protections.'' See also State 
AGs (commenting that the 2021 IC Rule's ``emphasis on two `core' 
factors . . . negated the need to fully consider the remaining 
factors''). Farmworker Justice commented that the 2021 IC Rule's use of 
core factors could facilitate the misclassification of farmworkers, 
whose employment status is particularly dependent on the economic 
reality factors examining the skill and integrality of the work being 
performed. See also Joint Comment from the Center for Law and Social 
Policy & Governing for Impact (``CLASP & GFI'') (same).
    Other commenters supported the 2021 IC Rule's use of core factors 
and did not agree with the Department's proposal to change the 2021 IC 
Rule's analysis. Pointing to the Department's review of appellate case 
law described in the 2021 IC Rule preamble,\122\ several commenters 
stated that the elevation of the control and opportunity for profit or 
loss factors was fully consistent with the outcome of FLSA court 
decisions, if not their explicit reasoning. See, e.g., Associated 
Builders and Contractors (``ABC''); Coalition to Promote Independent 
Entrepreneurs (``CPIE''); Flex; FSI. Several commenters, like the Club 
for Growth, Flex, and Modern Economy Project (``MEP'') agreed with the 
2021 IC Rule's determination that the control and the opportunity for 
profit or loss factors ``drive at the heart'' of economic 
dependence.\123\ CWI asserted that ``it is simply inaccurate that no 
court has determined, as a general rule, that any core factor should be 
afforded greater weight in determining whether an individual is an 
[employee].'' See also CPIE.
---------------------------------------------------------------------------

    \122\ See 86 FR 1196-98.
    \123\ Id. at 1196.
---------------------------------------------------------------------------

    Having considered the comments, the Department continues to believe 
that the 2021 IC Rule was in tension with the Act, judicial precedent, 
and congressional intent. As the Department explained in the NPRM, 
there is no statutory basis for such a predetermined weighting of the 
factors and the Department is concerned that prioritizing two core 
factors over other factors may not fully account for the Act's broad 
definition of ``employ,'' as interpreted by the courts. The Department 
agrees with those commenters that noted that the elevation of two core 
factors improperly narrowed the analysis of the relevant facts, thereby 
reducing the scope of the FLSA's protections. For example, if facts 
relevant to the control and opportunity for profit or loss factors both 
point to independent contractor status for a particular worker but 
weakly so, those factors should not be presumed to carry more weight 
than stronger factual findings under other factors (e.g., the existence 
of a lengthy working relationship under the ``permanence'' factor and 
the performance of work that does not require specialized skills and is 
an integral part of the business), which would indicate that the worker 
is an employee.
    Moreover, the Department is not aware of any court that has, as a 
general rule, elevated any one economic reality factor or subset of 
factors above others, despite receiving several comments suggesting 
that there was such case law. The 2021 IC Rule did not cite or rely on 
any particular decision where a court announced such a general rule 
predetermining the weight of some of the economic reality factors. 
Further, the Department has examined cases raised by commenters in 
support of the core factor analysis and none stand for the proposition 
that a predetermined elevation of any factor or set of factors is 
appropriate under the economic reality analysis for worker 
classification under the FLSA. Rather, the cases cited by commenters 
are either relevant to a different statute such as the Americans with 
Disabilities Act (``ADA'') or Title VII, reference a joint employment 
analysis rather than an employee classification analysis, or have had 
excerpts taken out of context.\124\ While

[[Page 1651]]

courts and the Department may focus on some relevant factors more than 
others when analyzing a particular set of facts and circumstances, this 
does not mean that it is possible or permissible to derive from these 
fact-driven decisions universal rules regarding which factors deserve 
more weight than the others when the courts themselves have not set 
forth any such universal rules despite decades of opportunity.
---------------------------------------------------------------------------

    \124\ For example, although some commenters cited Walsh v. 
Medical Staffing of America, that case explicitly stated that ``[n]o 
single factor in the six-factor test is dispositive as `the test is 
designed to capture the economic realities of the relationship 
between the worker and the putative employer.' '' 580 F. Supp. 3d 
216, 229 (E.D. Va. 2022) (quoting McFeeley, 825 F.3d at 241). The 
Medical Staffing court's reference to Smith v. CSRA, 12 F.4th 396, 
413 (4th Cir. 2021), is unpersuasive since that case addressed 
employment status under the Americans with Disabilities Act, not the 
FLSA. See CSRA, 12 F.4th at 412-13. Other cases cited by commenters 
in support of core factors are inapposite. See Brown v. BCG Attorney 
Search, No. 12 C 9596, 2013 WL 6096932, at *1 (N.D. Ill. Nov. 20, 
2013) (citing Knight v. United Farm Bureau Mut. Ins. Co., 950 F.2d 
377, 378 (7th Cir. 1991), which concerned Title VII not the FLSA); 
Meyer v. U.S. Tennis Ass'n, No. 1:11-cv-06268 (ALC)(MHD), 2014 WL 
4495185, at *6 (S.D.N.Y. Sept. 11, 2014) (citing Wadler v. Eastern 
Coll. Athletic Conference, No. 00-civ-5671, 2003 WL 21961119, at *2 
(S.D.N.Y. Aug. 14, 2003), a Title VII case not an FLSA case); see 
also Herman v. RSR Sec. Servs. Ltd., 172 F.3d 132, 135 (2d Cir. 
1999) (joint employment not worker classification); Zheng v. Liberty 
Apparel Co. Inc., 355 F.3d 61 (2d Cir. 2003) (joint employment not 
worker classification); Razak v. Uber Technologies, Inc., 951 F.3d 
137, 145 (3d Cir. 2020) (making the uncontroversial statement that 
the control factor ``is highly relevant to the FLSA analysis'' while 
also reaffirming the Third Circuit's statement that ``neither the 
presence nor absence of any particular factor is dispositive'' and 
that ``courts should examine the circumstances of the whole 
activity'' (quoting DialAmerica, 757 F.2d at 1382)).
---------------------------------------------------------------------------

    The Supreme Court has emphasized that employment status under the 
economic reality test turns upon ``the circumstances of the whole 
activity,'' rather than ``isolated factors.'' \125\ Federal appellate 
courts have repeatedly cautioned against a mechanical or formulaic 
application of the economic reality test,\126\ and specifically warn 
that it `` `is impossible to assign to each of these factors a specific 
and invariably applied weight.' '' \127\ The 2021 IC Rule's elevation 
of two ``core factors'' was also in tension with judicial precedent, 
expressed by the Supreme Court and federal courts of appeals, that no 
single factor in the analysis is dispositive.\128\ Thus, the 2021 IC 
Rule's predetermined and mechanical weighting of factors was not 
consistent with how courts have, for decades, applied the economic 
reality analysis.\129\
---------------------------------------------------------------------------

    \125\ Rutherford, 331 U.S. at 730; see also Silk, 331 U.S. at 
716, 719 (denying the existence of ``a rule of thumb to define the 
limits of the employer-employee relationship'' and determining 
employment status based on ``the total situation'').
    \126\ See, e.g., Parrish, 917 F.3d at 380 (``And, obviously, the 
factors should not `be applied mechanically.' '') (quoting Brock v. 
Mr. W Fireworks, Inc., 814 F.2d 1042, 1043-44 (5th Cir. 1987)); 
Superior Care, 840 F.2d at 1059 (``Since the test concerns the 
totality of the circumstances, any relevant evidence may be 
considered, and mechanical application of the test is to be 
avoided.'').
    \127\ Parrish, 917 F.3d at 380 (quoting Hickey, 699 F.2d at 
752); see also Scantland, 721 F.3d at 1312 n.2 (``The weight of each 
factor depends on the light it sheds on the putative employee's 
dependence on the alleged employer, which in turn depends on the 
facts of the case.'') (quoting Santelices, 147 F. Supp. 2d at 
1319)).
    \128\ See, e.g., Silk, 331 U.S. at 716 (explaining that ``[n]o 
one [factor] is controlling'' in the economic realities test); 
Morrison, 253 F.3d at 11 (``No one factor standing alone is 
dispositive and courts are directed to look at the totality of the 
circumstances and consider any relevant evidence.''); Dole v. Snell, 
875 F.2d 802, 805 (10th Cir. 1989) (``It is well established that no 
one of these factors in isolation is dispositive; rather, the test 
is based upon a totality of the circumstances.''); Lauritzen, 835 
F.2d at 1534 (``Certain criteria have been developed to assist in 
determining the true nature of the relationship, but no criterion is 
by itself, or by its absence, dispositive or controlling.''); Selker 
Bros., 949 F.2d at 1293 (``It is a well-established principle that 
the determination of the employment relationship does not depend on 
isolated factors . . . neither the presence nor the absence of any 
particular factor is dispositive.'').
    \129\ See McFeeley, 825 F.3d at 241 (``While a six-factor test 
may lack the virtue of providing definitive guidance to those 
affected, it allows for flexible application to the myriad different 
working relationships that exist in the national economy. In other 
words, the court must adapt its analysis to the particular working 
relationship, the particular workplace, and the particular industry 
in each FLSA case.'').
---------------------------------------------------------------------------

    Regarding comments relying on the 2021 IC Rule's reference to an 
appellate case law analysis to support the elevation of core factors, 
the Department has carefully reconsidered the cases cited in the 2020 
NPRM and 2021 IC Rule in support.\130\ The appellate cases relied on in 
the 2020 NPRM \131\ and 2021 IC Rule to support the 2021 IC Rule's 
creation of ``core factors'' do not, themselves, elevate these two 
factors--rather, the 2021 IC Rule made assumptions about the reasoning 
behind the courts' decisions that are not clear from the decisions 
themselves and in some cases are contrary to the decisions' 
instructions that the test should not be applied in a mechanical 
fashion.\132\ In fact, most of the decisions cited as supporting a 
``core factor'' analysis based on the case law review explicitly deny 
assigning any predetermined weight to these factors, and instead state 
that they considered the factors as part of an analysis of the whole 
activity, with no determinative single factor.\133\ Particularly when 
viewed in the context of repeated statements from the courts that no 
one factor in the economic reality test is dispositive, divining from 
the cases a conclusion that is the exact opposite from what the courts 
say that they are doing is not persuasive. The Department now believes 
that the 2020 NPRM and 2021 IC Rule's discussion of the case law in 
support of the core factors improperly simplified the courts' analysis 
in an attempt to quantify the probative value of certain factors in a 
manner that is facially inconsistent with the decisions themselves.
---------------------------------------------------------------------------

    \130\ The 2021 IC Rule referenced on several occasions a review 
of appellate case law since 1975 to justify its elevation of two 
``core'' factors. See 86 FR at 1194, 1196-97, 1198, 1202, 1240.
    \131\ 85 FR 60619.
    \132\ Federal courts of appeals have repeatedly cautioned 
against the ``mechanical application'' of the economic reality 
factors, including in the cases cited in support of the 
predetermined elevation of core factions. See, e.g., Saleem v. Corp. 
Transp. Grp., Ltd., 854 F.3d 131, 139 (2d Cir. 2017) (``Relevant 
FLSA precedent, despite endorsing the Silk factors, cautions against 
their `mechanical application.' '') (quoting Superior Care, 840 F.2d 
at 1059). And as explained herein, courts of appeals make clear that 
the analysis should draw from the totality of circumstances, with no 
single factor being determinative by itself.
    \133\ See, e.g., Hobbs, 946 F.3d at 829 (``No single factor is 
determinative. 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.'') (quotation marks 
omitted) (citing Hopkins v. Cornerstone Am., 545 F.3d 338, 343 (5th 
Cir. 2008)); Parrish, 917 F.3d at 380 (noting that no one factor is 
determinative and ``obviously, the factors should not `be applied 
mechanically' '') (quoting Mr. W Fireworks, 814 F.2d at 1043); 
Saleem, 854 F.3d at 139-40 (explaining that employment relationships 
are determined by the circumstances of the whole activity); 
McFeeley, 825 F.3d at 241 (``No single factor is dispositive,--all 
six are part of the totality of circumstances presented.'') (citing 
Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d 668, 675 
(1st Cir. 1998)) (internal citation and quotation marks omitted); 
Barlow v. C.R. England, Inc., 703 F.3d 497, 506 (10th Cir. 2012) (`` 
`None of the factors alone is dispositive; instead, the court must 
employ a totality-of-the-circumstances approach.' '') (citing Baker 
v. Flint Eng'g & Const. Co., 137 F.3d 1436, 1440 (10th Cir. 1998)); 
Schultz v. Capital Int'l Sec., Inc., 466 F.3d 298, 305 (4th Cir. 
2006) (``No single factor is dispositive; again, the test is 
designed to capture the economic realities of the relationship 
between the worker and the putative employer.'').
---------------------------------------------------------------------------

    Additionally, while there are certainly many cases in which the 
classification decision made by the court aligns with the 
classification indicated by the control and opportunity for profit or 
loss factors, the 2021 IC Rule did not identify any cases stating that 
those two factors are ``more probative'' of a worker's classification 
than other factors. Rather, the 2021 IC Rule acknowledged that there 
are cases in which the classification suggested by the control factor 
did not align with the worker's classification as determined by the 
courts.\134\ The Department has also identified appellate cases in 
which the classification suggested by the profit or loss factor, for 
example, did not align with the worker's classification as determined 
by the courts or in which that factor was simply not addressed due to 
the fact-specific nature of the analysis. See, e.g., Nieman v. Nat'l 
Claims Adjusters, Inc., 775 F. App'x 622, 625 (11th Cir. 2019) 
(concluding that worker was an independent contractor without 
considering profit or loss or integral factors because facts were not 
presented on those issues); Simpkins v. DuPage Hous. Auth., 893 F.3d 
962, 967 (7th Cir. 2018) (reversing the district court's summary 
judgment decision and remanding case for determination of employee 
status without addressing opportunity for profit or loss); Thomas v. 
TXX Servs., Inc., 663 F. App'x 86, 90 (2d Cir. 2016) (reversing summary 
judgment on the issue of plaintiffs' status as employees

[[Page 1652]]

under the FLSA but not discussing opportunity for profit or loss); 
Meyer v. U.S. Tennis Ass'n, 607 F. App'x 121, 123 (2d Cir. 2015) 
(affirming summary judgment decision and concluding that district court 
did not err in determining that plaintiffs were independent contractors 
where district court found that the profit or loss factor ``cuts both 
ways'') (quoting Meyer, 2014 WL 4495185, at *7); Johnson v. Unified 
Gov't of Wyandotte Cnty./Kansas City, Kansas, 371 F.3d 723, 730 (10th 
Cir. 2004) (affirming jury verdict that workers were independent 
contractors despite concluding that ``[t]he jury could have viewed [the 
profit or loss] factor as not favoring either side''); Donovan v. 
Tehco, Inc., 642 F.2d 141, 143 (5th Cir. 1981) (noting that the worker 
``could elect to be paid by the hour or by the job and thus profit from 
foresight'' but that this and other facts were not sufficient ``to 
counterbalance the strong indicia of employee status''). As such, it is 
clear that mechanically deconstructing certain court decisions and 
considering what those courts have said about only two factors--even 
when the courts did not present their analyses in this manner--ignores 
the broader approach that most courts have taken in determining worker 
classification.
---------------------------------------------------------------------------

    \134\ See 86 FR 1196-97.
---------------------------------------------------------------------------

    Moreover, it is necessarily the case when applying a multifactor 
balancing test that when any two factors of that test both point toward 
the same outcome, the probability of that indicated outcome aligning 
with the ultimate outcome increases. The 2021 IC Rule did not address 
whether a different combination of two factors would yield similar 
results. Yet, an in-depth review of the case law indicates that it 
would yield similar results, as most of the cases cited in the 2020 
NPRM and 2021 IC Rule in support of its core factor analysis had 
multiple factors pointing in the same direction.\135\ This further 
underscores the unduly narrow focus on two ``core factors'' in the 2021 
IC Rule.
---------------------------------------------------------------------------

    \135\ Unsurprisingly, most of the cases cited in support of the 
core factor analysis had multiple factors pointing in the same 
direction, not only control and opportunity for profit or loss. See, 
e.g., Hobbs, 946 F.3d at 830-36 (all factors pointing in same 
direction); Verma v. 3001 Castor, Inc., 937 F.3d 221, 230-32 (3d 
Cir. 2019) (control, profit or loss, integral, skill, and investment 
all pointing in same direction); Gayle v. Harry's Nurses Registry, 
Inc., 594 F. App'x 714, 717-18 (2d Cir. 2014) (control, profit or 
loss, and integral all pointing in same direction); Schultz, 466 
F.3d at 307-09 (control, profit or loss, investment, permanence, 
integral all pointing in same direction); Parrish, 917 F.3d at 379-
388 (control, profit or loss, skill, permanence all pointing same 
direction); Saleem, 854 F.3d at 140-48 (control, profit or loss, 
investment, permanence all pointing same direction); Mid-Atl. 
Installation Servs., 16 F. App'x at 106-08 (control, profit or loss, 
investment, skill all pointing same direction); Off Duty Police, 915 
F.3d at 1059-1062 (profit or loss, investment, permanence, skill, 
and integral all pointing in same direction); McFeeley, 825 F.3d at 
243-44 (control, profit or loss, investment, skill, and integral all 
pointing in same direction); Eberline v. Media Net, L.L.C., 636 F. 
App'x 225, 228-29 (5th Cir. 2016) (control, profit or loss, 
investment, and skill all pointing in same direction).
---------------------------------------------------------------------------

    In any event, the 2021 IC Rule significantly altered the 
``control'' and ``opportunity for profit or loss'' factors, changing 
what facts may be considered for each, as discussed more fully in 
section V. For example, contrary to the approach taken by most courts, 
the 2021 IC Rule placed a significant focus on the worker's control 
rather than the potential employer's control and recast the opportunity 
for profit or loss factor as indicating independent contractor status 
based on the worker's initiative or investment. Thus, irrespective of 
whether control and opportunity for profit or loss were more frequently 
aligned with the ultimate result in prior appellate cases, the new 
framing of these factors, as redefined in the 2021 IC Rule, set forth a 
new standard for analysis that is unsupported by precedent.
2. The Role of Control in the 2021 IC Rule's Analysis
    The 2021 IC Rule identified ``the nature and degree of control over 
the work'' as one of two core factors given ``greater weight'' in the 
independent contractor analysis.\136\ In the NPRM, the Department 
expressed concern that elevating the importance of control in every 
FLSA employee or independent contractor analysis brings the 2021 IC 
Rule closer to the common law control test that courts have rejected 
when interpreting the Act. Accordingly, the NPRM proposed restoring 
control to one of six factors to be considered, with no single factor 
being determinative.
---------------------------------------------------------------------------

    \136\ Id. at 1246-47 (Sec.  795.105(c), (d)).
---------------------------------------------------------------------------

    Commenter views on the 2021 IC Rule's emphasis on control 
overlapped with those responding to its creation of ``core factors.'' 
For example, several commenters in support of the NPRM asserted that 
elevating the role of control makes the 2021 IC Rule's analysis too 
similar to a common law control test. See, e.g., AFL-CIO; LIUNA; NABTU; 
State AGs. Lawyers' Committee for Civil Rights Under Law & the 
Washington Lawyers' Committee for Civil Rights and Urban Affairs 
(``LCCRUL & WLC'') discussed court decisions where workers were found 
to be misclassified employees under the economic reality test despite a 
lack of ``actual control'' exercised by the employer, implying that the 
outcomes might have been different if courts had applied the 2021 IC 
Rule. NELP requested that the Department further deemphasize the 
relevance of control, asserting that ``the `control' factor is furthest 
removed from the statutory `suffer or permit' language, and that an 
absence of control is not particularly telling given that language.'' 
Finally, several commenters asserted that the 2021 IC Rule's elevation 
of control is doubly problematic in view of alterations to the control 
factor which, in commenters' views, make the factor less likely to 
indicate employee status. See NWLC (``[T]he 2021 Rule not only gave the 
`control' factor outsized importance, but impermissibly narrowed the 
concept of control itself by focusing on control over work exercised by 
the individual worker, as opposed to the right to control by an 
employer, and defining control primarily with reference to 
considerations that are often disregarded as irrelevant by courts.''); 
see also AFL-CIO; International Brotherhood of Teamsters (``IBT'').
    As discussed earlier, commenters opposed to the NPRM stated that 
the control factor should be given added weight in the economic reality 
test (along with the opportunity for profit or loss factor), due to its 
purported strong correlation with the ultimate outcomes of prior FLSA 
court decisions. See, e.g., ABC; CPIE; Flex; FSI. CWI commented that 
the 2021 IC Rule's elevation of control served a ``definitional 
purpose,'' identifying control as a foundational aspect of the 
``dependence'' in ``economic dependence.'' See also Club for Growth 
(``[Because control is] virtually synonymous with what it means to be 
an independent businessperson . . . it makes sense that [it] typically 
matter[s] more than, for instance, the duration of a business 
relationship or a worker's level of skill.''). The U.S. Chamber 
commented that the 2021 IC Rule ``rightly elevated the importance of 
control'' because ``courts and scholars have found . . . no functional 
difference between'' the economic reality and common law control tests. 
See also Club for Growth (``It would be odd to say that control, which 
underpins the concept of employment and agency law generally, should 
have no more weight than, say, whether the worker bought his own 
boots.'').
    As noted in the NPRM, although the 2021 IC Rule's analysis 
regarding who is an employee and who is an independent contractor was 
not the same as the common law control analysis, elevating the 
importance of control in every FLSA employee or independent contractor 
analysis brought the 2021 Rule closer to

[[Page 1653]]

the common law control test that courts have rejected when interpreting 
the Act.\137\ The Supreme Court has repeatedly stated that the Act 
establishes a broader scope of employment for FLSA purposes than under 
a common law analysis focused on control.\138\ The Department remains 
concerned that the outsized role of control under the 2021 IC Rule's 
analysis was contrary to the Act's text and case law interpreting the 
Act's definitions of employment and as such disagrees with commenters 
who suggested that control is essentially synonymous with economic 
dependence and should be given more weight. The Department, however, 
also disagrees with NELP that the FLSA's ``suffer or permit'' standard 
suggests that control should be afforded less weight than other 
economic reality factors, as courts have similarly not adopted such an 
approach.
---------------------------------------------------------------------------

    \137\ The Department previously identified this concern as one 
of the primary reasons for the Withdrawal Rule. See 86 FR 24311.
    \138\ See Darden, 503 U.S. at 324-26; Portland Terminal, 330 
U.S. at 150-51; and Rutherford, 331 U.S. at 728.
---------------------------------------------------------------------------

3. The 2021 IC Rule Improperly Altered Several Factors by Precluding 
the Consideration of Relevant Facts
    The NPRM stated that the Department remained concerned that the 
2021 IC Rule's preclusion of certain facts from being considered under 
the factors improperly narrowed the economic reality test and did not 
allow for a full consideration of all facts which might be relevant to 
determining whether a worker is economically dependent upon an employer 
for work or in business for themself. Examples of such narrowing from 
the 2021 IC Rule include: (1) stating that ``control'' indicative of an 
employment relationship must involve an employer's ``substantial 
control over key aspects of the performance of the work,'' excluding 
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;'' \139\ (2) making the ``opportunity for profit or 
loss'' factor indicate independent contractor status based on either 
the worker's initiative or investment (even if either a lack of 
initiative or lack of investment suggests that the worker is an 
employee); \140\ (3) disregarding the employer's investments; \141\ (4) 
disregarding the importance or centrality of a worker's work to the 
employer's business; \142\ and (5) downplaying the employer's reserved 
right or authority to control the worker.\143\ In each of these ways, 
the 2021 IC Rule limited the scope of facts and considerations 
comprising the analysis of whether the worker is an employee or 
independent contractor.
---------------------------------------------------------------------------

    \139\ 86 FR 1246-47 (Sec.  795.105(d)(1)(i)).
    \140\ Id. at 1247 (Sec.  795.105(d)(1)(ii)) (``While 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.'').
    \141\ Id.; see also id. at 1188 (``[T]he 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.'').
    \142\ Id. at 1247 (Sec.  795.105(d)(2)(iii)); see also id. at 
1248 (noting through an example in Sec.  795.115(b)(6)(ii) that 
``[i]t is not relevant . . . that the writing of articles is an 
important part of producing newspapers''); accord id. at 1195 
(responding to commenters regarding the Department's decision to 
shift to an ``integrated unit of production'' analysis).
    \143\ See id. at 1246-47 (advising, in Sec.  795.105(d)(1)(i), 
that the control factor indicates employment status if a potential 
employer ``exercises substantial control over key aspects of the 
performance of the work'') (emphasis added); id. at 1247 (advising, 
in Sec.  795.110, that ``a business' contractual authority to 
supervise or discipline an individual may be of little relevance if 
in practice the business never exercises such authority''); see also 
id. at 1203-04 (same in response to commenters).
---------------------------------------------------------------------------

    Numerous commenters opined on the 2021 IC Rule's general narrowing 
of the economic reality test and the extent to which it justifies this 
rulemaking. For example, IBT stated that ``[t]he current rule conflicts 
with the intended broad definition and coverage of the [FLSA] and 
adopts an impermissibly narrow test for determining employee status.'' 
See also, e.g., AFL-CIO (``Overall, the 2021 IC Rule contracted the 
coverage of the FLSA, strongly contrary to congressional intent and 
Supreme Court precedent.''); Outten & Golden LLP (``The January 2021 
rule restricts FLSA coverage to a smaller subset of workers than those 
whose work is `suffer[ed] or permit[ted]' under the statute's expansive 
coverage.''). While some commenters focused on the 2021 IC Rule's 
elevation of ``control'' as a core factor, other commenters 
additionally addressed the rule's alteration of individual economic 
factors. See, e.g., LCCRUL & WLC (describing the 2021 IC Rule as 
``elevating facts tending to show independent contractor status, while 
reducing the probative weight of other factors and downplaying facts 
tending to show employee status''); NECA & IBEW (``The 2021 IC Rule 
also narrowed the facts to be considered under the `non-core' 
factors.''). The AFL-CIO and LCCRUL & WLC both identified two changes 
to the factors from the 2021 IC Rule as particularly problematic: the 
diminution of an employer's reserved right to control, and the 
alteration of the ``integral part'' factor (excluding any consideration 
of the importance or centrality of the work to the employer).
    Other commenters defended the merit of the 2021 IC Rule's five 
economic reality factors, as discussed in greater detail in section V. 
As a general matter, these commenters praised the 2021 IC Rule's 
description of the economic reality factors for reducing overlap and 
redundancy compared to the approach taken by courts, stating that such 
changes brought greater clarity to the regulated community. See, e.g., 
American Hotel & Lodging Association; Center for Workplace Compliance 
(``CWC''); FSI; MEP; National Retail Federation and the National 
Council of Chain Restaurants (``NRF & NCCR''). Discussing examples such 
as the ``integrated unit'' factor's exclusion of the importance or 
centrality of the individual's work to the potential employer's 
business,\144\ CWI asserted that the 2021 IC Rule ``ensures that each 
factor is properly tailored to address the ultimate determinant of 
employee or independent contractor status--economic dependence.''
---------------------------------------------------------------------------

    \144\ See 86 FR 1247 (Sec.  795.105(d)(2)(iii)).
---------------------------------------------------------------------------

    Having considered the comments on this issue, the Department 
believes that the 2021 IC Rule altered various economic reality factors 
in ways that improperly narrowed the economic reality test, because 
such alterations minimized or excluded facts which in many cases are 
relevant for determining whether a worker is economically dependent 
upon an employer for work or in business for themself. The Department 
remains of the view that the 2021 IC Rule's alteration of several 
economic reality factors provides another important justification for 
this rulemaking. Commenter feedback on the proper articulation of each 
factor in the economic reality test is described in greater detail in 
section V.

B. Confusion and Uncertainty Introduced by the 2021 IC Rule

    The 2021 IC Rule stated that it sought to ``significantly clarify 
to stakeholders how to distinguish between employees and independent 
contractors under the Act.'' \145\ However, as previously 
discussed,\146\ the 2021 IC Rule introduced a new analysis regarding 
employee or independent contractor classification that was materially 
different from the longstanding analysis applied by courts and that 
included

[[Page 1654]]

several new concepts that neither courts nor the Department had 
previously applied. This final rule (and particularly rescission of the 
2021 IC Rule) is needed in part because of the concern that the 2021 IC 
Rule's new analysis and concepts did not provide the intended clarity.
---------------------------------------------------------------------------

    \145\ Id. at 1168.
    \146\ See supra section III.A.
---------------------------------------------------------------------------

    First, as the Department explained in the NPRM, because the 2021 IC 
Rule departed from courts' longstanding precedent, it is not clear 
whether courts would have at some point adopted the Rule's analysis 
were it not being rescinded as part of this rulemaking. The Department 
further explained that this question could have taken years of 
appellate litigation in different federal courts of appeals to sort 
out, resulting in more uncertainty as to the applicable economic 
reality test. Businesses operating nationwide would have had to 
familiarize themselves with multiple standards for determining who is 
an employee under the FLSA. This litigation and these multiple 
standards would have likely caused confusion and uncertainty.\147\
---------------------------------------------------------------------------

    \147\ See generally 87 FR 62229.
---------------------------------------------------------------------------

    Second, as the Department noted in the NPRM, the 2021 IC Rule would 
have introduced several ambiguous terms and concepts into the analysis 
for determining whether a worker is an employee under the FLSA or an 
independent contractor. For example, those following the guidance 
provided in the 2021 IC Rule had to grapple with what it means in 
practice for two factors to be ``core'' factors and entitled to greater 
weight. In addition, they had to determine, in cases where the two core 
factors point to the same classification, how ``substantial'' the 
likelihood is that they point toward the correct classification if the 
additional factors point toward the other classification. Additionally, 
as explained in the NPRM, the 2021 IC Rule did not specify whether the 
``additional factors'' that could be considered under that rule had 
less probative value (or weight) than the three non-``core'' factors. 
Assuming that they did, the 2021 IC Rule would have essentially 
resulted in a three-tiered multifactor balancing test, with the 
``core'' factors given more weight than enumerated non-``core'' 
factors, and the enumerated non-``core'' factors given more weight than 
the ``additional'' factors. The 2021 IC Rule would have also improperly 
collapsed some factors into each other, so that, for example, 
investment and initiative would have been considered only as a part of 
the opportunity for profit or loss factor, requiring courts and the 
regulated community to reconsider how they have long applied those 
factors. These new concepts, this new weighing of the factors, and this 
new treatment of the factors would have likely caused confusion and 
uncertainty.\148\
---------------------------------------------------------------------------

    \148\ See generally id.
---------------------------------------------------------------------------

    In sum, the NPRM explained that the 2021 IC Rule would have 
complicated rather than simplified the analysis for determining whether 
a worker is an employee or independent contractor under the FLSA, which 
is further justification for this final rule to rescind and replace the 
2021 IC Rule.
    As a threshold matter, commenters disagreed over whether courts 
would adopt and apply the 2021 IC Rule's analysis if it were left in 
place. Multiple commenters agreed with the Department's concern, as 
described in the NPRM, that courts might not adopt or apply the 2021 IC 
Rule, which they criticized as an unlawfully narrow interpretation of 
the FLSA. See, e.g., LIUNA (discussing ``the clear illegality of the 
2021 Rule''); NELP (describing the 2021 IC Rule as ``a legally 
incorrect standard'' that ``merits neither adherence, agency deference, 
nor smallest persuasive effect''); UBC (``The 2021 Rule is so 
abundantly flawed that it is ripe for challenge under the 
Administrative Procedure Act.''). The State AGs commented that ``it 
could take years of litigation to determine if and how courts will 
adopt'' the 2021 IC Rule's analysis. See also SWACCA (``Judicial 
disregard of the January 2021 Rule's interpretation of the FLSA would 
create considerable confusion.''). UBC elaborated that uncertainty over 
judicial adoption of the 2021 IC Rule poses a significant legal risk to 
businesses, as ``any employer relying on the 2021 Rule faces the very 
real possibility that their presumed compliance with the FLSA would in 
fact be the opposite.'' See also NECA & IBEW (asserting that the 2021 
IC Rule does not provide ``certainty and clarity'' for businesses 
because courts will continue applying a broader economic reality test). 
Notwithstanding their concerns with some aspects of the NPRM's proposed 
guidance, some independent contractors and business stakeholders shared 
the Department's concerns over whether courts would actually apply the 
2021 IC Rule and the attendant risks that they would not. See, e.g., 
Ho-Chunk, Inc. (``Ho-Chunk supports the Department's revision of the 
2021 IC Rule as we agree that [it] would have a confusing and 
disruptive effect due to its deviation from established case law.'').
    Commenters opposed to the NPRM, however, expressed confidence that, 
if left in place, the 2021 IC Rule would be adopted by courts over time 
and promote greater uniformity in the law. See, e.g., IMC Companies 
(``After decades of uncertainty and imprecise applications of the law, 
the [2021 IC Rule] was on the cusp of ushering in a new era of 
streamlined analysis and consistent court decisions across all 
jurisdictions.''); NRF & NCCR (``If left in place, [the 2021 IC Rule] 
would undoubtedly increase consistency.''). Several of these commenters 
asserted that the Department's concerns about the 2021 IC Rule's 
reception by courts were speculative, unsupported by evidence, and 
premature. See, e.g., American Bakers Association; CPIE; Freedom 
Foundation. A comment from two fellows at the Heritage Foundation 
asserted that courts would adopt the 2021 IC Rule given the deferential 
standard of review afforded to agency rules that fill statutory gaps 
under Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 
468 U.S. 837 (1984).\149\ Other commenters disputed the relevance of 
the Department's concern over the 2021 IC Rule's adoption by courts, 
asserting that courts were already applying different versions of the 
economic reality test and arriving at different outcomes prior to the 
2021 IC Rule. See, e.g., ASTA; Independent Women's Forum (``IWF''); see 
also Club for Growth (``Without supporting experience, the critique is 
no more than the same argument that could be leveled against virtually 
any regulation.''). Finally, many commenters questioned the likelihood 
that courts would adopt the NPRM's proposed guidance, which they viewed 
as less consistent with the FLSA and judicial precedent than the 2021 
IC Rule. See, e.g., CPIE; FSI; National Association of Manufacturers 
(``NAM''); Workplace Policy Institute of Littler Mendelson, P.C. 
(``WPI'').
---------------------------------------------------------------------------

    \149\ A far larger number of commenters--including those both 
supportive and critical of the NPRM--asserted that any regulatory 
guidance issued by the Department addressing employee or independent 
contractor status under the FLSA would be a non-binding 
``interpretive rule,'' given the Department's lack of explicit 
rulemaking authority on the topic. See, e.g., Club for Growth; CWC; 
NELP; Winebrake & Santillo, LLC; WPI.
---------------------------------------------------------------------------

    Having considered the comments, the Department continues to have 
serious concerns about the extent to which federal courts would have 
adopted the 2021 IC Rule, were it not being rescinded by this 
rulemaking. The Department is unaware of a single federal court that 
has applied the 2021 IC Rule's analysis. To the contrary, to the 
Department's knowledge, only a few court decisions have even considered 
the 2021 IC Rule and all expressly

[[Page 1655]]

declined to apply its analysis.\150\ Other courts that have considered 
employee or independent contractor classification under the FLSA have 
continued applying a broader economic reality test consistent with 
their own longstanding precedent.\151\
---------------------------------------------------------------------------

    \150\ See Wallen v. TendoNova Corp., No. 20-cv-790-SE, 2022 WL 
17128983, at *4 (D.N.H. Nov. 22, 2022) (noting that the 2021 IC Rule 
``is not controlling . . . and may not be valid''); Harris v. 
Diamond Dolls of Nevada, LLC, No. 3:19-cv-00598-RCJ-CBC, 2022 WL 
4125474, at *2 (D. Nev. July 26, 2022) (denying defendants' motion 
to reconsider the court's earlier ruling that plaintiffs were FLSA-
covered employees in part because the 2021 IC Rule is ``not 
binding''); Badillo-Rubio v. RF Constr., LLC, No. 18-CV-1092, 2022 
WL 821421, at *13 (M.D. La. Mar. 17, 2022) (rejecting plaintiff's 
argument that the court should apply the 2021 IC Rule's ``integrated 
production'' factor as ``unnecessary'' in determining that plaintiff 
was an employee). The Wallen decision is notable because, as the 
court explained, the First Circuit has neither adopted nor rejected 
a particular test, and thus the court was not bound by any prior 
circuit-level precedent. Still, the Wallen court declined to apply 
the 2021 IC Rule and applied ``the standard six-factor test.'' 2022 
WL 17128983, at *3-4.
    \151\ See, e.g., Acevedo v. McCalla, No. MJM-22-1157, 2023 WL 
1070436, at *3-5 (D. Md. Jan. 27, 2023) (relying on the Fourth 
Circuit's economic reality test to find that the worker failed to 
state a claim for relief under the FLSA without reference to 2021 IC 
Rule); Brunet v. GB Premium OCTG Servs. LLC, No. 4:21-CV-1600, 2022 
WL 17730576, at *5-10 (S.D. Tex. Dec. 1, 2022) (applying the Fifth 
Circuit's economic reality test without reference to 2021 IC Rule), 
report and recommendation adopted, 2023 WL 2186441 (Feb. 23, 2023); 
Ajquiixtos v. Rice & Noodles, Inc., No. 4:21-CV-01546, 2022 WL 
7055396, at *2-4 (S.D. Tex. Oct. 12, 2022) (relying on the Fifth 
Circuit's economic reality test and not referencing the 2021 IC Rule 
to conclude that a worker was an employee and not an independent 
contractor); Black v. 7714 Ent., Corp., No. 21-CV-4829, 2022 WL 
4229260, at *6-8 (E.D.N.Y. July 29, 2022), report and recommendation 
adopted, 2022 WL 3643969 (E.D.N.Y. Aug. 24, 2022) (relying on the 
Second Circuit's economic reality test to conclude that a worker is 
an employee and not an independent contractor without reference to 
the 2021 IC Rule); Hill v. Pepperidge Farm, Inc., No. 3:22-CV-97-
HEH, 2022 WL 3371321, at *2-5 (E.D. Va. Aug. 16, 2022) (relying on 
the Fourth Circuit's economic reality test to find that the worker 
has stated a claim for relief under the FLSA without reference to 
2021 IC Rule).
---------------------------------------------------------------------------

    The Department disagrees with commenter assertions that the 2021 IC 
Rule's analysis was more likely to be adopted by courts than the 
analysis proposed in the NPRM. The Department's analysis in this 
rulemaking is grounded in longstanding case law, while the new standard 
and new concepts introduced by the 2021 IC Rule were a very significant 
departure from that longstanding case law. For example, as previously 
discussed, the 2021 IC Rule created ``core'' factors that were 
automatically given greater weight in the analysis, contrary to how 
every appellate court has described the economic reality test.\152\ In 
line with the case law, this final rule has no ``core'' factors. 
Similarly, while every federal court of appeals that has applied the 
integral factor in an FLSA independent contractor case has examined 
whether the worker's work is an ``integral part'' of the potential 
employer's business,\153\ no circuit applies the 2021 IC Rule's 
narrower inquiry into ``whether the work is part of an integrated unit 
of production'' as the standard under this factor.\154\ And unlike the 
2021 IC Rule, all but two circuits share the approach of listing 
``investment'' and ``opportunity for profit and loss'' as separate 
economic reality factors, consistent with the Supreme Court's original 
listing of these factors in Silk.\155\
---------------------------------------------------------------------------

    \152\ See supra section III.A.1.
    \153\ See supra n.52.
    \154\ See infra, section V.C.5.
    \155\ 331 U.S. at 716. As discussed earlier, the Second and D.C. 
Circuit Courts of Appeals describe ``investment'' and ``opportunity 
for profit or loss'' as a single factor in the economic reality 
test. See supra n.58.
---------------------------------------------------------------------------

    Some commenters alleged that certain aspects of the NPRM's proposed 
guidance were departures from judicial precedent, such as its proposal 
that ``control implemented by the employer for purposes of complying 
with legal obligations, safety standards, or contractual or customer 
service standards may be indicative of control,'' \156\ and its 
proposed consideration of investments made by the potential employer as 
well as the worker.\157\ However, as the discussions of the control and 
investments factors in section V explain, this final rule's guidance on 
both issues is well-supported by the case law. Moreover, the Department 
has made meaningful changes in this final rule to aspects of its 
proposed guidance in response to comments, including the treatment of 
control exercised to comply with legal obligations and the 
consideration of investments made by the potential employer.\158\ The 
Department believes that such changes further align this final rule's 
guidance with the analysis presently applied by courts, providing 
greater certainty for interested parties.
---------------------------------------------------------------------------

    \156\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
    \157\ 87 FR 62275 (proposed Sec.  795.110(b)(2)).
    \158\ See infra, section V.C.
---------------------------------------------------------------------------

    Apart from the 2021 IC Rule's reception by courts, commenters also 
disagreed over whether the 2021 IC Rule's guidance brought clarity or 
confusion as a standalone matter. Some commenters asserted that the 
novelty of the 2021 IC Rule's analysis, for example, would have created 
confusion as compared to the longstanding analysis applied by courts. 
See, e.g., NELP (``By departing from decades of federal case law on the 
scope of the Act's protections, and by downplaying relevant facts of an 
employment relationship in the analysis, the 2021 IC Rule . . . creates 
more confusion for employers and workers alike.''); SWACCA (asserting 
that the ability to ``draw[] on 70 years of existing interpretations 
from the courts and Department of Labor guidance'' under the NPRM's 
guidance will ``save time and resources for all stakeholders compared 
to the January 2021 Rule's novel, untested weighted framework.'').
    In contrast, other commenters asserted that rescission and 
replacement of the 2021 IC Rule would reduce certainty and clarity. 
See, e.g., Americans for Prosperity Foundation (``AFPF''); Coalition of 
Business Stakeholders; NAM; Republican Members of Congress; SHRM; U.S. 
Chamber. Numerous commenters that preferred the 2021 IC Rule identified 
its establishment of core factors as that rule's most clarifying 
feature. See, e.g., Competitive Enterprise Institute (``CEI''); CWC; 
IWF; Landmark Legal Foundation; National Association of Women Business 
Owners (``NAWBO''); Raymond James Financial, Inc. (``Raymond James''). 
Some commenters additionally supported the 2021 IC Rule's elimination 
of purported redundant or overlapping considerations in various 
economic reality factors. See, e.g., FSI (criticizing the NPRM's 
proposed separation of the ``investment'' and ``opportunity for profit 
or loss'' factors as ``yet another way in which the [NPRM] . . . 
undo[es] the 2021 Rule's clarifying efforts to articulate an 
appropriately weighted test with less overlapping redundancy''); MEP.
    Having reviewed the comments, the Department continues to believe 
that the 2021 IC Rule introduced uncertainty regarding the applicable 
legal standard for determining whether a worker is an employee or an 
independent contractor under the FLSA, contrary to its stated intent. 
Prior to the 2021 IC Rule, there was certainty as to the applicable 
legal standard for determining whether a worker was an employee or 
independent contractor under the FLSA because federal courts of appeals 
applied a totality-of-the-circumstances, economic reality test that did 
not elevate any factors above the others. Despite slight variation in 
the exact number and phrasing of specific economic reality factors, 
courts and the Department generally examined the same economic reality 
factors. The 2021 IC Rule, however, injected uncertainty into this area 
of the law by putting forth new guidance that was at odds (for all of 
the reasons discussed herein) with

[[Page 1656]]

the substantive standard applied by courts. As a result of the 2021 IC 
Rule, the regulated community was confronted with inconsistent 
standards for interested parties to apply to determine a worker's 
status--the test from the 2021 IC Rule and the totality-of-the-
circumstances test in federal appellate case law.\159\ Leaving the 2021 
IC Rule in place would have risked greater confusion regarding its 
relation to well-settled circuit precedent. Thus, the 2021 IC Rule's 
new standard introduced uncertainty that did not exist before.\160\
---------------------------------------------------------------------------

    \159\ To the extent that there was any uncertainty around 
outcomes when applying federal appellate case law beyond what would 
be expected from any fact-specific test, the standard that courts 
and the Department would apply prior to the 2021 IC Rule was known. 
And with this rulemaking, the Department hopes to decrease any 
uncertainty around outcomes by providing detailed guidance about the 
application of each factor that is consistent with the case law, as 
opposed to the new concepts that the 2021 IC Rule introduced.
    \160\ The Department acknowledges that the 2021 IC Rule includes 
several important principles from the case law, such as: economic 
dependence is the ultimate inquiry, the list of economic reality 
factors is not exhaustive, and no single factor is determinative. 
However, as explained herein, the 2021 IC Rule was, on balance, a 
departure from the case law to an extent that it introduced 
uncertainty.
---------------------------------------------------------------------------

    Additionally, the Department continues to believe that the aspects 
of the 2021 IC Rule's analysis introduced confusion, making that rule's 
guidance vulnerable to misapplication. Confusion about how to apply the 
2021 IC Rule was evident in many of the comments submitted in 
opposition to the Department's proposal to rescind and replace that 
rule. For example, several commenters inaccurately described the 2021 
IC Rule as establishing a ``two-factor test,'' see, e.g., CEI; National 
Demolition Association (``NDA''), while others mistakenly assumed that 
non-core factors were only considered when the two core factors pointed 
to opposite classification outcomes. See, e.g., Information Technology 
& Innovation Foundation; News/Media Alliance (``N/MA''); Professional 
Golfers' Association of America (``PGA'').\161\ Some commenters 
appeared to conflate the reduced importance of non-core factors under 
the 2021 IC Rule's analysis with a reduced need to consider such 
factors at all. See, e.g., National Federation of Independent 
Businesses (``NFIB''); SHRM.\162\ Additionally, some commenters viewed 
the 2021 IC Rule's economic reality test, in its totality, as 
essentially the same as a common law control test.\163\ See The 
National Council of Agricultural Employers (asserting that common law 
definitions of independent contractor status ``are consistent with the 
2021 IC Rule''); U.S. Chamber (asserting that ``despite the ostensible 
variances between the economic realities and common law control tests, 
`there is no functional difference between' these tests'').
---------------------------------------------------------------------------

    \161\ The 2021 IC Rule explained that it rejected commenter 
requests to ``state that if the two core factors point towards the 
same classification, there is no need to consider any other 
factors'' because ``in some circumstances, the core factors could be 
outweighed by particularly probative facts related to other 
factors.'' 86 FR 1202.
    \162\ The 2021 IC Rule explained that ``there may be 
circumstances where one or more of the non-core factors, upon 
consideration, has little or no probative value.'' 86 FR 1202 
(emphasis added).
    \163\ Cf. 86 FR 1201 (``[T]he rule's standard for employment 
remains broader than the common law.''); see also id. at 1239 
(rejecting the adoption of a common law control test in the analysis 
of regulatory alternatives).
---------------------------------------------------------------------------

    Commenter confusion about the 2021 IC Rule is unsurprising because 
that rule set forth a novel analysis which has not been applied by any 
court. The confusion evident in the comments received reinforces the 
Department's assessment, as explained in the NPRM, that the 2021 IC 
Rule could have resulted in misapplication of the economic reality test 
and may have conveyed to employers that more workers could be 
classified as independent contractors than prior to the 2021 IC Rule.

C. Risks to Workers From the 2021 IC Rule

    In the NPRM, the Department explained that to the extent the 2021 
IC Rule's guidance resulted in the misclassification of employees as 
independent contractors, the resulting denial of FLSA protections could 
harm the affected workers. These protections include being paid at 
least the federal minimum wage for all hours worked, overtime 
compensation for hours worked over 40 in a workweek, and protection 
against retaliation for complaining about, for example, a violation of 
the FLSA. The Department further explained in the NPRM that the 2021 IC 
Rule did not fully consider these potential consequences for workers. 
The NPRM noted that this result could have a disproportionate impact on 
women and people of color, to the extent such workers are 
overrepresented in low-wage positions where misclassification is more 
likely.\164\ The NPRM further noted that women and people of color 
experience multiple types of economic inequities in the labor force, 
including gender and racial wage gaps and occupational segregation, and 
that the misclassification of these workers as independent contractors 
deprives them of wage and hour protections that could help alleviate 
some of this inequality.\165\
---------------------------------------------------------------------------

    \164\ See 87 FR 62230 (describing commenter feedback from the 
Withdrawal Rule asserting that ``misclassification is rampant in 
low-wage, labor-intensive industries where women and people of 
color, including Black, Latinx, and AAPI workers, as 
overrepresented'').
    \165\ Id.
---------------------------------------------------------------------------

    Many commenters, including worker advocacy groups, labor unions, 
and other stakeholders, shared views about the 2021 IC Rule's effect on 
employees vulnerable to misclassification. The Department also received 
significant feedback regarding the potential effects of this rulemaking 
on independent contractors, as well as from commenters who did not 
agree that the 2021 IC Rule would or could increase the prevalence of 
misclassification.
    Many commenters agreed with the Department's assessment that the 
misclassification of employees as independent contractors remains a 
serious problem for workers, businesses, and the broader economy. 
Several commenters referenced studies or data estimating a high 
prevalence of misclassification in the economy, in addition to those 
mentioned in the NPRM's regulatory impact analysis.\166\ See, e.g., 
NABTU (citing multiple studies estimating the misclassification of 
construction workers in various states); State AGs (discussing a June 
2022 report estimating that ``at least 10 percent of New York State's 
workers are misclassified as independent contractors'' and a December 
2022 report estimating that ``approximately 259,000 workers in 
Pennsylvania are wrongly classified as independent contractors''). 
CLASP & GFI asserted that the misclassification of employees as 
independent contractors is ``occurring with increased frequency as 
workplaces `fissure,' '' and ``firms . . . outsource bigger and bigger 
portions of their workforces to other entities and to workers 
themselves.'' Similarly, the UFCW asserted that misclassification is a 
``pervasive and growing problem,'' citing one report showing that in 
Washington state, misclassification increased from 5 percent of 
employers misclassifying workers in 2008 to 14 percent of employers 
misclassifying workers in 2017, with construction workers, clerical 
workers, and hotel and restaurant workers the most likely to be 
misclassified.'' Several commenters emphasized the prevalence of 
misclassification in specific industries. See, e.g., American 
Federation of State,

[[Page 1657]]

County and Municipal Employees (custodial work); Farmworker Justice 
(agriculture); IntelyCare Inc. (nursing); National Domestic Workers 
Alliance (``NDWA'') (domestic and home care); REAL Women in Trucking 
(trucking); Service Employees International Union (janitorial and gig 
work); SMACNA (construction).
---------------------------------------------------------------------------

    \166\ See 87 FR 62266 (citing a 2020 study from NELP estimating 
that ``10 to 30 percent of employers (or more) misclassify their 
employees as independent contractors).
---------------------------------------------------------------------------

    Many commenters discussed how the misclassification of employees as 
independent contractors deprives workers of wages. SWACCA, for example, 
commented that ``the estimated 20 percent of construction workers who 
should be treated as employees (but are not) lose close to $1 billion 
in wages annually.'' Commenters pointed out that misclassification 
undercuts employers that comply with the law and causes a ``race to the 
bottom'' in labor standards. See, e.g., AARP; Indiana, Illinois, Iowa 
Foundation for Fair Contracting; SWACCA (estimating that ``construction 
companies that treat their workforce as independent contractors save at 
least 20 to 30 percent on labor costs''). Gale Healthcare Solutions 
stated that ``[t]emporary staffing platform companies that hire nursing 
staff as W2 employees lose talent to companies that use a 1099 model, 
as 1099 agencies promote wages that appear higher because they do not 
provide traditional protections of employment or account for 
withholding taxes and additional expenses required by the W-2 model.'' 
Alto Experience Inc., a ridesharing company that classifies its drivers 
as employees, asserted that the misclassification of employees as 
independent contractors constitutes an ``unfair method of competition 
in commerce'' that the FLSA was passed to prevent.
    Beyond wage effects, commenters identified and discussed many other 
consequences of worker misclassification. For example, the NWLC 
asserted ``by strengthening the employment test to reduce 
misclassification, the Department can ensure that more nursing mothers 
will be able to hold their employers accountable for providing 
appropriate facilities and adequate break time.'' See also A Better 
Balance (``[W]e are pleased that this rule will help to ensure that 
workers are able to access their rights under the Family and Medical 
Leave Act and the Break Time for Nursing Mothers law.''). As discussed 
more fully in section VII, commenters also raised other negative 
consequences of misclassification for workers beyond those directly 
related to the FLSA, such as: decreased access to employment benefits 
such as health insurance or retirement benefits, inability to access 
paid sick leave, unemployment insurance, and worker's compensation, a 
lack of ability to take collective action to improve workplace 
conditions, and a lack of anti-discrimination protections under various 
civil rights laws. See, e.g., Smith Summerset & Associates LLC; UFCW.
    Several commenters emphasized the uniquely harmful risks and 
consequences of misclassification for workers in certain demographic 
groups. See, e.g., AARP (senior workers); California Immigrant Policy 
Center (immigrant workers); Equal Justice Center (low-income workers); 
LCCRUL & WLC (workers of color); NWLC (women workers). In a joint 
comment, the Action Center on Race and the Economy, Color of Change, 
Liberation in a Generation, Unemployed Workers United, MediaJustice, 
the National Black Worker Center, Muslims for Just Futures, Raise Up 
South Florida, Human Impact Partners, ROC United, Interfaith Center on 
Corporate Responsibility, HEAL Food Alliance, and the Public 
Accountability Initiative/LittleSis.org (``ACRE et al.'') pointed to 
the overrepresentation of workers of color in low-wage, labor-intensive 
industries where misclassification is pervasive and asserted that they 
``view misclassification as a critical racial justice issue that the 
DOL must help address.''
    Many commenters agreed with the Department's assessment that the 
2021 IC Rule has increased the risk of misclassification. For example, 
SWACCA asserted that challenges in enforcing misclassification in the 
construction industry ``would be compounded if enforcement officials 
had to pursue bad actors under the January 2021 Rule's novel 
interpretation of the law that could require protracted litigation to 
clarify and would permit more contractors to argue that their 
classification of workers as independent contractors is permissible, or 
at least defensible, under the FLSA.'' The International Association of 
Machinists and Aerospace Workers asserted that the 2021 IC Rule 
``creates perverse incentives for companies to misclassify workers,'' 
because ``[t]he more easily a company can misclassify its workforce, 
the more incentive for other companies to do the same, creating a `race 
to the bottom' in employment practices and social standards to the 
detriment of workers.'' CLASP & GFI and Farmworker Justice both 
commented that the 2021 IC Rule's elevation of the ``control'' and 
``opportunity for profit or loss'' factors might exacerbate 
misclassification among farmworkers, whose employment status is 
particularly dependent on the consideration of factors other than the 
2021 IC Rule's ``core'' factors.
    Commenters opposed to this rulemaking generally did not dispute the 
occurrence or importance of employee misclassification, at least in 
certain industries. For example, a lawyer representing employers 
acknowledged that ``independent contractor status can be abused.'' See 
also, e.g., HR Policy Association (``The Association does not question 
the fact that worker misclassification does occur and that individuals 
may be deprived of rights and benefits crucial for their 
livelihood.''); U.S. Black Chambers, Inc. (``[W]e agree that worker 
misclassification is a pressing issue to be solved at the Federal 
level[.]''). Some commenters, however, alleged that rescinding and 
replacing the 2021 IC Rule would be an overbroad solution for a problem 
that could be addressed with industry-specific measures. See H.R. 
Policy Association; IMC Companies, LLC (trucking company) (``What we do 
ask is that the WHD and legislators across our country recognize that 
targeted regulation of these [app-based technology] companies is the 
answer to this issue.''). Other commenters asserted that, in the NPRM, 
the Department failed to explain how the 2021 IC Rule has increased the 
risk of worker misclassification or otherwise hampered efforts to 
reduce misclassification. See, e.g., IWF (``The Department has provided 
no evidence that these drastic changes are necessary to prevent 
misclassification, or even that widespread misclassification actually 
occurred under the 2021 Rule.''); NAWBO. Some commenters referenced 
Departmental press releases published after the March 2022 CWI v. Walsh 
decision (which ruled that the 2021 IC Rule had taken effect in March 
2021) as evidence that the Department is successfully using the 2021 IC 
Rule to combat misclassification. See, e.g., Coalition of Business 
Stakeholders (``DOL has repeatedly boasted about the cases it has 
brought showing improper classification of independent contractors and 
the amounts of back pay remedies it has secured.''); see also Flex; 
U.S. Chamber.
    Having considered the comments, the Department remains of the view 
that the misclassification of employees as independent contractors is a 
serious problem affecting workers who do not receive proper wages and 
businesses that have to compete in the economy against businesses that 
unlawfully misclassify their workers. As explained more fully in 
section III.B., the 2021 IC

[[Page 1658]]

Rule increased the risk of worker misclassification by adding 
considerable confusion and uncertainty over the proper analysis for 
distinguishing between FLSA-covered employees and independent 
contractors. By elevating certain factors, devaluing other factors, and 
precluding the consideration of certain relevant facts, the novel--and 
unprecedented--analysis in the 2021 IC Rule has improperly narrowed the 
focus of the inquiry in a way that may have led employers to believe 
the test no longer includes as many considerations; the comments 
received evidenced such misunderstanding. If widespread misperceptions 
about the 2021 IC Rule articulated by some of its supporters in the 
comments are any indication, such confusion and misapplication of that 
rule could deprive many workers of protections they are entitled to 
under the FLSA.
    The Department's 2022 press releases addressing misclassification 
enforcement referenced by some commenters primarily involved 
investigations by the Department that were initiated before the 2021 IC 
Rule was published and/or covered a period of investigation prior to 
March 8, 2021. In any event, the Department's ability to pursue some 
enforcement actions involving misclassification while applying the 2021 
IC Rule's guidance is not a persuasive reason to retain the 2021 IC 
Rule. The Department is not promulgating this rule because the 2021 IC 
Rule renders the Department powerless to enforce misclassification. 
Rather, the 2021 IC Rule's guidance injected a new framework for 
analyzing whether workers are employees or independent contractors 
under the FLSA that is inconsistent with decades of case law 
interpreting the Act. As explained earlier, the Department is further 
concerned that widespread stakeholder confusion over the 2021 IC Rule 
and its guidance regarding how its factors should be applied (as 
discussed in section II.B.) may be causing some misclassification that 
would not occur in the absence of the rule. For these reasons, the 
Department believes that rescinding the 2021 IC Rule will likely both 
reduce misclassification and restore the Department's ability to 
consider all relevant facts under a totality-of-the-circumstances 
economic reality test that does not predetermine the weight of certain 
factors, consistent with the text of the FLSA and decades of judicial 
precedent.
    Other commenters expressed concern that rescinding the 2021 IC Rule 
will result in the widespread reclassification of workers who should be 
considered independent contractors. See Cambridge Investment Research, 
Inc. (``[T]he practical result of the [NPRM] . . . will be that many 
workers--including workers who want to be independent contractors--will 
be reclassified as employees under the FLSA.''); SBA Office of Advocacy 
(``Small businesses and independent contractors have told Advocacy that 
this rule may be disruptive and detrimental to the millions of 
businesses in industries that rely upon the independent contractor 
model.''). This concern was also expressed by numerous self-identified 
independent contractors, who feared reclassification or lost work 
opportunities as an unintended consequence of the rulemaking.
    Some commenters contended that the NPRM's guidance was 
inappropriately broad and would encompass as employees individuals who 
they assert are appropriately classified as independent contractors. 
See, e.g., IBA (asserting that the NPRM would improperly ``broaden the 
test and thereby expand the meaning of `employee' to encompass 
individuals who under current law would qualify independent 
contractors''); National Association of Insurance and Financial 
Advisors (``NAIFA'') (``NAIFA believes that [the NPRM] wrongly 
construes the scope of FLSA coverage and would thus misclassify many 
independent insurance agents and brokers as employees.''). Other 
commenters asserted that ambiguity inherent in reverting to a 
``totality-of-the-circumstances'' analysis would deter businesses from 
engaging with independent contractors. See, e.g., Beacon Center of 
Tennessee (asserting that the NPRM would ``rob[ ] businesses of the 
regulatory certainty needed to effectively operate and make personnel 
decisions, which is likely to have a chilling effect on hiring new 
employees or contractors''); NFIB (``Companies . . . will be less 
likely to engage a contractor or consultant if there's uncertainty over 
a worker's status since a finding of misclassification can result in 
ruinous penalties''); Opportunity Solutions Project (``If implemented, 
the proposal would make it more difficult for entrepreneurs and 
independent workers to find companies willing to take on the risk of 
becoming their client.'').
    Other commenters disagreed that the Department's proposal would 
result in the reclassification of appropriately classified independent 
contractors. For example, an individual commenter wrote that 
``[i]mproving classification rules and returning to a back-to-basics 
approach used for over fifty years does not mean independent 
contractors will automatically be classified as employees.'' Noting 
that ``[t]he Proposed Rule is a restatement of decades of court 
precedents and WHD guidance,'' UBC remarked that ``[a]ny employer who 
has been correctly classifying its independent contractors has no worry 
that the Proposed Rule will result in liability under the FLSA.'' 
Multiple business stakeholders and self-identified independent 
contractors commented that they did not expect such reclassification 
for workers in their industry. For example, LPL Financial stated that 
it believes that the Department's proposal ``will not result in the 
reclassification of independent financial professionals as employees'' 
and it ``commend[ed] the DOL for undertaking the rulemaking process and 
proposing a rule that recognizes that entrepreneurs who establish and 
build small businesses utilizing their managerial skills and 
professional expertise can operate in an independent contractor model 
to create multigenerational financial advising practices.'' Over 1,000 
financial advisors affiliated with Ameriprise and LPL Financial 
submitted separate campaign comments in support of the NPRM, asserting 
that ``[the] proposal will allow me to continue to choose to be an 
independent contractor.'' See also International Dale Carnegie 
Franchise Association (``The IDCFA is confident that independent 
instructors would not be reclassified as employees under the Proposed 
IC Rule.'').
    Having considered the comments, the Department continues to believe 
that this rulemaking will not jeopardize legitimate independent 
contracting arrangements. Fears to the contrary are not realistic given 
that the Department is adopting guidance derived from the same analysis 
that courts have applied for decades and have been continuing to apply 
since the 2021 IC Rule took effect. There is no evidence that the 
status quo prior to the 2021 IC Rule was hindering the use of 
independent contractors.\167\
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    \167\ The 2021 IC Rule asserted that ``legal uncertainty arising 
from . . . shortcomings of the multifactor economic reality test may 
deter innovative, flexible work arrangements,'' but declined to 
provide any evidence in response to comments questioning that claim, 
explaining it was ``unclear what empirical data could measure 
innovation that is not occurring due to legal uncertainty.'' 86 FR 
1175.
---------------------------------------------------------------------------

    Because the FLSA's economic reality test is broad and fact-
specific, the Department cannot categorically declare that individual 
workers in particular occupations or industries will always qualify as 
independent contractors applying the guidance provided in this rule. 
However, keeping in mind that the Department is adopting guidance in 
this

[[Page 1659]]

rule that is essentially identical to the standard it applied for 
decades prior to the 2021 IC Rule, the Department agrees with those 
commenters who stated that workers properly classified as independent 
contractors prior to the 2021 IC Rule will likely continue to be 
properly classified as independent contractors under this rule and 
disagrees with other commenter assertions that this rule will ``cause 
workers who have long been properly classified as independent 
contractors . . . to improperly lose their independent status.'' ABC; 
see also, e.g., Finseca (expressing concern that the NPRM ``could 
materially disrupt long-standing, well-understood, and properly 
classified independent contractor relationships''); National 
Association of Chemical Distributors (asserting that the NPRM would 
``disrupt longstanding business models''). Rather, because this final 
rule is aligned with longstanding case law, the Department does not 
anticipate that independent contractors (who sometimes also self-
identify as freelancers or small/micro business owners) who are 
correctly classified as independent contractors under current circuit 
case law would be reclassified applying the guidance provided in this 
rule.
    In sum, the Department's rulemaking to rescind and replace the 2021 
IC Rule is motivated, in part, by an assessment that the guidance 
provided here will likely benefit workers as a whole, including those 
workers at risk of being misclassified as independent contractors as 
well as those who are appropriately classified as independent 
contractors.

D. The Benefits of Replacing the Part 795 Regulations on Employee or 
Independent Contractor Status

    Until the 2021 IC Rule, the Department had not previously 
promulgated generally applicable regulations on independent contractor 
classification in the FLSA's 83 years of existence. In light of the 
consistency of the economic reality test as adopted by the circuits, 
the Department had instead relied on subregulatory documents to provide 
generally applicable guidance for the Department and the regulated 
community on determining employee or independent contractor status 
under the FLSA. In the NPRM, the Department explained that, although it 
believes that its earlier subregulatory guidance provided appropriate 
guidance to the regulated community, the Department upon further 
consideration recognized that publishing regulatory guidance would be 
beneficial for stakeholders, particularly because the Department had 
published a regulation in 2021. The NPRM elaborated that detailed 
federal regulations would be easier to locate and read for interested 
stakeholders than applicable circuit case law, potentially helping 
workers and businesses better understand the Department's 
interpretation of their rights and responsibilities under the law. 
Additionally, the NPRM explained that adopting detailed regulations 
that are aligned with existing precedent could better protect workers, 
who were placed at a greater risk of misclassification as a consequence 
of the 2021 IC Rule.\168\
---------------------------------------------------------------------------

    \168\ See generally 87 FR 62230.
---------------------------------------------------------------------------

    Several commenters agreed with the Department's reasons for 
replacing the 2021 IC Rule with alternative regulatory guidance. These 
commenters generally asserted that detailed regulatory guidance brings 
added clarity to interested parties. See, e.g., NELP (``[T]o address 
confusion that can stem from a multifactor balancing test, the 
commentary to the proposed rule clarifies how each of the factors 
(described in more detail below) informs the economic dependence 
analysis, i.e., how and why each factor helps to answer the question of 
whether a worker is truly in business for themself.''); State AGs 
(``Subregulatory guidance is not as robust as promulgating a new 
rule.''); Winebrake & Santillo, LLC (supporting the NPRM for 
``clarifying topics which had not been fully explored by all courts''). 
LIUNA asserted that the regulatory guidance's ``expert synthesis of 
complicated precedents will . . . clarify the FLSA and promote its 
uniform application.''
    Other commenters commended the accessibility of generally 
applicable regulatory guidance. See UBC (``In one place, without 
searching through WHD guidance and court cases, employers and workers 
can go to the rule for information that will assist in correct 
classification. This need for rulemaking, albeit for slightly different 
reasons, is where the interest of the proponents of the 2021 Rule and 
drafters of the NPRM are aligned.''). Some business stakeholders also 
agreed with the potential benefits of regulatory guidance. See, e.g., 
Consumer Brands Association (``The CPG industry believes strongly in 
the potential opportunities afforded through clear rulemaking''); CWC 
(``We . . . concur with DOL's assessment that a clear explanation of 
the test in easily accessible regulatory text is valuable.'').
    Some labor unions and worker advocacy organizations opined that the 
Department needs to promulgate regulatory guidance to counteract 
confusion introduced by the 2021 IC Rule. See State AGs (asserting that 
``a new rule is necessary because the 2021 Rule was such a drastic 
departure from the status quo''); UBC (``The 2021 Rule's confusion and 
encouragement of misclassification . . . creates the necessity for the 
Proposed Rule with its adherence to the intent of Congress and judicial 
precedents.''); see also NECA & IBEW.
    Several commenters, however, disagreed that the Department should 
issue regulations addressing independent contractor status under the 
FLSA. Some of these commenters asserted that the Department has no 
legal authority or expertise to do so. See, e.g., ArcBest (``Congress 
has not delegated authority to DOL to define `independent contractor'--
a definition with far-reaching economic and political consequences.''); 
Boulette Golden & Marin L.L.P. (``[W]hile the DOL may have authority to 
issue guidance on its view of the term `employee,' the DOL does not 
have any authority to offer guidance on the meaning of the term 
`independent contractor.' ''); IBA (``The DOL has no special expertise 
in interpreting Supreme Court precedent.''). Insight Association and 
several individual commenters asserted that Congress should address the 
distinction between FLSA-covered employees and independent contractors 
rather than the Department. Finally, CPIE asserted that ``this area of 
the law is one that is not appropriate for general regulatory 
guidance,'' urging the Department to ``continue its policy of issuing 
subregulatory guidance on the application of the economic reality test 
to specific facts'' if it rescinded the 2021 IC Rule.
    Having considered the comments, the Department continues to believe 
not only in the benefits of adopting alternative guidance on the 
distinction between FLSA-covered employees and independent contractors, 
but also in the value of providing such guidance in easily-accessible 
regulatory text. Although the Department previously issued regulatory 
guidance on this issue specific to the sharecropping and lumber 
industries in parts 780 and 788,\169\ the Department believes that 
regulatory text that can be applied to workers in any industry is 
beneficial to the regulated community.
---------------------------------------------------------------------------

    \169\ See supra, nn.63 and accompanying text.
---------------------------------------------------------------------------

    Further, as noted in the 2021 IC Rule, the Department ``without 
question has relevant expertise in the area of what

[[Page 1660]]

constitutes an employment relationship under the FLSA, given its 
responsibility for administering and enforcing the Act and its decades 
of experience doing so.'' \170\ As also noted in the 2021 IC Rule, the 
Department's ``authority to interpret the Act comes with its authority 
to administer and enforce the Act.'' \171\ The Department issues 
interpretations on a range of issues under the Act, and addressing 
which workers are employees protected by the Act or independent 
contractors not subject to the Act is one such issue. The Department's 
attention to relevant judicial precedent interpreting the Act is key to 
providing such guidance.
---------------------------------------------------------------------------

    \170\ 86 FR 1176.
    \171\ Id.
---------------------------------------------------------------------------

    The Department acknowledges that some commenters would prefer 
Congress to address this issue through legislation and to adopt one 
uniform standard that would apply across federal laws. See, e.g., ASTA; 
CPIE. However, in the absence of congressional legislation to amend the 
FLSA, the Department believes that this final rule will provide 
detailed guidance on employee or independent contractor status that is 
not only consistent with the FLSA and the decades of case law 
interpreting it, but clearer and more robust than the Department's 
earlier subregulatory guidance on the topic.

E. Timing of the Rulemaking

    Many of the commenters opposed to this rulemaking asserted that the 
Department's rulemaking to rescind and replace the 2021 IC Rule is 
premature or otherwise ill-timed. See, e.g., CPIE (``[CPIE] urges DOL 
to defer action until courts have had an opportunity to apply the 2021 
IC Rule.''); CWI (``The most obvious alternative action `within the 
ambit of the existing policy' is simply to allow the 2021 IC Rule to go 
into effect and study its results, rather than assume unproven 
consequences.''); MEP (``MEP strongly believes WHD should allow the 
courts to weigh in on the current rule before determining the analysis 
does not work and replacing it with a standard that will clearly create 
substantial confusion and uncertainty for the regulated community.'').
    Some commenters noted the added costs and uncertainty attributable 
to the Department promulgating the 2021 IC Rule and subsequently 
proposing to rescind and replace it. See American Association of 
Advertising Agencies (``4A's'') (``The regulatory whiplash here is 
real, and costly, and should not be taken so lightly by DOL.''); see 
also App Association; N/MA; Vegas Chamber.
    Other commenters cited to various economic conditions that caution 
(in their view) against any rulemaking that would deter independent 
contracting. See, e.g., NRF & NCCR (``As the American economy and the 
modern workplace continue to evolve in the wake of the COVID-19 
pandemic, it is imperative that policymakers account for the wide range 
of innovative and imaginative methods by which individuals engage in 
the marketplace and feed their families.''); Scopelitis, Garvin, Light, 
Hanson & Feary (``Scopelitis'') (``The Proposed Rule would add pressure 
to already stressed supply chains.'').
    The Department disagrees with the various timing arguments advanced 
by commenters urging the Department to delay or withdraw this 
rulemaking, though it is mindful of the impact that changes in the 
Department's guidance may end up having on the regulated community. As 
the Department has explained, there are compelling reasons to rescind 
and replace the 2021 IC Rule, including its significant departure from 
judicial precedent, the confusion it has introduced for affected 
stakeholders, and the consequences for workers and competing businesses 
attributable to an increased risk of misclassification. Allowing the 
2021 IC Rule to stay in effect for a longer period would not ameliorate 
any of those concerns. To the contrary, as NELP pointed out, ``over 
time . . . negative consequences . . . will be exacerbated.'' The fact 
that no court has applied the 2021 IC Rule in the year since the 
district court's decision in CWI v. Walsh is not a justification for 
its retention.
    The Department further finds arguments about stakeholder reliance 
on the 2021 IC Rule to be unpersuasive. Before the 2021 IC Rule's 
effective date, the Department issued rules intending to delay the 
effective date of and then withdraw the 2021 IC Rule, while also 
identifying concerns with the 2021 IC Rule. The Department then 
announced on June 3, 2022 that it was initiating a new rulemaking on 
employee and independent contractor classification under the FLSA.\172\ 
Thus, the regulated community has been on notice since very soon after 
the 2021 IC Rule's publication as to the Department's concerns 
regarding the 2021 IC Rule, including the way in which it upset decades 
of precedent the regulated community and workers had previously been 
relying on to distinguish between employees and independent 
contractors.
---------------------------------------------------------------------------

    \172\ See Jessica Looman, ``Misclassification of Employees as 
Independent Contractors Under the Fair Labor Standards Act,'' U.S. 
Department of Labor Blog (June 3, 2022), https://blog.dol.gov/2022/06/03/misclassification-of-employees-as-independent-contractors-under-the-fair-labor-standards-act.
---------------------------------------------------------------------------

    Finally, the Department disagrees with commenters that it is 
obligated to wait for more time to gather data before rescinding the 
2021 IC Rule and promulgating a new rule.\173\ As discussed in the 
NPRM, the Department considered waiting for a longer period to monitor 
the effects of the 2021 IC Rule but believed that the potential 
confusion and disruption from the 2021 IC Rule outweighed any potential 
benefit from this monitoring.\174\ In making the decision to proceed 
with this final rule, the Department drew upon its extensive experience 
in interpreting and enforcing the FLSA and its consideration of the 
comments received.\175\ The Department believes that this rule, which 
provides guidance that is consistent with longstanding precedent, 
provides more consistency for stakeholders than the 2021 IC Rule.
---------------------------------------------------------------------------

    \173\ ``[A]n agency need not--indeed cannot--base its every 
action upon empirical data; depending upon the nature of the 
problem, an agency may be entitled to conduct . . . a general 
analysis based on informed conjecture.'' Chamber of Com. of U.S. v. 
SEC, 412 F.3d 133, 142 (D.C. Cir. 2005) (internal quotation and 
citation omitted).
    \174\ See 87 FR 62219.
    \175\ An agency's reliance on ``its own and its staff's 
experience, the many comments received, and other evidence, in 
addition to [ ] limited and conflicting empirical evidence'' meets 
APA requirements. Chamber of Com., 412 F.3d at 142.
---------------------------------------------------------------------------

IV. Alternatives Considered

    In the NPRM, the Department noted that it had considered four 
alternatives to what it proposed.\176\ The Department further noted 
that it had previously considered and rejected two of those 
alternatives--issuing guidance adopting either the common law test or 
the ABC test for determining FLSA employee or independent contractor 
status--in the 2021 IC Rule.\177\
---------------------------------------------------------------------------

    \176\ 87 FR 62230.
    \177\ Id. (citing 86 FR 1238).
---------------------------------------------------------------------------

    Regarding adoption of the common law test, as the Department 
explained in the NPRM, that test is contrary to the ``suffer or 
permit'' language in section 3(g) of the FLSA, which the Supreme Court 
has interpreted as requiring a broader definition of employment than 
under the common law. Accordingly, the Department stated that the 
common law test is inconsistent with the FLSA because that test ``is 
not sufficiently protective in assessing worker classification under 
the FLSA.'' Regarding adoption of an ABC test, as the Department 
explained, the Supreme Court has held that the economic reality test is 
the applicable standard for determining workers' classification

[[Page 1661]]

under the FLSA as an employee or independent contractor, and ``the 
existence of employment relationships under the FLSA `does not depend 
on such isolated factors' as the three independently determinative 
factors in the ABC test, `but rather upon the circumstances of the 
whole activity.' '' Because an ABC test is, in the Department's view, 
inconsistent with Supreme Court precedent interpreting the FLSA, the 
Department explained that ``it could only implement an ABC test if the 
Supreme Court revisits its precedent or if Congress passes legislation 
that alters the applicable analysis under the FLSA.'' \178\
---------------------------------------------------------------------------

    \178\ See generally id. at 62231.
---------------------------------------------------------------------------

    As a third alternative, the Department considered proposing to only 
partially rescind the 2021 IC Rule and instead retain some aspects of 
it. In discussing this alternative, the Department listed numerous 
instances in which its NPRM was consistent or in agreement with the 
2021 IC Rule. The Department explained that it considered ``simply 
removing the problematic `core factors' analysis from the 2021 IC Rule 
and retaining the five factors as described in th[at] rule.'' However, 
the Department rejected this approach because numerous ways in which 
that rule described the factors were in tension with judicial precedent 
and longstanding Department guidance and ``narrow[ed] the economic 
reality test by limiting the facts that may be considered as part of 
the test, facts which the Department believes are relevant in 
determining whether a worker is economically dependent on the employer 
for work or in business for themself.'' For those reasons, the 
Department ``concluded that in order to provide clear, affirmative 
regulatory guidance that aligns with case law and is consistent with 
the text and purpose of the Act as interpreted by courts, a complete 
rescission and replacement of the 2021 IC Rule is needed'' as opposed 
to a partial rescission.\179\
---------------------------------------------------------------------------

    \179\ See generally id. at 62231-32.
---------------------------------------------------------------------------

    As a fourth alternative, the Department considered rescinding the 
2021 IC Rule and, instead of promulgating new regulations, providing 
guidance on employee or independent contractor classification through 
subregulatory guidance. In discussing this alternative, the Department 
reiterated the reasons why it believed that rescission of the 2021 IC 
Rule was necessary. The Department acknowledged that prior to the 2021 
IC Rule, it did not have general guidance published in the Code of 
Federal Regulations on the classification of workers as employees or 
independent contractors. The Department explained that issuing a new 
rule rather than subregulatory guidance would allow the Department to 
provide in-depth guidance that is more closely aligned with circuit 
case law, allows the Department to formally collect and consider a wide 
range of views by using the notice-and-comment process, and may further 
improve consistency among courts regarding the classification of 
workers because courts are accustomed to considering relevant agency 
regulations. For these reasons, the Department decided not to propose 
rescinding the 2021 IC Rule and providing only subregulatory guidance, 
and to instead propose the regulations set forth in the NPRM.\180\
---------------------------------------------------------------------------

    \180\ See generally id. at 62232.
---------------------------------------------------------------------------

    A few commenters expressly addressed the first alternative--
adopting a common law control test.\181\ For example, State AGs agreed 
with the Department's reasoning that the common law control test is 
inconsistent with the FLSA. State AGs stated that ``[t]he common law 
test, which focuses on control rather than economic dependence, 
provides a narrower definition of employment than the broad `suffer or 
permit' language of the FLSA'' and that the common law test therefore 
``conflicts with the broad statutory definition of `employ' in the 
FLSA.'' UFCW added: ``Correctly, the DOL's proposed rule does not 
incorporate the narrower common law independent contractor standard 
because Congress sought for the FLSA to guard against labor 
exploitation by intentionally covering employment relationships that 
may not have constituted employer and employees under common law'' 
(emphasis omitted). ASTA disagreed. Noting the various tests under 
federal law for determining employment, it advocated for ``the adoption 
of a single standard to evaluate worker status for all federal 
purposes.'' The commenter acknowledged the Department's view that it 
lacks the authority to do so, but asserted that ``the simplest means to 
that end would be amendment of the FLSA to replace the economic reality 
test with the right of control test.''
---------------------------------------------------------------------------

    \181\ A number of commenters discussed the common law test in 
their comments, but not in the context of consideration of the 
common law test as an alternative. Instead, these commenters, for 
example, compared the analysis in the 2021 IC Rule to the common law 
test or compared the economic realities test generally to the common 
law test.
---------------------------------------------------------------------------

    Having considered the comments, the Department reaffirms its 
position that the FLSA's definitions, as interpreted by courts, reflect 
Congress' rejection of the common law test as determining employee 
status under the Act. The Department continues to believe that adopting 
the common law test would be contrary to FLSA section 3(g)'s ``suffer 
or permit'' language, which under Supreme Court and federal appellate 
precedent requires a broader definition of employment than the common 
law test.\182\
---------------------------------------------------------------------------

    \182\ See, e.g., Darden, 503 U.S. at 326; Portland Terminal, 330 
U.S. at 150-51.
---------------------------------------------------------------------------

    A number of commenters addressed the second alternative--adopting 
an ABC test. Most commenters agreed with the Department's proposed 
rejection of an ABC test as inconsistent with current precedent and/or 
expressed opposition to an ABC test. For example, CCI stated that, 
``[w]hile the ABC test may be appropriate in some circumstances (for 
example collective bargaining rights), we believe the Department is 
correct to return to a broader `totality-of-the-circumstances' analysis 
for wage and overtime protections under the Fair Labor Standards Act.'' 
UBC described the rejection of an ABC test as an ``adherence to 
precedent.'' State AGs stated that, although ``the ABC test arguably 
protects against employee misclassification better than other tests in 
use'' and ``several of the undersigned State AGs apply the ABC test,'' 
they ``understand the Department believes it is constrained under 
current law from implementing the ABC test under the FLSA[.]''
    SBLC ``applaud[ed] the DOL for declining calls to adopt an ABC 
test, like what is currently used in California, or a similar test that 
would apply a stringent requisite factor test rather than a balancing 
test.'' The International Franchise Association (``IFA'') ``support[ed] 
the DOL's explicit statement in its 2022 NPRM that the ABC test, which 
is used in states like California and Massachusetts, is `inconsistent' 
with controlling Supreme Court authority under the FLSA.'' The App 
Association expressed concerns with the ABC test and ``discourage[d] 
alignment in federal regulation with California's approach.'' The 
Coalition of Trucking Stakeholders stated that the Department 
``properly acknowledge[d] that the adoption of any ABC-like test, which 
is not based upon an economic-realities assessment, would be contrary 
to precedent'' (citation omitted). And noting that the ABC test 
``assumes all workers are employees unless they can demonstrate that 
they meet specific criteria,'' The Owner-Operator Independent Drivers 
Association (``OOIDA'') stated that ``the Department is correct in its 
assessment that the ABC

[[Page 1662]]

Test is not consistent with the history of the FLSA because it 
establishes independently determinative factors.'' See also C.A.R. 
(supporting the decision not to adopt the ABC test).
    Some commenters advocated for adoption of an ABC test. For example, 
the Los Angeles County Federation of Labor, AFL-CIO & Locals 396 and 
848 of the International Brotherhood of Teamsters (``LA Fed & Teamsters 
Locals'') acknowledged that ``the Department is correct in its 
conclusion that the lower federal courts have developed a fairly 
consistent version of what is referred to as the economic realities 
test by identifying a list of six non-exclusive factors to frame their 
analysis,'' but asserted that ``there is nothing in the FLSA's 
legislative history nor in the Supreme Court's precedent that compels 
this exact six-factor framing.'' Discussing Rutherford and Silk, the 
commenter argued that Supreme Court precedent does not require a six-
factor economic realities test, prohibit adoption of an ABC test, or 
prevent adoption of a test that includes dispositive factors or 
presumes employee status unless the employer proves otherwise. See also 
Blitman & King LLP; National Employment Lawyers Association (``NELA''); 
Nichols Kaster.
    Having considered the comments, the Department is not adopting an 
ABC test. The Department continues to believe that an ABC test would be 
inconsistent with Supreme Court and federal appellate precedent 
interpreting and applying the FLSA, and therefore, this final rule 
declines to adopt an ABC test. The Supreme Court has repeatedly 
explained that ``economic reality'' is the applicable standard for 
determining whether a worker is an employee or not under the FLSA.\183\ 
The Supreme Court has further explained that the existence of 
employment relationships under the FLSA does not depend on ``isolated 
factors but rather upon the circumstances of the whole activity,'' 
\184\ and that ``[n]o one [factor] is controlling nor is the list 
complete.'' \185\ As explained in section II, federal courts of appeals 
have consistently interpreted this Supreme Court precedent to apply a 
nonexhaustive multifactor economic realities analysis in which there is 
no presumption of employee status that must be rebutted, no one factor 
is determinative, and all of the factors must be considered and 
weighed.\186\ The Department is grounding the economic realities 
analysis set forth in this final rule in the decades of federal 
appellate case law applying such analyses and is rescinding the 2021 IC 
Rule because of its deviations from that case law. An ABC test, on the 
other hand, has a presumption of employee status, considers only three 
factors--each of which can be determinative on its own--and does not 
result in all of the factors being weighed or even necessarily 
considered. Adopting the ABC test would be a similarly unsupported 
deviation from that case law, would have no moorings in the case law 
applying the FLSA or the Department's prior guidance, and could 
undermine the Department's well-founded reasons for rescinding and 
replacing the 2021 IC Rule.\187\ For all of these reasons, this final 
rule does not adopt an ABC test.
---------------------------------------------------------------------------

    \183\ See Tony & Susan Alamo, 471 U.S. at 301 (``The test of 
employment under the Act is one of `economic reality.' ''); Whitaker 
House, 366 U.S. at 33 (`` `economic reality' rather than `technical 
concepts' is . . . the test of employment'' under the FLSA) (citing 
Silk, 331 U.S. at 713; Rutherford, 331 U.S. at 729).
    \184\ Rutherford, 331 U.S. at 730.
    \185\ Silk, 331 U.S. at 716.
    \186\ See supra section II.B.
    \187\ The assertions of LA Fed & Teamsters Locals that Supreme 
Court precedent could have been interpreted differently and that the 
six traditional economic realities factors could be ``fit within the 
three elements of the ABC Test'' are unavailing considering how 
Supreme Court precedent has actually been interpreted and applied 
for decades.
---------------------------------------------------------------------------

    NABTU stated that, although it ``believes that the `ABC test' is 
the better test for determining worker classification, NABTU 
understands that absent congressional action, DOL must operate within 
the parameters of the statute as defined by controlling Supreme Court 
precedent'' (footnote omitted). NABTU nonetheless recommended that, 
``for purposes of applying the economic reality test to the 
construction industry, DOL adopt a rebuttable presumption that all 
construction workers are employees.'' \188\ The Department declines 
this recommendation for two reasons. First, the Department's intent in 
promulgating this final rule is to provide as much as possible a 
general analysis for determining employee or independent contractor 
status. NABTU's recommendation, on the other hand, is specific to one 
industry. Second, regardless of its scope, this recommendation 
implicates the same concerns as discussed in the above paragraph. 
Specifically, this approach would not be consistent with Supreme Court 
precedent and federal appellate case law interpreting and applying that 
precedent in part because that precedent and case law have not adopted 
a rebuttable presumption of employee status when determining employee 
or independent contractor status under the FLSA. Thus, the Department 
believes that it is not an option to adopt a rebuttable presumption of 
employee status in this context for the same reasons that the 
Department also declines to adopt an ABC test.
---------------------------------------------------------------------------

    \188\ LIUNA endorsed NABTU's recommendation. SMACNA similarly 
recommended that ``[i]n the construction industry, the DOL should 
create a rebuttable presumption that `laborers and mechanics' are 
`employees' of the engaging business.''
---------------------------------------------------------------------------

    A number of commenters objected that the Department's proposed test 
(in particular the integral factor) might have the same effect--either 
unintendedly or not--as an ABC test. See, e.g., CWI; FMI--The Food 
Industry Association (``FMI''); Customized Logistics and Delivery 
Association (``CLDA''); Erik Sherman; Western States Trucking 
Association (``WSTA''). However, as discussed in section V.C.5, the 
suggestion that this final rule's economic realities analysis 
essentially implements an ABC test is baseless. As explained above, the 
economic realities analysis considers multiple factors (no one of which 
is dispositive) and weighs them as part of a totality-of-the-
circumstances analysis to determine if the worker is economically 
dependent on the employer for work or in business for themself. An ABC 
test, on the other hand, presumes that a worker is an employee unless 
the employer can show that each of the three factors is satisfied. (In 
other words, each factor is dispositive on its own and the other 
factors need not be considered if one points to employee status.) In 
sum, this final rule's economic realities test is not an ABC test, and 
any concern that its economic realities analysis is or will become an 
ABC test is thus unfounded.\189\
---------------------------------------------------------------------------

    \189\ In any event, there are arguably some similarities between 
an ABC test and most alternative analyses under the FLSA. For 
example, the 2021 IC Rule provided that two factors were ``core'' 
factors and gave them near-dispositive weight if they both indicated 
the same status, which was a step away from a multifactor totality-
of-the-circumstances analysis and a step closer to a test (like an 
ABC test) where each factor is dispositive. And the 2021 IC Rule 
considered control like an ABC test and considered control to be a 
``core'' factor, giving it more weight and making it closer to the 
dispositive factor that it is under the ABC test.
---------------------------------------------------------------------------

    A few commenters addressed generally the NPRM's discussion of the 
alternatives considered by the Department. State AGs, in addition to 
commenting on the first and second alternatives, commented that 
``retaining portions of the 2021 Rule that are consistent with the 
Proposed Rule would not provide needed clarity because the governing 
principle of the 2021 Rule was a marked departure from

[[Page 1663]]

the Department's longstanding position.'' In their view, the 2021 IC 
Rule's ``emphasis on two `core' factors . . . negated the need to fully 
consider the remaining factors,'' and therefore ``a full rescission of 
the 2021 Rule is needed to provide clarity to workers, employers, and 
the public.'' Regarding the fourth alternative, State AGs stated that 
``merely rescinding the 2021 Rule and issuing subregulatory guidance 
will not provide the direction necessary to achieve consistent 
application of the economic reality test.'' In their view, ``a new rule 
is necessary because the 2021 Rule was such a drastic departure from 
the status quo'' and would ``provide needed regulatory guidance for the 
consistent application of the economic reality test by courts and 
employers.'' State AGs agreed with the Department's assessment of the 
four alternatives and that ``a full rescission of the 2021 Rule and 
replacement with the Proposed Rule is most appropriate for clarity and 
consistency with the FLSA.''
    WPI commented that it ``is well settled that agencies are required 
to consider alternatives within the ambit of the regulation being 
considered,'' including ``less restrictive rules than those proposed'' 
(citations omitted). WPI further commented that the district court in 
CWI v. Walsh ``held that DOL failed to consider any alternatives in the 
withdrawal of the 2021 IC Rule'' and asserted that ``[t]he Department 
repeats this error and only pays lip service to these requirements by 
`considering' four alternatives, two of which are not even legally 
viable options.'' The commenter faulted the Department for 
``conclud[ing] in identical fashion to the 2021 rule that codifying a 
common law or ABC test would not be legally permissible, yet . . . 
nevertheless continu[ing] to `analyze' these two alternatives despite 
the knowledge that neither can be adopted.'' The commenter concluded 
that the NPRM's ``consideration of only two viable alternatives falls 
short of the requirements under the APA and is thus arbitrary and 
capricious'' (citing the district court's decision in CWI v. Walsh).
    As an initial matter, although the Department believes that the 
common law control test and an ABC test are not feasible options in 
this rulemaking, as discussed above, several commenters advocated for 
the adoption of one or the other of those tests.\190\ In any event, the 
district court's decision in CWI v. Walsh (which is on appeal to the 
Fifth Circuit) does not support WPI's assertion that a rule's 
consideration of ``only two viable alternatives'' makes a rule 
arbitrary and capricious under the APA.\191\ The district court ruled 
that ``agency action is arbitrary and capricious when the agency 
considers only the binary choice of whether to retain or rescind a 
policy, without also considering less disruptive alternatives.'' \192\ 
In this rulemaking, the Department considered less disruptive 
alternatives than fully rescinding and replacing the 2021 IC Rule, 
including a partial rescission of the 2021 IC Rule.\193\ In the 
Department's judgment, however, only removing the 2021 IC Rule's 
designation of two factors as the ``core'' factors would not undo the 
numerous ways in which that rule's discussion of the factors were ``in 
tension with judicial precedent and longstanding Department guidance'' 
and unjustifiably narrowed the facts that may be considered when 
applying the factors.\194\ Thus, the Department concluded that, ``in 
order to provide clear, affirmative regulatory guidance that aligns 
with case law and is consistent with the text and purpose of the Act as 
interpreted by courts, a complete rescission and replacement of the 
2021 IC Rule is needed'' as opposed to a partial rescission.\195\ As 
further detailed above, the Department also specifically considered 
rescinding the 2021 IC Rule and providing guidance on employee or 
independent contractor classification through subregulatory guidance 
instead of through new regulations. The Department reiterated the 
reasons why it believed that rescission of the 2021 IC Rule was 
necessary and identified numerous benefits in favor of issuing a new 
rule rather than relying on subregulatory guidance.\196\ Having 
considered the comment, the Department continues to believe that, in 
addition to rescinding the 2021 IC Rule, promulgating new regulations 
is preferable to providing only subregulatory guidance. Although WPI 
disagrees with the judgments that the Department is making, the 
Department plainly considered less disruptive alternatives and made 
reasonable judgments in not adopting those alternatives.\197\
---------------------------------------------------------------------------

    \190\ In addition, discussing alternatives that an agency may be 
legally constrained from adopting is permissible and encouraged 
under OMB guidance. OMB Circular A-4 advises that agencies ``should 
discuss the statutory requirements that affect the selection of 
regulatory approaches. If legal constraints prevent the selection of 
a regulatory action that best satisfies the philosophy and 
principles of Executive Order 12866, [agencies] should identify 
these constraints and estimate their opportunity cost. Such 
information may be useful to Congress under the Regulatory Right-to-
Know Act.''
    \191\ The 2021 IC Rule, which WPI urged be permitted by the 
Department ``to remain in effect,'' considered only one viable 
alternative if the commenter's logic applied. See 86 FR 1238 
(considering three alternatives: ``[c]odification of the common law 
control test,'' codification of a ``six-factor `economic reality' 
balancing test,'' and ``[c]odification of the `ABC' test'').
    \192\ 2022 WL 1073346, at *18 (internal quotation marks and 
citation omitted).
    \193\ As a general matter, agency action must be upheld in the 
face of an arbitrary and capricious challenge if the agency 
``articulate[s] a satisfactory explanation for [the] action 
including a rational connection between the facts found and the 
choice made.'' Little Sisters of the Poor Saints Peter & Paul Home 
v. Pennsylvania, 140 S. Ct. 2367, 2383 (2020) (citation omitted); 
see also City of Abilene v. EPA, 325 F.3d 657, 664 (5th Cir. 2003) 
(``If the agency's reasons and policy choices conform to minimal 
standards of rationality, then its actions are reasonable and must 
be upheld.'') (citation omitted).
    \194\ 87 FR 62232.
    \195\ Id.
    \196\ Id.
    \197\ See City of Abilene, 325 F.3d at 664; see also California 
v. Azar, 950 F.3d 1067, 1096 (9th Cir. 2020) (When reviewing agency 
action under the arbitrary and capricious standard, a court ``cannot 
`ask whether a regulatory decision is the best one possible or even 
whether it is better than the alternatives' '' and is ``prohibited 
from `second-guessing the [agency]'s weighing of risks and benefits 
and penalizing [it] for departing from the . . . inferences and 
assumptions' of others.'') (citations omitted).
---------------------------------------------------------------------------

    Finally, WPI claimed that the NPRM did not consider ``simply 
reverting to interpretive guidance already in place prior to the 2021 
IC Rule'' and ``ignore[d] this option in a purported quest for 
clarity.'' In the commenter's view, there is already clarity in the 
economic reality test because of the case law explaining and 
interpreting it, and the commenter added that the NPRM went ``beyond 
any position the Department has taken historically'' and was not 
``faithful to settled caselaw and analysis by courts upon which it 
claims to base its proposed rule.'' As an initial matter, the 
Department considered (as the fourth alternative) ``rescinding the 2021 
IC Rule and providing guidance on employee or independent contractor 
classification through subregulatory guidance instead of through new 
regulations.'' \198\ As discussed in the NPRM and this final rule, the 
Department concludes that issuing new regulations is the preferable 
alternative to subregulatory guidance.\199\ Moreover, as explained 
generally throughout the NPRM and this final rule and specifically in 
their discussions of each economic reality factor, the Department's 
regulatory text and accompanying guidance seek consistency with, and 
are grounded in, existing case law. The 2021 IC Rule departed from case 
law in numerous ways, and contrary to WPI's comment,

[[Page 1664]]

the Department's stated goal in promulgating this final rule is to 
realign the Department's guidance with that case law. Moreover, to the 
extent that commenters argued that the NPRM's proposed analysis was not 
supported by applicable case law, the Department considered those 
comments and, where appropriate, made changes in this final rule in 
response.
---------------------------------------------------------------------------

    \198\ 87 FR at 62232.
    \199\ The Department in its 2021 IC Rule also reached the same 
conclusion that the Department is reaching here: relying solely on 
subregulatory guidance is not the preferable alternative.
---------------------------------------------------------------------------

    As explained in section III, the Department believes that replacing 
the 2021 IC Rule with regulations addressing the multifactor economic 
reality test that more fully reflect the case law and continue to be 
relevant to the modern economy is helpful for workers and employers in 
understanding how to apply the law in this area. These regulations and 
the explanatory preamble provide in-depth guidance, and because courts 
are accustomed to considering relevant agency regulations, issuing 
these regulations may further improve consistency among courts 
regarding this issue. The Department is therefore rescinding the 2021 
IC Rule and issuing this final rule to replace part 795; the provisions 
of the regulation are discussed below.

V. Final Regulatory Provisions

    Having reviewed commenter feedback submitted in response to the 
proposed rule, the Department is finalizing the following regulations 
to provide guidance regarding whether workers are employees or 
independent contractors under the FLSA. The regulations include a new 
part 795 and cross- references in 29 CFR 780.330(b) and 788.16(a) to 
part 795. Of particular note, the regulations set forth in this final 
rule do not use ``core factors'' and instead return to a totality-of-
the-circumstances analysis of the economic reality test in which the 
factors do not have a predetermined weight and are considered in view 
of the economic reality of the whole activity. Regarding the economic 
reality factors, this final rule returns to the longstanding framing of 
investment as a separate factor, and integral as an integral part of 
the potential employer's business rather than an integrated unit of 
production. The final rule also provides broader discussion of how 
scheduling, remote supervision, price setting, and the ability to work 
for others should be considered under the control factor, and it allows 
for consideration of reserved rights while removing the provision in 
the 2021 IC Rule that minimized the relevance of retained rights. 
Further, the final rule discusses exclusivity in the context of the 
permanency factor, and initiative in the context of the skill factor. 
The Department also made several adjustments to the proposed 
regulations after consideration of the comments received, including 
revisions to the regulations regarding the investment factor and the 
control factor (specifically addressing compliance with legal 
obligations).
    Additionally, in the 2021 IC Rule, the Department proposed not to 
revise its regulation addressing employee or independent contractor 
status under MSPA in 29 CFR 500.20(h)(4), stating, in part, that the 
MSPA regulation and the 2021 IC Rule both applied an economic reality 
test in which the ultimate inquiry was economic dependence. In the 
NPRM, the Department similarly did not propose to make any revisions to 
the MSPA regulation, which adopts by reference the FLSA's definition of 
``employ,'' and considers ``whether or not an independent contractor or 
employment relationship exists under the Fair Labor Standards Act'' to 
interpret employee or independent contractor status under MSPA.\200\ 
The test contained in the MSPA regulation is substantially similar to 
the proposed test here, and the comments received in this rulemaking 
did not address MSPA. Accordingly, the Department is not revising the 
MSPA regulation at this time.
---------------------------------------------------------------------------

    \200\ 29 CFR 500.20(h)(1), (4).
---------------------------------------------------------------------------

    Finally, the Department also proposed to formally rescind the 2021 
IC Rule.\201\ In the Department's view, the operative effects of 
rescinding the 2021 IC Rule are as follows. With this final rule, the 
2021 IC Rule is formally rescinded. This rescission operates 
independently of the new content in this final rule, as the Department 
intends the rescission to be severable from the substantive regulatory 
text added as part 795. For the reasons set forth in this final rule, 
the Department believes that rescission of the 2021 IC Rule is 
appropriate, regardless of the new regulations in this final rule. 
Thus, even if the entirety of the part 795 regulations promulgated by 
this final rule or any part thereof were invalidated, enjoined, or 
otherwise not put into effect, the Department would not intend that the 
2021 IC Rule remain in effect, and the Department would rely on federal 
appellate case law and provide subregulatory guidance for stakeholders 
as appropriate unless or until it decided to engage in additional 
rulemaking.
---------------------------------------------------------------------------

    \201\ Comments regarding this aspect of the NPRM are discussed 
in section V.F. below.
---------------------------------------------------------------------------

    The Department responds to commenters' feedback on the proposed 
rule below.

A. Introductory Statement (Sec.  795.100)

    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, employees, workers, and courts to assess employment 
status under the Act.\202\ Commenters did not generally address this 
section, which is very similar to the 2021 IC Rule introductory 
statement, except to note that these regulations would be interpretive 
guidance. See, e.g., NELP; WPI. The Department is adopting this section 
without change.
---------------------------------------------------------------------------

    \202\ 87 FR 62233 (proposed Sec.  795.100).
---------------------------------------------------------------------------

B. Economic Dependence (Sec.  795.105)

    In the NPRM, the Department proposed to simplify Sec.  795.105(a) 
of the 2021 IC Rule and make additional clarifying edits to Sec.  
795.105(b).\203\ Proposed Sec.  795.105(a) would continue to make 
clear, as the 2021 IC Rule did, that independent contractors are not 
``employees'' under the Act. The Department did not receive significant 
comments regarding this and is adopting it without change.
---------------------------------------------------------------------------

    \203\ 87 FR 62233 (proposed Sec.  795.105(a), (b)).
---------------------------------------------------------------------------

    The Department proposed that paragraph Sec.  795.105(b) would 
affirm that economic dependence is the ultimate inquiry for determining 
whether a worker is an independent contractor or an employee; this 
paragraph also makes clear that the plain language of the statute is 
relevant to the analysis.\204\ The Department explained that this 
proposed section would focus the analysis on whether the worker is in 
business for themself and clarified that economic dependence does not 
focus on the amount the worker earns or whether the worker has other 
sources of income.
---------------------------------------------------------------------------

    \204\ 87 FR 62233 (proposed Sec.  795.105(b)).
---------------------------------------------------------------------------

    As a preliminary matter, Cetera Financial Group urged the 
Department to ``recognize that economic dependence often does not exist 
and certainly should not be presumed'' and that it ``should be the 
subject of a threshold inquiry prior to applying the other factors in 
the economic realities test, or, at a minimum, added as an additional 
factor.'' As the Department explained in the NPRM, the question of 
economic dependence is the ultimate inquiry, and the factors are tools 
or guideposts for answering that inquiry, so it would not be 
appropriate to make ``economic dependence'' an additional factor or a 
threshold inquiry. The Department agrees, however, that economic 
dependence should never be presumed and that when it does not exist, 
that worker is not an employee.

[[Page 1665]]

    Commenters generally agreed that economic dependence was the right 
lens for evaluating whether an employment relationship exists under the 
FLSA. See, e.g., CPIE; IBA; NELP; Outten & Golden. The AFL-CIO and 
others, for example, noted that ``[c]ourts have interpreted the FLSA's 
broad suffer or permit to work language as seeking to answer one 
foundational question regarding the relationship between a worker and 
the entity to whom that worker provides their labor--whether as a 
matter of economic reality that worker is dependent upon the business 
to which they render service.'' At least one commenter, however, stated 
that using the idea of economic dependence as a ``litmus test'' is 
``exceptionally challenging to prove or meet in today's complex world 
of business operations for both large and small business.'' See Vegas 
Chamber. Additionally, some self-identified freelancers questioned how 
the definition of ``economic dependence'' would apply to a freelance 
worker who may, for example, be a writer for multiple publications. One 
freelancer explained that ``self-employed independent contractors do 
not see it as having that many employers [but rather] view those 
publications as customers.''
    Some commenters stated that the Department's proposed language 
broadened the definition of ``economic dependence'' and objected to 
this perceived broadening. See, e.g., Goldwater Institute, Job Creators 
Network Foundation. The Antonin Scalia Law School's Administrative Law 
Clinic (``Scalia Law Clinic''), for instance, commented that the 
Department's proposed definition of economic dependence ``wrongly 
states that a worker can be an employee merely because she is dependent 
in some way on a business, and it incorrectly says that a worker's 
income is entirely irrelevant to whether a worker is dependent on a 
business.'' Similarly, the Goldwater Institute stated that the proposal 
``creates a broad new definition of `economic dependence' that does not 
focus on the amount of income earned or whether the independent 
contractor has other income streams.'' Several commenters further 
stated that the Department had put forward a new definition of economic 
dependence ``that a worker is an employee if they are merely 
`economically dependent' on a business in a small or inconsequential 
way.'' See, e.g., NAIFA. Smith Summerset and Associates did not 
disagree with the content of Sec.  795.105(b) but suggested that the 
provision be edited for clarity, noting that the regulatory language 
referring to ``other income streams'' is ``unnecessarily abstract and 
confusing'' and suggested incorporating alternative language from the 
preamble that the Department will be adopting.
    The Department notes that this concept of economic dependence--one 
which does not focus on the amount of income earned or whether the 
worker has other income streams--has been the Department's consistent 
position. Although some commenters believed the Department was 
proposing a different approach, the concept of economic dependence in 
the NPRM and this final rule is identical to the 2021 IC Rule, which 
stated that, ``other forms of dependence, such as dependence on income 
or subsistence, do not count'' and that ``dependence of income or 
subsistence, is not a relevant consideration in the economic reality 
test.'' \205\ The Department continues to believe that this position is 
correct and most consistent with the concept of economic dependence for 
work. As noted in the 2021 IC Rule and raised again in comments 
received in response to the NPRM, a minority of courts have applied a 
``dependence-for-income'' approach that considers whether the worker 
has other sources of income or wealth or is financially dependent on 
the employer. Most courts, however, as well as the Department, believe 
a ``dependence-for-work'' approach that considers whether the worker is 
dependent on the employer for work or depends on the worker's own 
business for work is the better interpretation. This approach focuses 
the analysis on whether the worker is in business for themself (and 
thus dependent upon themself for work), or whether the worker is 
dependent upon the potential employer for work.\206\ This approach is 
also consistent with the majority of case law. As the Eleventh Circuit 
has explained, ``in considering economic dependence, the court focuses 
on whether an individual is `in business for himself' or is `dependent 
upon finding employment in the business of others.' '' \207\ Economic 
dependence, however, ``does not concern whether the workers at issue 
depend on the money they earn for obtaining the necessities of life . . 
. . Rather, it examines whether the workers are dependent on a 
particular business or organization for their continued employment.'' 
\208\ Additionally, consistent with the 2021 IC Rule, economic 
dependence does not mean that a worker who works for other employers, 
earns a very limited income from a particular employer, or is 
independently wealthy cannot nevertheless be economically dependent on 
any particular employer for purposes of the FLSA.\209\ As the Fifth 
Circuit has explained, ``it 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.'' \210\
---------------------------------------------------------------------------

    \205\ 86 FR 1178.
    \206\ See id. at 1172-73; see also Cornerstone Am., 545 F.3d at 
343 (``To determine if a worker qualifies as an employee, we focus 
on whether, as a matter of economic reality, the worker is 
economically dependent upon the alleged employer or is instead in 
business for himself.''); Flint Eng'g, 137 F.3d at 1440 (noting that 
``the economic realities of the relationship govern, and the focal 
point is whether the individual is economically dependent on the 
business to which he renders service or is, as a matter of economic 
fact, in business for himself''); Superior Care, 840 F.2d at 1059 
(``The ultimate concern is whether, as a matter of economic reality, 
the workers depend upon someone else's business . . . or are in 
business for themselves.'').
    \207\ Scantland, 721 F.3d at 1312 (quoting Mednick v. Albert 
Enters., Inc., 508 F.2d 297, 301-02 (5th Cir. 1975)).
    \208\ DialAmerica, 757 F.2d at 1385.
    \209\ See 86 FR 1173; see also McLaughlin v. Seafood, Inc., 861 
F.2d 450, 452 (5th Cir. 1988), modified on reh'g, 867 F.2d 875 (5th 
Cir. 1989) (reasoning that ``[l]aborers who work for two different 
employers on alternate days are no less economically dependent than 
laborers who work for a single employer''); Halferty v. Pulse Drug 
Co., Inc., 821 F.2d 261, 267-68 (5th Cir. 1987) (rejecting the 
employer's argument that the worker's wages were too little to 
constitute dependence).
    \210\ See Halferty, 821 F.2d at 268.
---------------------------------------------------------------------------

    Lastly, as a global matter, some commenters objected to the 
Department's use of the word ``employer'' throughout the proposed 
regulatory provisions and recommended that the Department use an 
alternate term such as ``potential employer'' instead because it made 
it seem as if the result of the analysis was predetermined in favor of 
employee status. See, e.g., National Association of Convenience Stores 
(``NACS''); National Home Delivery Association (``NHDA''); Scopelitis.
    Having considered the comments, the Department is adopting Sec.  
795.105(a) and (b) largely as proposed, explaining that economic 
dependence is the ultimate inquiry, and that an employee is someone 
who, as a matter of economic reality, is economically dependent on an 
employer for work--not for income. The Department is also making three 
clarifying edits. First, in response to comments, the Department uses 
the phrase ``worker's potential employer'' or ``potential employer'' 
instead of the word ``employer'' in Sec.  795.105(a). The Department 
did not intend for its use of the word ``employer'' to predetermine any 
result and makes the change throughout the regulatory text. The 
Department is using the terms

[[Page 1666]]

``employer,'' ``potential employer,'' and ``the worker's potential 
employer'' throughout the preamble discussion, and the terms are not 
intended to predetermine any result. Second, the Department is adding 
the statutory definition of ``employer'' to Sec.  795.105(a) for 
completeness. And third, consistent with the 2021 IC Rule and the 
proposed regulatory text, the Department is finalizing language that 
makes clear that other sources of income or amount of pay are not 
relevant to economic dependence, although, in response to comments, the 
Department is making some minor edits for additional clarity.
    The Department also proposed to delete Sec.  795.105(c) and (d) of 
the 2021 IC Rule because it believed that the factors of the economic 
reality test should not be given a predetermined weight and designated 
as ``core'' or ``additional guideposts.'' As discussed in section III 
(Need for Rulemaking) as well as in section V.C., the Department is 
proceeding with the removal of these paragraphs, and discussion of the 
economic reality test and the individual factors is being moved to 
Sec.  795.110. The comments regarding the discontinuation of ``core 
factors'' and the Department's return to the economic reality test's 
longstanding totality-of-the-circumstances analysis are discussed in 
section V.C.

C. Economic Reality Test and Economic Reality Test Factors (Sec.  
795.110)

    In the NPRM, the Department proposed to replace Sec.  795.110 
(Primacy of actual practice) from the 2021 IC Rule with a provision 
discussing the economic reality test and the economic reality factors. 
Proposed Sec.  795.110(a) introduced the economic reality test, 
emphasizing that the economic reality factors are guides to be used to 
conduct a totality-of-the-circumstances analysis. It also explained 
that the factors are not exhaustive, and no single factor is 
dispositive.\211\ The Department then proposed to address the economic 
reality factors in Sec.  795.110(b).\212\
---------------------------------------------------------------------------

    \211\ 87 FR 62234-37 (proposed Sec.  795.110).
    \212\ Id.
---------------------------------------------------------------------------

    Many commenters supported the Department's return to the 
longstanding totality-of-the-circumstances economic reality analysis, 
stating that it would provide clarity and align with the statutory text 
and relevant case law. See, e.g., IBT; Leadership Conference on Civil 
and Human Rights (``Leadership Conference''); NELP; REAL Women in 
Trucking; State AGs; William E. Morris Institute for Justice. Outten & 
Golden, for instance, commented that the NPRM ``properly establishes 
that the purpose of the `economic reality' factors is to inform and 
illuminate the `economic dependence' inquiry, while no one factor 
independently drives the analysis.'' NECA and IBEW commented that they 
``support returning to the long-standing six-factor balancing test, 
which will ensure certainty and clarity for construction employers and 
employees, provide protection to law-abiding responsible contractors 
and workers in the construction industry, and reduce burdensome and 
costly litigation.'' Securities Industry Financial Markets Association 
(``SIFMA'') agreed that ``[t]he Department of Labor is correct to note 
that it is the totality of the circumstances that one must look at to 
properly determine status'' and observed that ``courts have found that 
there is no `rule of thumb', but that they must instead look at `the 
total situation.' '' Similarly, the Shriver Center on Poverty Law 
commented that the ``proposed rule's six-factor `economy reality' 
analysis is a sensible, totality-of-the circumstances approach that 
takes into account all relevant aspects of the worker's relationship 
with the hiring entity, is not easily manipulated by employers, and is 
well-supported by Supreme Court and circuit court precedent.'' 
Regarding the Department's explanations accompanying each factor, NELP 
commented that ``[b]y sharpening the focus of each factor, the proposed 
rule provides greater clarity, which will encourage employer compliance 
and reduce misclassification while still enabling true independent 
contractors to run their businesses as they see fit.'' The Transport 
Workers Union of America commented that the Department's proposal 
``will ensure that the legal line between those realities matches the 
facts on the ground. The six-factor test envisioned in this rule 
accurately reflects the everyday relationship between workers and their 
employers. None of our members would risk becoming independent 
contractors under this rule (as they would have under the previous 
administration's proposal).'' Likewise, SWACCA stated that the 
Department's proposal ``will achieve more certainty than the January 
2021 Rule because it reflects a standard that the courts have clarified 
and explained in numerous specific contexts through decades of judicial 
rulings. It is a well understood body of law that employers, workers, 
enforcement officials, private attorneys, and the federal courts all 
have considerable experience applying.''
    Several commenters emphasized that the Act's definitions should 
guide the analysis. The LA Fed & Teamsters Locals, for example, 
observed that ``[c]ourts have interpreted the FLSA's broad suffer or 
permit to work language as seeking to answer one foundational question 
regarding the relationship between a worker and the entity to whom that 
worker provides their labor.'' They added that the 2021 IC Rule 
``improperly elevates certain factors and prevents consideration of 
certain facts, would invite employers to find ways to cloak a worker's 
dependence in a veneer of independence and would fail to account for 
changes in working structures that come with societal progress.''
    In contrast, other commenters stated that the Department's proposal 
to replace the ``core factor'' analysis and return to the totality-of-
the-circumstances analysis undermined the clarity of the 2021 IC Rule, 
creating more uncertainty and confusion. See, e.g., Consumer Brands 
Association; CWI; Forest Resources Association; I4AW; NYS Movers and 
Warehousemen's Association; WSTA. For example, the 4A's stated that the 
Department's proposal to return to a ``totality-of-the-circumstances 
analysis, in which the economic reality factors are no longer weighted 
more heavily based on importance, represents a change from the 2021 
Independent Contractor Rule that will inevitably bring uncertainty and 
confusion for advertising agencies and the U.S. business community at 
large.'' FSI commented that ``[b]y expanding the range of relevant 
factors and expressly refusing to give guidance on how to weigh them 
against each other, DOL actively undermines the clarifying improvements 
of the 2021 Rule and works against its own stated objectives.'' Several 
commenters objected to the Department's framing of the proposal as a 
return to a longstanding analysis, instead opining that the NPRM set 
forth a novel test. See, e.g., Mackinac Center for Public Policy; WPI. 
Many of these commenters expressed concern that the proposed rule would 
have detrimental effects on their industries, work opportunities, and 
earnings. See, e.g., American Council of Life Insurers (``ACLI'') 
(identifying aspects of the proposal that ``would be enormously 
economically disruptive to the local businesses and preferred 
livelihoods of these individuals''); Buckeye Institute (``[B]y making 
it more expensive and more difficult to undertake independent work, 
this rule will shrink the available labor pool for employers.''); PGA 
(commenting that the proposal could ``[t]hreaten the source of income 
of thousands of workers across the country

[[Page 1667]]

in a time of economic uncertainty''); National Pork Producers Council 
(``As a result, pork producers and other business owners could be 
subject to increased legal and tax issues.'').
    Other commenters stated that the 2021 IC Rule's core factor 
analysis was better suited to the issues of the current economy than 
the Department's proposal. For instance, the Job Creators Network 
Foundation commented that the Department's proposal ``conflicts with 
the way America's economy works today'' and that the new economy would 
be ``significantly diminished'' if the proposal were to move forward. 
In contrast, other commenters stated that the NPRM ``accurately 
analyzes modern workplace trends and provides detailed guidance on how 
these changes to the nature of work itself must be integrated and 
considered within those six identified factors (and within the 
additional factors that may arise in particular factual scenarios).'' 
LA Fed & Teamsters Locals; see also LCCRUL & WLC (commenting that the 
NPRM ``closely aligns with long-standing judicial precedent and that 
has proven well-suited to adapt to the myriad forms of working 
arrangements that have existed in the over 80 years since the FLSA's 
passage, as well as to unforeseeable work structures that will appear 
in the future'').
    Some commenters stated that the Department's proposed factors were 
too broad and not tethered to economic dependence. IBA and CPIE, for 
example, commented that the proposed regulations ``are not faithful to 
answering the question of economic dependence'' and instead 
``consistently resolve alternative interpretations of a specific factor 
in the direction of broadening the scope of the factor.'' Similarly, 
some commenters stated that the Department's proposal expanded the 
range of relevant factors and ``hold[s] a thumb on the analytical scale 
towards employment.'' See SHRM. The U.S. Chamber stated that the 
proposed rule ``would not only lead to significant reclassification of 
independent contractors but would also lead to a considerable increase 
in litigation. The bias in favor of employee status, which appears 
throughout the Proposed Rule, makes the risk that independent 
contractors would be misclassified as employees especially acute, with 
potentially dramatic consequences for entire industries.'' See also 
Boulette Golden & Marin LLP (commenting that the Department has 
attempted ``to narrow the scope of the economic reality test and 
suggests an individual is not an employee only if the employee has a 
free-standing business''). Relatedly, other commenters requested that 
``[i]f it is the Department's intent that this rule should uphold 
practices that were in place for years before the 2021 Independent 
Contractor Rule, then we believe any final rule should confidently 
state that most workers would not see a change.'' See OOIDA.
    Several commenters requested that the Department provide additional 
guidance regarding how to weigh the factors in various scenarios. See, 
e.g., Grantmakers in the Arts; National Small Business Association. NRF 
& NCCR, for example, commented that ``[t]his approach provides little 
guidance as to how individuals and businesses should apply those 
factors when they do not all point in the same direction.'' Commenters 
also stated that, in contrast to the 2021 IC Rule, potential overlap 
among factors made this test more challenging to understand. For 
example, the Club Management Association of America and the National 
Club Association (``CMAA & NCA'') commented that ``[e]ach factor 
includes multiple subjective elements for consideration that are not 
distinct from other factors'' and the Alabama Trucking Association 
stated that the proposal ``also create[ed] subtests that overlap at 
least conceptually or completely with aspects of other parts of the 
test.'' See also MEP (``Overlap makes it more difficult for the 
regulated community to understand how to analyze the different elements 
of the contractual relationship.'').
    Various commenters requested that the Department state that workers 
in their particular industry or occupation were bona fide independent 
contractors. See, e.g., Insights Association (strongly urging ``the 
addition of a clarification that market research participants receiving 
incentives are independent contractors''); American Securities 
Association (stating its belief ``that, consistent with this precedent, 
there is wisdom in including in the Proposed Rule an exemption for the 
financial services and insurance industries''); C.A.R. (``C.A.R. asks 
the DOL to not apply any new rule to established industries whose 
businesses have already addressed this long-standing issue.''); 
National Alliance of Forest Owners (``NAFO'') (requesting ``a safe 
harbor provision to provide forestry businesses a clear standard for 
classifying workers as independent contractors'').
    After considering all comments and as discussed in detail below, 
the Department is adopting Sec.  795.110(a) as proposed.
    Regarding comments that the Department's proposal is generally 
biased in favor of employee status, or that its analysis of each factor 
places a ``thumb on the scale'' toward employment, the Department 
reiterates that its proposal is consistent with longstanding judicial 
precedent and, critically, the plain language of the Act. The 
Department agrees with those commenters who emphasized the Act's 
relevant statutory definitions. As it has stated previously, the 
Department believes that determining whether an employment relationship 
exists under the FLSA begins with the Act's definitions.\213\ The Act's 
text is expansive, defining ``employer'' to ``include[ ] any person 
acting directly or indirectly in the interest of an employer in 
relation to an employee,'' ``employee'' as ``any individual employed by 
an employer,'' and ``employ'' to ``include[ ] to suffer or permit to 
work.'' \214\ Prior to the FLSA's enactment, the phrasing ``suffer or 
permit'' was commonly used in state laws regulating child labor. As the 
Eleventh Circuit explained in Antenor v. D & S Farms, ``[t]he `suffer 
or permit to work' standard derives from state child-labor laws 
designed to reach businesses that used middlemen to illegally hire and 
supervise children.'' \215\ In other words, the standard was designed 
to ensure that an employer could be covered under the labor law even if 
they did not directly control a worker or used an agent to supervise 
the worker. The Supreme Court has explicitly and repeatedly recognized 
that this ``suffer or permit'' language demonstrates Congress's intent 
for the FLSA to apply broadly and more inclusively than the common law 
standard.\216\ This textual breadth reflects Congress's stated intent. 
Section 2 of the Act, Congress's ``declaration of policy,'' states that 
the Act is intended to eliminate ``labor conditions detrimental to the 
maintenance of the minimum standard of living necessary for health, 
efficiency, and general well-being of workers.'' \217\ Particularly 
relevant to misclassification, section 2 identifies ``unfair method[s] 
of competition in commerce'' as an additional condition ``to correct 
and as

[[Page 1668]]

rapidly as practicable . . . eliminate.'' \218\
---------------------------------------------------------------------------

    \213\ 87 FR 62234.
    \214\ 29 U.S.C. 203(d), (e)(1), (g).
    \215\ 88 F.3d 925, 929 n.5 (11th Cir. 1996).
    \216\ See, e.g., Darden, 503 U.S. at 326 (noting that ``employ'' 
is defined with ``striking breadth'' (citing Rutherford, 331 U.S. at 
728)); Rosenwasser, 323 U.S. at 362 (``A broader or more 
comprehensive coverage of employees . . . would be difficult to 
frame.''); Robicheaux v. Radcliff Material, Inc., 697 F.2d 662, 665 
(5th Cir. 1983) (``The term `employee' is thus used `in the broadest 
sense `ever . . . included in any act.'' '' (quoting Donovan v. Am. 
Airlines, Inc., 686 F.2d 267, 271 (5th Cir. 1982))).
    \217\ 29 U.S.C. 202.
    \218\ Id.; see also Rosenwasser, 323 U.S. at 361-62; Pilgrim 
Equip., 527 F.2d at 1311 (``Given the remedial purposes of the 
legislation, an expansive definition of `employee' has been adopted 
by the courts.'').
---------------------------------------------------------------------------

    In its 1947 brief before the Supreme Court in Rutherford, the 
Department explained that the Act ``contains its own definitions, 
comprehensive enough to require its application to many persons and 
working relationships, which prior to this Act, were not deemed to fall 
within an employer-employee category.'' \219\ The Department continued, 
stating that ``[t]he purposes of this Act require a practical, 
realistic construction of the employment relationship . . . and the 
broad language of the statutory definitions is more than adequate to 
support such a construction.'' \220\ The determination of whether a 
worker is covered under the FLSA must be made in the context of the 
Act's own definitions and the courts' expansive reading of its 
scope.\221\ The FLSA's ``particularly broad'' definition of 
``employee'' encompasses all workers who are, ``as a matter of economic 
reality, . . . economically dependent upon the alleged employer.'' 
\222\ The Supreme Court agreed, reiterating the breadth and reach of 
the Act's definitions to work relationships that were not previously 
considered to constitute employment relationships and emphasizing that 
the determination of an employment relationship under the FLSA depends 
not on ``isolated factors but rather upon the circumstances of the 
whole activity.'' \223\
---------------------------------------------------------------------------

    \219\ Brief for the Administrator at 10, Rutherford Food Corp. 
v. McComb, 331 U.S. 722 (1947) (No. 562), 1947 WL 43939, at *10 
(quoting Portland Terminal, 330 U.S. at 150-51).
    \220\ Id. at *10-11.
    \221\ Some commenters contended that the Department's discussion 
in this section of cases where the Supreme Court repeatedly 
recognized that the definitions of ``employ,'' ``employee,'' and 
``employer'' that establish who is entitled to the FLSA's 
protections were written broadly and have been appropriately 
interpreted broadly, failed to properly account for the Court's more 
recent decision in Encino Motorcars v. Navarro, 138 S. Ct. 1134 
(2018), which overturned a rule of interpretation that applied to 
exemptions. See U.S. Chamber; FSI. In Encino, the Supreme Court 
addressed an exemption from the FLSA's overtime pay requirements and 
ruled that the ``narrow construction'' principle--that FLSA 
exemptions should be narrowly construed--should no longer be used. 
The Court explained that instead, such exemptions should be given a 
fair reading, stating ``[b]ecause the FLSA gives no textual 
indication that its exemptions should be construed narrowly, there 
is no reason to give [them] anything other than a fair (rather than 
a narrow) interpretation.'' Encino, 138 S. Ct. at 1142 (internal 
quotations and citation omitted). Though this decision did not apply 
to the Act's definitions (which have not been interpreted under the 
``narrow construction'' principle), the Department recognizes that 
some courts have gone beyond Encino and extended the ``fair 
reading'' principle to other parts of the Act or to the Act 
generally. See, e.g., McKay v. Miami-Dade Cnty., 36 F.4th 1128, 1133 
(11th Cir. 2022). There is no need to rely on the ``fair reading'' 
principle here because there is a clear textual indication in the 
Act's definitions, by the inclusion of the ``suffer or permit'' 
language, that broad coverage under the Act was intended. See 29 
U.S.C. 203(g). Thus, even if it were applied, such broad coverage 
would be a ``fair'' interpretation under Encino because the broad 
scope of who is an employee under the FLSA comes from the 
definitions themselves and not any ``narrow-construction'' 
principle. See id. Moreover, Encino did not hold that the FLSA's 
remedial purpose may never be considered, it simply noted that it is 
a ``flawed premise that the FLSA `pursues' its remedial purpose `at 
all costs.' '' Id. at 1142 (quoting Am. Express Co. v. Italian 
Colors Rest., 570 U.S. 228, 234 (2013)) (emphasis added). Indeed, 
other courts have appropriately continued to consider the purpose of 
the Act. See, e.g., Uronis v. Cabot Oil & Gas Corp., 49 F.4th 263, 
269 (3d Cir. 2022) (``As a remedial statute, the FLSA . . . is 
broadly construed, and `must not be interpreted or applied in a 
narrow, grudging manner.' '') (quoting Brock v. Richardson, 812 F.2d 
121, 124 (3d Cir. 1987)). The Department does not agree with the 
commenters' views that any pre-Encino case law discussing the 
remedial purpose of the Act has been abrogated, and it notes that 
courts have not changed their application of the economic reality 
test to determine employee status based on Encino. Finally, the 
Department reiterates that, to the extent that the language in the 
2021 IC Rule preamble implied that the Act's remedial purpose can 
never be considered, including when determining whether an 
individual is an employee or an independent contractor under the 
FLSA, the Department clarifies that it believes that this would be 
an unwarranted extension of the Supreme Court's decision. See, e.g., 
86 FR 1207-08 (discussing Encino's application in response to 
commenters' concerns that the 2021 IC Rule conflicted with the 
FLSA's remedial purpose).
    \222\ Cornerstone Am., 545 F.3d at 343 (citing Darden, 503 U.S. 
at 326; Herman v. Express Sixty-Minutes Delivery Serv., Inc., 161 
F.3d 299, 303 (5th Cir. 1998)).
    \223\ Rutherford, 331 U.S. at 728-30.
---------------------------------------------------------------------------

    Thus, the Department's analysis does not place a ``thumb on the 
scale'' for employment. Rather, it was Congress's clear intent in 
fashioning the Act (which has been repeated by courts for decades) that 
the statutory language sweep broader than the common law and encompass 
all workers who are ``suffered or permitted'' to work, and the test for 
employment must reflect that plain language and clear intent. The 
Department emphasizes again, however, that there is a wide assortment 
of bona fide independent contractors across industries and occupations, 
and it believes that the regulations as finalized in this rule allow 
for this range of work relationships--from employees to independent 
contractors--to be appropriately classified.
    The Department has also considered the comments opining that the 
Department's totality-of-the-circumstances economic reality test will 
cause confusion or uncertainty and that the 2021 IC Rule's core factors 
analysis was clearer. The Department believes, however, that an 
analysis that has been applied for decades and is aligned with the 
breadth of the relevant statutory definitions and binding judicial 
precedent is not only more faithful to the Act but also more familiar 
to the regulated community, workers, and those enforcing the Act.
    The economic reality test was developed by the Supreme Court in 
interpreting and applying the social legislation of the 1930s, 
including the FLSA.\224\ In 1947, the Supreme Court issued two 
decisions, Silk and Rutherford, that used an economic reality test to 
determine employment status.\225\ As explained in Rutherford, the 
``economic reality'' test is designed to bring within such legislation 
``persons and working relationships which, prior to this Act, were not 
deemed to fall within an employer-employee category.'' \226\ Only a 
worker who ``is instead in business for himself'' is an independent 
contractor not covered by the Act.\227\ The ``focus'' and ``ultimate 
concept'' of the determination of whether a worker is an employee or an 
independent contractor, then, is ``the economic dependence of the 
alleged employee.'' \228\ The statutory language thus frames the 
central question that the economic reality test asks--whether the 
worker is economically dependent on an employer who suffers or permits 
the work or whether the worker is in business for themself.
---------------------------------------------------------------------------

    \224\ Rosenwasser, 323 U.S. at 362.
    \225\ See Silk, 331 U.S. at 716-18 (applying the test under the 
SSA); Rutherford, 331 U.S. at 730 (same under the FLSA).
    \226\ Rutherford, 331 U.S. at 729; see also Whitaker House, 366 
U.S. at 31-32 (describing the same as it relates to homeworkers).
    \227\ Cornerstone Am., 545 F.3d at 343 (citing Express Sixty-
Minutes, 161 F.3d at 303).
    \228\ Id.; see also Pilgrim Equip., 527 F.2d at 1311-12 (``[T]he 
final and determinative question must be whether the total of the 
testing establishes the personnel are so dependent upon the business 
with which they are connected that they come within the protection 
of [the] FLSA or are sufficiently independent to lie outside its 
ambit.'').
---------------------------------------------------------------------------

    To aid in answering this ultimate inquiry of economic dependence, 
several factors have been considered by courts and the Department as 
particularly probative when conducting a totality-of-the-circumstances 
analysis of whether a worker is an employee or an independent 
contractor under the FLSA.\229\ In Silk, the Supreme Court suggested 
that ``degrees of control, opportunities for profit or loss, investment 
in facilities, permanency of relation and skill required in the claimed 
independent operation are

[[Page 1669]]

important for decision.'' \230\ The Court also drew a distinction 
between workers who are an integral part of the business but are not 
the directors of their business, and workers who ``depend upon their 
own initiative, judgment, and energy for a large part of their 
success.'' \231\ The Court cautioned that no single factor is 
controlling and that the list is not exhaustive.\232\ In Rutherford, 
the Court used a similar analysis when concluding that the workers in 
that case were employees, considering ``the circumstances of the whole 
activity,'' and relied on the fact that the workers' work was ``a part 
of the integrated unit of production.'' \233\
---------------------------------------------------------------------------

    \229\ See, e.g., Flint Eng'g, 137 F.3d at 1441 (explaining that 
``[n]one of the factors alone is dispositive; instead, the court 
must employ a totality-of-the-circumstances approach'').
    \230\ 331 U.S. at 716.
    \231\ Id.
    \232\ See id.
    \233\ Rutherford, 331 U.S. at 729-30.
---------------------------------------------------------------------------

    These considerations identified by the Supreme Court are the same 
factors that the Department set forth in its NPRM. Courts, employers, 
workers, and enforcement personnel have been considering these factors 
for over 75 years. As such, the Department does not see a credible 
basis for comments that predict sharply increased litigation, dramatic 
curtailment of opportunities, or massive reclassification of workers. 
This is the analysis that the Department (except for the 2021 IC Rule) 
and courts have applied for more than 7 decades to classify workers 
under the Act, and the predictions raised in the comments as concerns 
have not been evident. Moreover, this final rule represents the 
Department's most comprehensive guidance regarding the economic reality 
test used by courts to determine employee or independent contractor 
status. As such, to the extent there was litigation around this issue 
due to a lack of clarity, that should be further alleviated by this 
rulemaking. As explained further in the economic analysis in section 
VII, because of this alignment with a longstanding analysis, the 
Department does not expect widespread reclassification as a result of 
this rule.
    Rather, the economic reality test, the case law, and the 
Department's position have remained remarkably consistent since the 
1940s, and throughout this time the test has demonstrated its ability 
to address evolving workplace trends. The test's focus has remained on 
whether the worker is in business for themself, with the inquiry 
directed toward the question of economic dependence. This consistency 
is, at least in part, due to the fact that the analysis works for a 
broad swath of work arrangements, both longstanding and emerging, and 
its overarching rationale based on economic dependence makes common 
sense. It is not surprising that some courts and the Department may 
have used somewhat different iterations of the factors over the last 
several decades, as the factors ``are aids--tools to be used to gauge 
the degree of dependence of alleged employees on the business with 
which they are connected.'' \234\ These factors are only guideposts, 
and ``[i]t is dependence that indicates employee status. Each [factor] 
must be applied with that ultimate notion in mind.'' \235\ This is why 
most courts, and the Department, have long made clear that additional 
factors may be relevant when applying the test to a particular case. It 
is also expected that outcomes may vary somewhat among workers even in 
the same profession, for example, because the test demands a fact-
specific analysis. Facts like job titles or whether a worker receives a 
1099 form are not probative of the economic realities of the 
relationship. Rather, in undertaking this analysis, each factor is 
examined and analyzed in relation to one another and to the Act's 
definitions. Importantly, ``[n]one of these factors is determinative on 
its own, and each must be considered with an eye toward the ultimate 
question--the worker's economic dependence on or independence from the 
alleged employer.'' \236\
---------------------------------------------------------------------------

    \234\ Pilgrim Equip., 527 F.2d at 1311.
    \235\ Id.
    \236\ Off Duty Police, 915 F.3d at 1055 (alterations and 
internal quotations omitted).
---------------------------------------------------------------------------

    While the Department appreciates, as some commenters noted, that 
two factors (like any test with fewer factors) are simpler in some ways 
than six factors, the Department believes that it would be a disservice 
to stakeholders to present an analysis that is contrary to how courts 
view the totality-of-the-circumstances analysis. Courts have repeatedly 
admonished against a mechanical application of the factors and have 
required a full analysis of all relevant factors, which is why the 
Department believes that any clarity created by shrinking the test to 
two core factors and artificially weighting them is illusory. As 
addressed in the NPRM, since Silk and Rutherford, federal courts of 
appeals have applied the economic reality test to distinguish 
independent contractors from employees who are entitled to the FLSA's 
protections. Federal appellate courts considering employee or 
independent contractor status under the FLSA generally analyze the 
economic realities of the work relationship using the factors 
identified in Silk and Rutherford.\237\ There is significant and 
widespread uniformity among the federal courts of appeals in the 
application of the economic reality test, although there is slight 
variation as to the number of factors considered or how the factors are 
framed (for example, whether relative investment is considered within 
the investment factor, or whether skill must be used with business-like 
initiative).\238\ As the 2021 IC Rule explained, ``[m]ost courts of 
appeals articulate a similar test,'' and these courts consistently 
caution against the ``mechanical application'' of the economic reality 
factors, view the factors as tools to ``gauge . . . economic 
dependence,'' and ``make clear that the analysis should draw from the 
totality of circumstances, with no single factor being determinative by 
itself.'' \239\ All of the federal courts of appeals that have 
addressed employee or independent contractor status under the FLSA 
consider five of the same factors.\240\ Briefly, these factors include 
the degree of control exercised by the employer over the worker, skill, 
permanency, opportunity for profit or loss, and investment, although 
the Second Circuit and the D.C. Circuit treat the worker's opportunity 
for profit or loss and the worker's investment as a single factor.\241\ 
Nearly all federal courts of appeals expressly consider a sixth factor, 
whether the work is an integral part of the employer's business. The 
Fifth Circuit has not adopted the integral factor as an enumerated 
factor but has at times assessed integrality as an additional relevant 
factor.\242\ As such, courts can and do accord weight to different 
factors depending upon the particular facts of a case. And because 
courts are the ultimate arbiter of disputes regarding worker 
classification, an analysis that is aligned with how courts view the 
issue is the most beneficial guidance that the Department can provide 
to stakeholders.
---------------------------------------------------------------------------

    \237\ See generally supra n.52.
    \238\ See, e.g., Cornerstone Am., 545 F.3d at 344 (discussing 
relative investments); Superior Care, 840 F.2d at 1060 (discussing 
the use of skill as it relates to business-like initiative).
    \239\ 86 FR 1170; see also Saleem, 854 F.3d at 139-40; 
Cornerstone Am., 545 F.3d at 343; Keller v. Miri Microsystems LLC, 
781 F.3d 799, 807 (6th Cir. 2015); Flint Eng'g, 137 F.3d at 1440-41.
    \240\ Superior Care, 840 F.2d at 1058-59; DialAmerica, 757 F.2d 
at 1382-83; McFeeley, 825 F.3d at 241; Off Duty Police, 915 F.3d at 
1055; Lauritzen, 835 F.2d at 1534-35; Alpha & Omega, 39 F.4th at 
1082; Driscoll, 603 F.2d at 754-55; Paragon, 884 F.3d at 1235; 
Scantland, 721 F.3d at 1311-12; Morrison, 253 F.3d at 11.
    \241\ See, e.g., Superior Care, 840 F.2d at 1058-59; Morrison, 
253 F.3d at 11 (citing Superior Care, 840 F.2d at 1058-59).
    \242\ See, e.g., Hobbs, 946 F.3d at 836.
---------------------------------------------------------------------------

    Regarding comments that the Department should provide additional 
guidance regarding how to weigh the

[[Page 1670]]

factors, the Department believes that adding mechanistic rules for 
analyzing the factors would be contrary to judicial precedent and would 
limit the test's intended flexibility. As explained in the NPRM, this 
totality-of-the-circumstances analysis considers all factors that may 
be relevant and, in accordance with the case law, does not assign any 
of the factors a predetermined weight. Limiting and weighting the 
factors in a predetermined manner undermines the very purpose of the 
test, which is to consider--based on the economic realities--whether a 
worker is economically dependent on the employer for work or is in 
business for themself.\243\ Importantly, each factor, considered in 
isolation, does not determine whether a worker is economically 
dependent on an employer for work or in business for themself. Rather, 
the factors are tools or indicators and must be analyzed together in 
order to answer this ultimate inquiry. This is the guidance that the 
Department has tried to provide for each factor, as discussed in this 
section below.\244\ Depending on the facts and circumstances of a case, 
it is to be expected that one or more factors may be more probative 
than the other factors. The analysis, however, cannot be conducted like 
a scorecard or a checklist. For example, two factors that strongly 
indicate independent contractor status in a particular case could 
possibly outweigh other factors that indicate employee status, and vice 
versa. But to assign a predetermined and immutable weight to certain 
factors ignores the totality-of-the-circumstances, fact-specific nature 
of the inquiry that is intended to reach a multitude of employment 
relationships across occupations and industries and over time. 
Similarly, it is possible that not every factor will be particularly 
relevant in each case and that is also to be expected.\245\ 
Accordingly, the Department believes that the nuanced analysis that 
accompanies each factor below is more appropriate guidance than rote 
instructions for weighing the factors.
---------------------------------------------------------------------------

    \243\ See, e.g., Scantland, 721 F.3d at 1312 (quoting Mednick, 
508 F.2d at 301-02); see also Saleem, 854 F.3d at 139-140; Mr. W 
Fireworks, 814 F.2d at 1054-55.
    \244\ See, e.g., Scantland, 721 F.3d at 1312 (the economic 
reality factors ``serve as guides, [and] the overarching focus of 
the inquiry is economic dependence''); Pilgrim Equip., 527 F.2d at 
1311 (The 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. It is dependence that indicates 
employee status. Each test must be applied with that ultimate notion 
in mind.'').
    \245\ See, e.g., Lauritzen, 835 F.2d at 1534 (referring to the 
economic reality factors and stating that ``[c]ertain criteria have 
been developed to assist in determining the true nature of the 
relationship, but no criterion is by itself, or by its absence, 
dispositive or controlling.'').
---------------------------------------------------------------------------

    Regarding comments that certain relevant facts may overlap among 
the factors, as explained in the NPRM, the Department believes that 
emphasizing the discrete nature of each particular factor and 
evaluating each factor in a vacuum fails to analyze the entire range of 
potential employment relationships in the manner demanded by the Act's 
text and accompanying case law. Additionally, the test must be able to 
identify the vast variety of legitimate independent contractor 
relationships.\246\ As such, the Department does not wish to be overly 
prescriptive regarding overlap among factors, because doing so 
encourages a more formulaic application of the factors as a checklist, 
when instead the factors are guides to determining, by looking at all 
relevant facts, the economic reality of the situation. Applying a 
formulaic or rote analysis that isolates each factor is contrary to 
decades of case law, decreases the utility of the economic reality 
test, and makes it harder to analyze the ultimate inquiry of economic 
dependence. Rather, the analysis needs to be flexible enough to apply 
to all kinds of work, and all kinds of workers, from traditional 
economy jobs to jobs in emerging business models. As the Supreme Court 
stated in Silk, ``[p]robably it is quite impossible to extract from the 
[SSA] a rule of thumb to define the limits of the employer-employe[e] 
relationship'' but the Court identified factors as ``important'': 
``degrees of control, opportunities for profit or loss, investment in 
facilities, permanency of relation[,] and skill required in the claimed 
independent operation'' and added that ``[n]o one is controlling, nor 
is the list complete.'' \247\ With this rule, the Department is 
providing its most detailed guidance to date regarding the application 
of each of the considerations identified by the Supreme Court as being 
important to the determination of whether a worker is an employee under 
the Act.
---------------------------------------------------------------------------

    \246\ Independent contractors are not ``employees'' for purposes 
of the FLSA. See generally Portland Terminal, 330 U.S. at 152 
(stating that the ``definition `suffer or permit to work' was 
obviously not intended to stamp all persons as employees'').
    \247\ Silk, 331 U.S. at 716.
---------------------------------------------------------------------------

    As to those comments stating that the proposed rule was not well-
suited to the modern economy, the Department disagrees. The Department 
notes that the cases addressing employee vs. independent contractor 
status discussed in this rule and using the economic reality test apply 
to a wide range of today's workers, from cable installers to exotic 
dancers to health care workers, and the Department's enforcement 
experience applying the economic reality test is similarly varied. With 
this rulemaking, the Department describes the economic reality factors 
that reflect the totality-of-the-circumstances approach that courts 
have taken for decades and are still applying to today's workplaces, 
and provides an analysis as to how the Department considers each factor 
in today's workplaces, based on case law and the Department's 
enforcement expertise in this area. For example, the investment factor 
is returned to being a separate factor, considers facts such as whether 
the investment is capital or entrepreneurial in nature, and considers 
the worker's investments relative to the employer's investments. 
Significant additional guidance is provided for the control factor, 
including detailed discussions of how scheduling, supervision, price-
setting, and the ability to work for others should be considered when 
analyzing the degree of control exerted over a worker. And the integral 
factor is returned to its longstanding Departmental and judicial 
interpretation, rather than the ``integrated unit of production'' 
approach that was included in the 2021 IC Rule.
    The Department declines commenter requests to provide any industry-
specific or occupation-wide exemptions or carve-outs to this rule. As 
explained elsewhere, the Department intends these regulations to apply 
to a broad range of work relationships and will continue to assess the 
need for more specific subregulatory guidance.
    Finally, multiple commenters seemed to refer to worker 
classification as a preference or suggested that the Department's 
proposal would infringe upon workers' or businesses' choices. See, 
e.g., Cambridge Investment Research (commenting that the result of the 
NPRM ``will be that many workers--including workers who want to be 
independent contractors--will be reclassified as employees under the 
FLSA''); Transcend Software and Technology Solutions (commenting that 
the proposal would create an environment ``where the freedom for 
entrepreneurs to operate as independent contractors is significantly 
diminished''). For instance, the NDA stated that it ``believes 
employers and workers should have the freedom and flexibility to engage 
in labor arrangements that meet the specific needs and preferences of 
both parties involved,'' and Cetera Financial Group commented that the 
``Department could

[[Page 1671]]

take a huge step toward . . . certainty [for stakeholders] by including 
the expressed intention of the parties as a threshold criteria for the 
existence of economic dependence.'' While businesses are certainly and 
unequivocally able to organize their businesses as they prefer 
consistent with applicable laws, and workers are free to choose which 
work opportunities are most attractive to them, if a worker is an 
employee under the FLSA, then those FLSA-protected rights cannot be 
waived by either party.
    The Supreme Court's ``decisions interpreting the FLSA have 
frequently emphasized the nonwaivable nature of an individual 
employee's right[s] . . . under the Act'' and ``have held that FLSA 
rights cannot be abridged by contract or otherwise waived.'' \248\ The 
Supreme Court has identified at least three reasons for this nonwaiver 
rule. First, the Court has determined, based on the legislative history 
of the FLSA, that the Act constituted ``a recognition of the fact that 
due to the unequal bargaining power as between employer and employee, 
certain segments of the population required federal compulsory 
legislation to prevent private contracts on their part which endangered 
national health and efficiency.'' \249\ According to the Court, the 
protective purposes of the Act thus ``require that it be applied even 
to those who would decline its protections''; otherwise, ``employers 
might be able to use superior bargaining power to coerce employees to . 
. . waive their protections under the Act.'' \250\ Second, in enacting 
the FLSA, Congress sought to establish a ``uniform national policy of 
guaranteeing compensation for all work'' performed by covered 
employees.\251\ Consequently, ``[a]ny custom or contract falling short 
of that basic policy, like an agreement to pay less than the minimum 
wage . . . cannot be utilized to deprive employees of their statutory 
rights.'' \252\ Third, the Court has held that permitting employees to 
waive their FLSA rights is inconsistent with the explicit purpose of 
the Act to protect employers against unfair methods of 
competition.\253\ Accordingly, FLSA rights cannot be waived by either 
party under the law.
---------------------------------------------------------------------------

    \248\ Barrentine v. Arkansas-Best Freight Sys., Inc., 450 U.S. 
728, 740 (1981) (listing cases).
    \249\ Brooklyn Sav. Bank v. O'Neil, 324 U.S. 697, 706 (1945).
    \250\ Tony & Susan Alamo, 471 U.S. at 302 (citing Barrentine, 
450 U.S. 728 and Brooklyn Sav., 324 U.S. 697).
    \251\ Jewell Ridge Coal Corp. v. UMWA Local 6167, 325 U.S. 161, 
167 (1945).
    \252\ Id. (internal quotation marks omitted).
    \253\ 29 U.S.C. 202(a); Brooklyn Sav., 324 U.S. at 710.
---------------------------------------------------------------------------

    The Department is finalizing Sec.  795.110(a) as proposed. In the 
sections that follow, the Department is providing a detailed analysis 
about the application of each factor based on case law and the 
Department's enforcement experience as a guide for employers and 
workers in determining whether a worker is an employee or an 
independent contractor, with each factor discussed through the lens of 
economic dependence.
1. Opportunity for Profit or Loss Depending on Managerial Skill (Sec.  
795.110(b)(1))
    Regarding the opportunity for profit or loss depending on 
managerial skill factor, the Department proposed that this factor 
consider ``whether the worker exercises managerial skill that affects 
the worker's economic success or failure in performing the work.'' The 
Department identified a nonexclusive list of facts that may be relevant 
when considering this factor: whether the worker determines or can 
meaningfully negotiate the charge or pay for the work provided; whether 
the worker accepts or declines jobs or chooses the order and/or time in 
which the jobs are performed; whether the worker engages in marketing, 
advertising, or other efforts to expand their business or secure more 
work; and whether the worker makes decisions to hire others, purchase 
materials and equipment, and/or rent space. The Department added that, 
if a worker has no opportunity for a profit or loss, then this factor 
suggests that the worker is an employee. The Department said further 
that some decisions by a worker that can affect the amount of pay that 
a worker receives, such as the decision to work more hours or take more 
jobs, generally do not reflect the exercise of managerial skill 
indicating independent contractor status under this factor.\254\
---------------------------------------------------------------------------

    \254\ See generally 87 FR 62274-75 (proposed Sec.  
795.110(b)(1)).
---------------------------------------------------------------------------

    The Department explained that the proposed regulatory text for this 
factor focused the opportunity for profit or loss factor on whether the 
worker exercises managerial skill that affects the worker's economic 
success or failure in performing the work. The Department noted that 
the 2021 IC Rule similarly considered managerial skill, but explained 
that the proposed regulatory text more accurately reflects the 
consideration of the profit or loss factor in the case law and reflects 
the ultimate inquiry into the worker's economic dependence or 
independence. The Department further explained that many federal courts 
of appeals ``apply this factor with an eye to whether the worker is 
using managerial skill to affect the worker's opportunity for profit or 
loss'' and discussed that case law. The Department also noted that its 
proposal would consider investment as a separate factor, unlike the 
2021 IC Rule's consideration of investment within its opportunity for 
profit or loss factor. Additionally, the Department explained that the 
proposed regulatory text stating that the fact that a worker has no 
opportunity for a loss indicates employee status is consistent with the 
overall inquiry into economic dependence and is supported by the case 
law. Finally, the Department discussed the case law and its prior 
guidance supporting its view that a worker's decision to work more 
hours (when paid hourly) or work more jobs (when paid a flat fee per 
job) where the employer controls assignment of hours or jobs is similar 
to decisions that employees routinely make and does not reflect 
managerial skill.\255\
---------------------------------------------------------------------------

    \255\ See generally id. at 62237-39.
---------------------------------------------------------------------------

    In addition to the numerous comments generally supporting the 
Department's six-factor analysis, a number of commenters expressed 
support for the NPRM's discussion of the opportunity for profit or loss 
depending on managerial skill factor. For example, Smith Summerset & 
Associates LLC ``highly applaud[ed] inclusion of `managerial skill' in 
the title line and in the first sentence of the proposed'' regulatory 
text and stated that ``the exercise of managerial skill is a sine qua 
non of independent contractor status.'' LA Fed & Teamsters Locals 
agreed ``that it is managerial skill that matters when analyzing 
whether a worker's earning ability is relevant to the employee status 
analysis'' (emphasis omitted). Several commenters (including Farmworker 
Justice, NWLC, and the Shriver Center) stated that ``a worker who has 
the power to make key business decisions that affect their opportunity 
for profit or loss is more likely to be an independent contractor than 
a worker who does not have power over these decisions.'' Similarly, 
NELP expressed agreement with the proposal ``to explicitly tie the 
opportunity for profit or loss to a worker's managerial skill, not 
their ability to work longer'' (emphasis omitted). See also Gale 
HealthCare Solutions. OOIDA agreed with the Department's rejection of 
how the 2021 IC Rule discussed this factor, commenting: ``We believe 
that the 2021 Rule may have opened additional opportunities for 
truckers to fall prey to lease-purchase schemes by stipulating that an 
individual only needed to exhibit exercise of initiative or

[[Page 1672]]

management of investment for the factor to weigh towards the individual 
being an independent contractor. The formulation of the factor may have 
dismissed predatory leasing arrangements because an owner-operator 
otherwise exercised some initiative in the management of their work.''
    Regarding the Department's proposal that decisions to work more 
hours or take more jobs ``generally do not reflect the exercise of 
managerial skill indicating independent contractor status under this 
factor,'' \256\ NDWA agreed, stating that ``a worker's ability to 
impact their pay by working more hours or taking more jobs does not 
show the exercise of managerial skill indicating independent contractor 
status.'' IBT also agreed with the NPRM's ``rejection of the 
proposition that a worker['s] decision to take additional hours or 
tasks indicates `managerial skill.' '' See also Leadership Conference, 
ROC United, UFCW.
---------------------------------------------------------------------------

    \256\ Id. at 62274-75 (proposed Sec.  795.110(b)(1)).
---------------------------------------------------------------------------

    Several commenters found the NPRM's listing of potentially relevant 
facts when applying this factor to be helpful. Real Women in Trucking 
noted that this factor can appropriately indicate employee or 
independent contractor status for truck drivers and that the NPRM's 
``addition of relevant facts to consider under this factor . . . 
provides helpful context to differentiate between these scenarios.'' 
Smith Summerset & Associates LLC ``applaud[ed] the specific examples of 
managerial skill listed in the [proposal].'' And UFCW stated that, 
``[c]orrectly, the proposed rule highlights whether the worker can 
meaningfully negotiate, accept or decline jobs, and engage in efforts 
to expand their independent business.''
    Some other commenters that generally supported the Department's 
six-factor analysis requested changes to or clarifications of the 
opportunity for profit or loss depending on managerial skill factor. 
For example, UFCW cited agreements that it says are imposed by 
companies like Instacart, Uber, and Lyft that prohibit workers from 
connecting with or soliciting their customers and stated that 
``actively prohibit[ing] workers from developing an independent 
business is evidence of a lack of opportunity to profit or loss based 
managerial skill.'' UFCW also stated that, ``when black-box algorithms 
solely dictate their available work, pay, and other economic 
conditions,'' ``[w]orkers are powerless to negotiate or make any 
managerial decisions.'' The Department agrees that such facts would be 
probative of whether a worker has an opportunity for profit or loss 
depending on managerial skill but also reiterates that no one fact is 
dispositive under this factor.
    Real Women in Trucking requested that the Department address ``free 
market'' load boards (load boards are matching systems where shippers 
post freights that they need carried and carriers post their 
availability), which, in the commenter's view, ``offer an opportunity 
to control profit or loss (unlike internal load boards).'' Similarly, 
OOIDA explained its view that ``the mere fact that an individual 
purchases equipment or services from a business they work with does not 
necessarily indicate an employee relationship.'' OOIDA further 
explained that ``[t]here are many owner-operators who choose to make 
purchases from the business they are leased to because it is a 
profitable deal'' and provided an example involving a group discount on 
tires. OOIDA ``believe[s] that the NPRM's totality-of-the-circumstances 
approach should be able to distinguish between these types of 
situations.'' The Department appreciates these concerns and agrees that 
the test put forth is flexible enough to account for a wide variety of 
situations, but its intent in promulgating this final rule is to 
provide as much as possible a general standard for determining employee 
or independent contractor status. The requested guidance is technical 
and industry-specific and is better addressed outside of rulemaking 
after this final rule takes effect.
    Smith & Summerset recommended adding ``depending on managerial 
skill'' to the third sentence of the regulatory text so that it reads: 
``If a worker has no opportunity for profit or loss depending on 
managerial skill, then this factor suggests that the worker is an 
employee.'' The commenter stated that, ``[w]ithout the managerial skill 
qualifier, the reader is invited to quickly think of working more or 
fewer hours as an opportunity for profit or loss.'' However, the 
subsequent sentence in the regulatory text addresses working more 
hours. Moreover, the intent of the third sentence is to explain that, 
where a worker who has no opportunity for profit or loss, this factor 
indicates employee status. Qualifying that explanation with a reference 
to managerial skill is unnecessary, because regardless of managerial 
skill, the worker's lack of an opportunity for profit or loss points 
this factor toward employee status.
    NELA recommended a number of changes to this factor. It stated that 
a ``worker who can experience `profit' with no attached risk of 
business loss is not truly in business for themselves,'' and suggested 
that the following language from the NPRM preamble be added to the 
regulatory text: ``The fact that a worker has no opportunity for a loss 
indicates employee status. Workers who incur little or no costs or 
expenses, simply provide their labor, and/or are paid hourly, piece 
rate, or flat rate are unlikely to experience a loss. This factor 
suggests employee status in those circumstances.'' However, the third 
sentence of the regulatory text already explains that this factor 
indicates employee status where a worker has no opportunity for a loss. 
NELA further suggested that the Department should ``incorporate the 
flip side'' of its above suggestion and state that ``the chance for a 
`loss' with no corresponding opportunity for profit is a sign of 
dependence on the employer, which points toward employee status.'' 
Again, the third sentence of the regulatory text already covers 
circumstances where the worker has ``no opportunity for a profit or 
loss.'' NELA also suggested that the following language be added to the 
regulatory text: ``The fact that an employer may impose fines, 
penalties, or chargebacks on a worker for faulty performance does not 
mean that the worker may experience a loss. These kinds of costs are 
likely to make workers more dependent on their employers, and therefore 
more like employees.'' (The first sentence is from the NPRM preamble, 
and the second sentence is new language suggested by NELA.) The 
Department declines to add this language to the regulatory text. The 
Department notes that although fines, penalties, and chargebacks can 
indicate a worker's economic dependence on the employer, whether they 
indicate dependence may depend on the circumstances.
    NELA additionally suggested changing the regulatory text 
identifying accepting or declining jobs as a relevant factor so that it 
would read: ``whether the worker exercises managerial skill in 
accepting or declining jobs without employer input or chooses the order 
and/or time in which the jobs are performed independent from employer 
control.'' In the Department's view, however, adding a reference to 
``managerial skill'' is unhelpful because accepting or declining jobs 
is an underlying fact that is relevant to determining whether the 
worker exercises managerial skill. And adding references to ``employer 
input'' and ``employer control'' are unnecessary because the focus of 
this factor is whether the worker has an opportunity

[[Page 1673]]

for profit or loss through managerial skill, and there are many aspects 
of accepting/declining jobs and choosing the order/time to perform 
jobs--not only ``employer input'' and ``employer control''--which may 
shed light on whether those decisions and choices exemplify managerial 
skills. Finally, NELA suggested adding two sentences to the regulatory 
text. The first sentence would read: ``A worker's technical proficiency 
in completing each job is not the type of managerial skill that would 
indicate independent contractor status.'' This suggested sentence is, 
in the Department's view, correct in the abstract. As the Department 
explained in the NPRM, ``where a worker is paid by the job, the 
worker's decision to work more jobs and the worker's technical 
proficiency in completing each job are not the type of managerial skill 
that would indicate independent contractor status under this factor.'' 
\257\ However, the Department also identifies in the regulatory text 
instances of managerial skill, such as efforts to expand a business or 
secure more work, hiring others, and purchasing materials and 
equipment, that can affect a worker's opportunity for profit or loss 
by, at least in part, increasing the worker's technical proficiency. 
The focus of this factor should be the degree of managerial skill, and 
the Department does not believe that adding a blanket statement 
regarding technical proficiency to the regulatory text would be helpful 
because doing so could distract from evaluating managerial skill. 
Technical proficiency in completing a job, even if it affects a 
worker's earnings, is alone insufficient for this factor to indicate 
independent contractor status, but, ultimately, whether that technical 
proficiency is the product of managerial skill is probative of employee 
or independent contractor status. NELA's second suggested sentence 
would read: ``Managerial skill will typically affect opportunity for 
profit or loss beyond a given job, and will relate to the worker's 
business as a whole.'' The Department believes that the second 
suggested sentence is not necessarily probative of this factor and is 
not a point emphasized in the case law.
---------------------------------------------------------------------------

    \257\ Id. at 62238; see also Scantland, 721 F.3d at 1316-17.
---------------------------------------------------------------------------

    Numerous commenters opposed, disagreed with, and/or requested 
changes to or clarifications of the proposed opportunity for profit or 
loss depending on managerial skill factor. For example, several 
commenters raised concerns that certain of the facts in the 
nonexclusive list of facts identified by the Department as relevant to 
this factor cannot be satisfied in their particular industries. Texas 
Association for Home Care & Hospice stated that, ``[i]n home care, 
independent contractor clinicians cannot hire other workers for the 
purposes of completing the contracted jobs (i.e., patient visits) they 
have accepted from the home care agency'' because of ``stringent human 
resources and patient care regulations from both state and federal 
regulatory agencies.'' It added that workers ``purchase and maintain 
their own equipment,'' but if the worker ``accepts a specialized 
patient job, for instance a wound care patient, then the home care 
agency must purchase and provide to the independent contractor 
clinician the appropriate wound care supplies . . . as ordered by the 
physician.'' The ACLI stated that, ``[w]ithout question, [insurance 
agents'] profit or loss depends upon their own managerial skill,'' but 
``insurance regulations, including New York Insurance Law Sec.  4228, 
set strict limits on the commissions that insurers can pay to agents, 
who are ``unable to negotiate or change their commission structure.'' 
And although it ``generally supports the Department's proposed 
application'' of this factor, the American Securities Association 
expressed concern that this factor ``globally suggests, without any 
exceptions, that `whether the worker determines or can meaningfully 
negotiate the charge or pay for the work provided' is a relevant 
factor.'' Because ``insurance and financial services regulations . . . 
set strict limits on the premiums that can be charged to customers and 
on the commissions that can be paid to agents and advisors,'' it 
asserted that financial professionals would not be seen as independent 
under this factor. The American Securities Association suggested that 
the Department ``eliminate from consideration whether the worker can 
meaningfully negotiate his or her pay from the list of potentially 
relevant facts under this factor,'' include a carveout, or ``clarify 
that a brokerage firm establishing prices to meet regulatory 
supervision obligations or considerations of its registered 
representatives does not create an employee relationship and is at most 
a neutral factor.'' ABC suggested that the NPRM ``improperly presumes 
that independent contractors must have a staff and a marketed 
`business' to `manage.' '' It stated that ``many independent 
contractors deliberately offer their services to employers of their 
choosing for the express purpose of avoiding negotiating costs'' and 
``do not want to run a business that requires overhead for services, 
advertising and hiring support staff.'' It added that ``[i]t should be 
made clear that a worker who does solicit work from multiple clients 
remains an independent contractor.'' Finally, although it ``generally 
agree[d] with the description of this factor,'' the California Chamber 
of Commerce (``CA Chamber'') expressed concern ``that this factor would 
weigh against a gig worker being an independent contractor simply 
because the company for which they perform work sets pricing.''
    Having considered these comments, the Department adopts its 
proposed list of facts that may be relevant when applying this factor. 
The list is plainly nonexclusive, and neither any fact listed nor this 
factor will be dispositive of a worker's status. As the regulatory text 
provides, ``no one factor or subset of factors is necessarily 
dispositive,'' and the ``outcome of the analysis does not depend on 
isolated factors but rather upon the circumstances of the whole 
activity.'' \258\ The status of the workers identified by these 
comments will be determined by multiple facts bearing on their work 
relationships, and accordingly, these commenters' concerns do not 
reflect how the Department's analysis will be applied. Consistent with 
a totality-of-the-circumstances analysis, not hiring others and not 
advertising, for example, do not make the worker an employee or even 
conclusively determine that this factor indicates employee status. (And 
as discussed below, certain decisions to ``not'' take business actions 
such as those listed in the regulatory text may be as indicative of 
managerial skill as decisions to take those business actions.) In that 
same vein, soliciting work from multiple clients, for example and while 
of course relevant, does not guarantee that a worker is an independent 
contractor or even that this factor points to independent contractor 
status. In addition, the Department believes that the nonexclusive list 
of facts that are potentially relevant to this factor provides helpful 
guidance, as other commenters have stated. And even if a particular 
fact is not probative or always points in one direction for a 
particular worker in a particular industry, that does not mean that the 
fact is not probative on a general level. The Department is striving to 
provide a generally applicable regulation in this rulemaking and will 
provide additional

[[Page 1674]]

guidance after this final rule takes effect.\259\
---------------------------------------------------------------------------

    \258\ 29 CFR 795.110(a)(1)-(2).
    \259\ Fight for Freelancers commented that the Department does 
``not define what constitutes marketing and advertising'' (one of 
the listed facts) and asked: ``What, specifically, must we do to 
satisfy your definition of marketing and advertising?'' The 
Department believes that the terms ``marketing'' and ``advertising'' 
are well understood, and engaging in marketing or advertising are 
just examples of types of managerial skill that may be relevant when 
applying this factor. No worker needs to ``satisfy'' any of these 
facts; all facts relevant to the worker's opportunity for profit or 
loss depending on managerial skill should be considered.
---------------------------------------------------------------------------

    Although the U.S. Chamber agreed that the facts listed in the 
regulatory text are ``relevant to whether workers are independent 
contractors or employees,'' it stated that the NPRM was ``wrong to 
require a worker to `exercise' these decisions to exemplify independent 
contractor status.'' Analogizing to the NPRM's discussion of how 
reserved rights can be relevant in addition to actual practice, the 
U.S. Chamber asserted that ``the more important question is whether the 
worker has the opportunity to impact their profits and losses by 
engaging in various activities such as working for other companies, 
regardless of whether the worker actually acts on that opportunity.'' 
CWI criticized the NPRM for, in its view, ``requir[ing] consideration 
of whether the worker actually exercises his skill to impact economic 
success.'' CWI asserted that the NPRM ``consistently references 
`opportunity,' not actual exercise of that opportunity, as the relevant 
touchstone'' and added that: ``Whether a worker chooses to exercise the 
opportunities for profit and loss available to him is fundamentally his 
own business decision. It is the ability to follow that business 
judgment--even to his detriment--that is the hallmark of the 
independence he is afforded.'' See also N/MA; NRF & NCCR.
    Having considered the comments on this point, the Department is 
revising the final regulatory text to emphasize the worker's 
``opportunities'' for profit or loss based on managerial skill and to 
delete the reference to whether the worker ``exercises'' managerial 
skill. The Department concurs that the term ``opportunities,'' which 
encompasses opportunity more broadly than ``whether the worker 
exercises managerial skill,'' is more consistent conceptually with the 
case law analyzing this factor and with the remainder of the regulatory 
text. Although the Department did not intend for the ``exercises 
managerial skill'' language to be limiting, focusing on 
``opportunities'' should capture the facts relevant to a worker's 
profit or loss and managerial skill, as explained further in the 
discussion of comments in the following paragraph.
    The Coalition of Business Stakeholders stated that ``[m]any 
independent contractors offer their services to select employers for 
the express purpose of avoiding negotiating costs for services, 
advertising, and hiring support staff,'' and that the NPRM ``utterly 
fails to account for workers' preference for having an independent 
contractor relationship that avoids these costs.'' The commenter 
asserted that this ``framework would virtually always weigh in favor of 
employment status.'' NRF & NCCR stated 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.'' According to the commenter, for example, ``[a] 
carpenter or plumber who chooses to market through word of mouth and to 
complete one job at a time, and not hire helpers and make the 
investments necessary to work on multiple job[s] simultaneously, is no 
less an independent contractor than a carpenter or plumber who has made 
different choices about how to operate his or her business.'' The 
Department believes that the opportunity, for example, to hire others 
or purchase materials and equipment, and a decision to not take such 
action based on a consideration of possible costs and rewards, can 
indicate managerial skill. For this to be the case, the worker must 
have a real opportunity to take the action and make an independent 
business decision indicating managerial skill to not take the action. 
In other circumstances, not taking an action may not indicate 
managerial skill. For example, if the action requires approval from the 
employer (for example, the employer must approve any person hired by 
the worker as a helper) or the action is not feasible financially (for 
example, the worker is lower-paid and cannot hire others or make 
purchases), then there is likely no opportunity for the worker to make 
an independent business decision indicating managerial skill. 
Regardless, no one action or lack of action should determine whether 
this factor indicates employee or independent contractor status; the 
Department identifies in the regulatory text a number of possibly 
relevant facts, and other relevant facts may be considered too.
    Several commenters expressed concern that the mention of 
``managerial skill'' in the proposed regulatory text did not include 
references to ``initiative,'' ``business acumen,'' and ``judgment.'' 
For example, CWI stated that the proposed regulatory text ``narrows the 
inquiry'' as compared to the 2021 IC Rule, which referenced ``business 
acumen or judgment'' in its discussion of this factor. CWI further 
stated that the NPRM's preamble ``acknowledge[d] that `initiative,' 
`business acumen,' and `judgment' are informative of the opportunity-
for-profit-or-loss factor'' (citing 87 FR 62238). CWI requested that 
the Department ``retain the 2021 IC Rule's formulation of the 
standard.'' See also N/MA. The U.S. Chamber added that the proposed 
regulatory text ``wrongly narrows the inquiry to `whether the worker 
exercises managerial skill,' as opposed to `managerial skill or 
business acumen or judgment,' as stated in the 2021 IC Rule.'' The 
Department did not intend to exclude initiative, judgment, or business 
acumen from the inquiry under this factor. The NPRM's preamble 
explained that considering initiative and judgment is very similar to 
considering managerial skill.\260\ Accordingly, in light of the 
comments and the discussion of managerial skill in the NPRM's preamble 
and the cases cited therein, the Department is modifying the regulatory 
text to clarify that managerial skill includes ``initiative or business 
acumen or judgment.'' Thus, with this change and the change discussed 
above, the first sentence of the regulatory text for this factor reads: 
``This factor considers whether the worker has opportunities for profit 
or loss based on managerial skill (including initiative or business 
acumen or judgment) that affect the worker's economic success or 
failure in performing the work.''
---------------------------------------------------------------------------

    \260\ 87 FR 62238 (citing, inter alia, Franze, 826 F. App'x at 
76-78; Flint Eng'g, 137 F.3d at 1441; Superior Care, 840 F.2d at 
1058-59; Snell, 875 F.2d at 810).
---------------------------------------------------------------------------

    CPIE commented that, although earlier court decisions ``properly 
considered an individual's opportunity for loss in evaluating the 
individual's economic dependence,'' the U.S. economy has changed, and 
``[t]here are countless numbers of individuals today who operate 
thriving businesses with their laptop computers and incur no risk of 
loss whatsoever.'' The commenter asserted that ``[t]he fact that these 
individuals operate a type of business that does not require a 
substantial financial investment should not deny them their right to 
offer their services as

[[Page 1675]]

independent contractors.'' Having considered this comment, the 
Department stands by its position that ``the fact that a worker has no 
opportunity for a loss indicates employee status.'' \261\ The 
Department believes that the risk of a loss as a possible result of the 
worker's managerial decisions indicates that the worker is in business 
for themself. Although a worker need not experience a loss or even 
likely experience a loss for this factor to indicate independent 
contractor status, the scenario presented by the commenter--``no risk 
of loss whatsoever''--does not suggest that the worker is an 
independent contractor because at least some risk of a loss is inherent 
in operating an independent business. Moreover, the Department's 
position is grounded in the case law, which has recognized that the 
lack of possibility of a loss indicates employee status.\262\ The 
Department notes, however, that whether the worker in the scenario 
presented by the commenter is an employee or independent contractor 
depends on application of all of the factors and a consideration of the 
totality of the circumstances because neither this factor nor any other 
factor is necessarily dispositive. Thus, workers ``who operate thriving 
businesses with their laptop computers and incur no risk of loss 
whatsoever'' (the scenario presented by the commenter) may be employees 
or independent contractors depending on all of the factors.
---------------------------------------------------------------------------

    \261\ Id.
    \262\ Id. at 62239 (citing Off Duty Police, 915 F.3d at 1059; 
Flint Eng'g, 137 F.3d at 1441; Selker Bros., 949 F.2d at 1294; 
Snell, 875 F.2d at 810; Lauritzen, 835 F.2d at 1536; DialAmerica, 
757 F.2d at 1386).
---------------------------------------------------------------------------

    A number of commenters expressed concerns with and/or sought 
changes to the last sentence of the regulatory text: ``Some decisions 
by a worker that can affect the amount of pay that a worker receives, 
such as the decision to work more hours or take more jobs, generally do 
not reflect the exercise of managerial skill indicating independent 
contractor status under this factor.'' For example, NHDA stated that 
each decision by a ``driver to accept or reject an opportunity (in this 
case, a load) is a business decision that affects his/her economic 
success'' and ``involves the weighing of an opportunity cost'' (i.e., 
``the cost of accepting that load versus the revenue to be earned and 
also against the foregone opportunity to transport a different load''). 
NHDA further stated that, for these reasons, this sentence ``is 
misleading and susceptible to short-circuiting a proper analysis.'' See 
also Scopelitis (same). Flex described this sentence as ``misleading'' 
and ``likely lead[ing] to the discounting of evidence that is, in fact, 
highly relevant to a worker's `opportunity for profit or loss depending 
on managerial skill.' '' It stated that, ``[i]f a cashier at a fast-
food restaurant voluntarily chooses to work overtime or pick up an 
additional shift, that decision would not support independent 
contractor status[,]'' but if a driver ``who was planning to drive 
clients five days one week is solicited by a new client for a lucrative 
opportunity on Saturday, the decision to accept that new client and 
work an extra day is plainly an entrepreneurial decision that reflects 
managerial decision making.'' Flex explained that ``technological 
advances . . . have facilitated independent contractors' ability to 
quickly determine what earnings opportunities and hours worked will 
yield for them the biggest return on the investment of their time.'' 
SHRM added that ``[t]he economic reality is that a worker who can 
profit by taking other jobs is more independent--and therefore less 
economically dependent on the employer--than an employee who cannot,'' 
and that ``[t]he ability to make that choice should point to an 
independent relationship.'' CWI stated that ``[t]he Department's 
commentary even cites authority noting that choosing among `which jobs 
were most profitable' is evidence of independent contractor status, but 
the Proposed Rule contains no similar nuance.'' See also U.S. Chamber; 
MEP.
    Having considered these comments, the Department believes that the 
last sentence of the proposed regulatory text for this factor can be 
more precise. In the NPRM, the Department explained this concept as 
follows: ``a worker's decision to work more hours (when paid hourly) or 
work more jobs (when paid a flat fee per job) where the employer 
controls assignment of hours or jobs is similar to decisions that 
employees routinely make and does not reflect managerial skill.'' \263\ 
The proposed regulatory text, however, did not account for payment for 
the hours and jobs at a fixed rate or the employer's control over the 
flow of work. The NPRM recognized that courts have held that a worker's 
ability to freely choose among jobs based on the worker's assessment of 
the comparable profitability of those jobs can indicate independent 
contractor status when applying the opportunity for profit or loss 
factor.\264\ Other cases relied on by the Department in the NPRM 
involved workers who were paid at set or fixed rates and/or situations 
where more work was dictated by the employer's needs as opposed to the 
worker's initiative.\265\ Based on the comments, the discussion in the 
NPRM, and the case law, the Department is revising the last sentence of 
the opportunity for profit or loss factor. In the NPRM, that sentence 
read: ``Some decisions by a worker that can affect the amount of pay 
that a worker receives, such as the decision to work more hours or take 
more jobs, generally do not reflect the exercise of managerial skill 
indicating independent contractor status under this factor.'' As 
revised, that sentence reads (with the new language in italics): ``Some 
decisions by a worker that can affect the amount of pay that a worker 
receives, such as the decision to work more hours or take more jobs 
when paid a fixed rate per hour or per job, generally do not reflect 
the exercise of managerial skill indicating independent contractor 
status under this factor.'' The Department also considered adding to 
the regulatory text a reference to the employer's control of assignment 
of the hours or jobs. Although such control may be relevant in this 
context, the Department believes that the fact that the hours or jobs 
are paid at a fixed rate is more indicative that the worker is not 
exercising managerial skill by taking more such hours or jobs.
---------------------------------------------------------------------------

    \263\ 87 FR 62239.
    \264\ Id. (citing Karlson v. Action Process Serv. & Private 
Investigations, LLC, 860 F.3d 1089, 1095 (8th Cir. 2017)); Express 
Sixty-Minutes, 161 F.3d at 304).
    \265\ Id. (citing Off Duty Police, 915 F.3d at 1059; Scantland, 
721 F.3d at 1316-17; Capital Int'l, 466 F.3d at 308; Snell, 875 F.2d 
at 810).
---------------------------------------------------------------------------

    Fight for Freelancers asserted that there was a conflict between 
this provision regarding working more hours or jobs and the provision 
stating that accepting or declining jobs can be a relevant fact when 
applying this factor. The Coalition of Business Stakeholders commented 
that the NPRM is ``unclear on whether, when assessing the opportunity 
for profit or loss factor, a worker's ability to accept or decline work 
weighs in favor of independent contractor status.'' The Department 
believes these comments overlook the totality-of-the-circumstances 
nature of the analysis; there is no particular factor to satisfy. In 
addition, the text addresses two concepts that are not in conflict. The 
last sentence of the regulatory text (as revised) addresses a worker 
who can earn more by working more hours or taking more jobs. That 
worker is working more to earn more but not exercising managerial skill 
(at least in that regard). On the other hand, a worker may be able to 
accept and

[[Page 1676]]

decline jobs where the jobs have varying degrees of potential 
profitability and the worker must determine which jobs to pursue and 
how much of the worker's time and resources should be devoted to the 
various jobs. That worker is exercising managerial skill (at least in 
that regard), which weighs in favor of independent contractor status.
    MEP commented that ``managerial skill should be broadly defined'' 
and that ``managerial skill should include an individual's ability to 
complete the work more efficiently or effectively.'' World Floor 
Covering Association (``WFCA'') commented that, although it 
``recognizes that merely working longer hours or more efficiently does 
not distinguish an independent contractor from an employee,'' ``[a]n 
individual who uses initiation or judgment to perform a job more 
efficiently can generate greater profits, even if compensated by the 
hour or by piecework rates.'' WFCA suggested that ``depending on 
managerial skill'' be stricken from the title of this factor and that 
the first sentence of the regulatory text be revised to state: ``This 
factor considers whether the worker exercises managerial skills, 
implements innovations, or uses other entrepreneurial concepts that 
affects the worker's economic success or failure in performing the 
work.'' For the reasons explained in the NPRM and in this section, 
managerial skill is properly the focus of the opportunity for profit or 
loss factor because it helps to distinguish between decisions that 
affect a worker's earnings and the use of initiative, judgment, or 
business acumen that may create opportunities for profit or loss. As 
further explained in the NPRM, whether the worker's opportunity for 
profit or loss depends on managerial skill (or initiative or judgment 
as discussed above) is ingrained in the case law.\266\ Accordingly, 
striking ``depending on managerial skill'' would not be supported. And 
although being innovative and acting entrepreneurially are synonymous 
with managerial skill, implementing innovations and using 
entrepreneurial concepts are not necessarily synonymous with the 
worker's managerial skill if those innovations and concepts are 
developed and perfected by others. WFCA's suggested language would 
detract the focus from, and not necessarily be consistent with, 
managerial skill.
---------------------------------------------------------------------------

    \266\ 87 FR 62237-38 (citing, inter alia, Franze, 826 F. App'x 
at 76-78; Razak, 951 F.3d at 146; Verma, 937 F.3d at 229 (citing 
Selker Bros., 949 F.2d at 1293); Off Duty Police, 915 F.3d at 1059; 
Iontchev v. AAA Cab Serv., Inc., 685 F. App'x 548, 550 (9th Cir. 
2017); McFeeley, 825 F.3d at 241 (citing Capital Int'l, 466 F.3d at 
304-05); Keller, 781 F.3d at 812; Scantland, 721 F.3d at 1312; Flint 
Eng'g, 137 F.3d at 1441; Snell, 875 F.2d at 810; Superior Care, 840 
F.2d at 1058-59; Lauritzen, 835 F.2d at 1535; Driscoll, 603 F.2d at 
754-55).
---------------------------------------------------------------------------

    In addition, WFCA provided examples of workers who can ``install 
complex wood or tile patterns'' and requested that implementing ``new 
techniques or innovations'' and developing ``specialized or unique 
skills'' be added to the nonexclusive list of facts that may be 
relevant when applying this factor. However, as discussed in this 
section, implementing techniques or innovations is not necessarily 
indicative of managerial skill and may instead relate more to how the 
worker performs the work. The same may be said about developing skills; 
especially considering the examples provided by WFCA, these skills seem 
more about performing particular work. As discussed above in response 
to NELA's comment that technical proficiency in completing each job is 
not managerial skill indicative of independent contractor status, the 
focus of this factor is the worker's managerial skill and not the 
worker's performance of particular jobs. Accordingly, the Department 
declines to make the changes requested by WFCA.\267\
---------------------------------------------------------------------------

    \267\ CPIE discussed technical proficiency and commented: ``An 
individual's ability to maximize the profitability attributable to 
the individual's technical proficiency will depend on the 
individual's managerial skill and ability to persuasively 
communicate to a potential client the value of such proficiency.'' 
The Department generally agrees with this statement to the extent 
that it focuses the inquiry on the worker's managerial skill.
---------------------------------------------------------------------------

    The Department is finalizing the opportunity for profit or loss 
depending on managerial skill factor (Sec.  795.110(b)(1)) with the 
modifications discussed herein.
Example: Opportunity for Profit or Loss Depending on Managerial Skill
    A worker for a landscaping company performs assignments only as 
determined by the company for its corporate clients. The worker does 
not independently choose assignments, solicit additional work from 
other clients, advertise the landscaping services, or endeavor to 
reduce costs. The worker regularly agrees to work additional hours in 
order to earn more. In this scenario, the worker does not exercise 
managerial skill that affects their profit or loss. Rather, their 
earnings may fluctuate based on the work available and their 
willingness to work more. Because of this lack of managerial skill 
affecting opportunity for profit or loss, these facts indicate employee 
status under the opportunity for profit or loss factor.
    In contrast, a worker provides landscaping services directly to 
corporate clients. The worker produces their own advertising, 
negotiates contracts, decides which jobs to perform and when to perform 
them, and decides when and whether to hire helpers to assist with the 
work. This worker exercises managerial skill that affects their 
opportunity for profit or loss. Thus, these facts indicate independent 
contractor status under the opportunity for profit or loss factor.
2. Investments by the Worker and the Potential Employer (Sec.  
795.110(b)(2))
    Regarding the investments factor, the Department proposed that this 
factor consider ``whether any investments by a worker are capital or 
entrepreneurial in nature.'' The provision stated that ``[c]osts borne 
by a worker to perform their job,'' such as ``tools and equipment to 
perform specific jobs and the worker's labor,'' ``are not evidence of 
capital or entrepreneurial investment and indicate employee status.'' 
The provision further stated that investments that are capital or 
entrepreneurial in nature and thus indicative of independent contractor 
status are those that ``generally support an independent business and 
serve a business-like function, such as increasing the worker's ability 
to do different types of or more work, reducing costs, or extending 
market reach.'' The Department also proposed that ``the worker's 
investments should be considered on a relative basis with the 
employer's investments in its overall business.'' The provision further 
said that ``[t]he worker's investments need not be equal to the 
employer's investments, but the worker's investments should support an 
independent business or serve a business-like function for this factor 
to indicate independent contractor status.'' \268\
---------------------------------------------------------------------------

    \268\ See generally 87 FR 62275 (proposed Sec.  795.110(b)(2)).
---------------------------------------------------------------------------

    The Department explained that its proposal to treat investments as 
its own separate factor in the economic reality analysis is consistent 
with its approach prior to the 2021 IC Rule and with the approach of 
most courts. The Department further explained that considering 
investments as part of the opportunity for profit or loss factor, as 
the 2021 IC Rule did, is flawed because, among other reasons, it ``may 
incorrectly tilt the analysis in favor of independent contractor 
outcomes'' and ``have the effect in some cases of

[[Page 1677]]

preventing investment from affecting the analysis.'' The Department set 
forth its reasons (and the supporting case law) for focusing on the 
nature and reason for the worker's investment and why the worker's 
investment must be capital in nature for it to indicate independent 
contractor status. Consistent with that focus, the Department further 
explained (with a discussion of supporting case law) that ``the use of 
a personal vehicle that the worker already owns to perform work--or 
that the worker leases as required by the employer to perform work--is 
generally not an investment that is capital or entrepreneurial in 
nature.'' \269\
---------------------------------------------------------------------------

    \269\ See generally id. at 62240-41.
---------------------------------------------------------------------------

    Finally, the Department explained that its proposal to evaluate the 
worker's investment in relation to the employer's investment in its 
business ``is not only consistent with the totality-of-the-
circumstances analysis that is at the heart of the economic reality 
test, but it would also provide factfinders with an additional tool to 
differentiate between a worker's economic dependence and independence 
based on the particular facts of the case.'' The Department discussed 
the federal appellate case law supporting its proposal and addressed 
any contrary federal appellate case law.\270\
---------------------------------------------------------------------------

    \270\ See generally id. at 62241-43.
---------------------------------------------------------------------------

    In addition to the numerous comments generally supporting the 
Department's six-factor analysis, a number of commenters expressed 
support for the NPRM's treatment of investments as a separate factor in 
the economic realities analysis. NWLC explained that, ``[c]onsistent 
with the Department's guidance from its earliest applications of the 
economic reality test until the 2021 Rule, the proposed rule considers 
investments by the worker and the employer as a factor distinct from 
opportunity for profit or loss.'' LA Fed & Teamsters Locals stated that 
the 2021 IC Rule had ``improperly combine[d]'' the investments factor 
with the opportunity for profit or loss factor and that the NPRM's 
treatment of the investments factor as a separate factor ``more 
faithfully adheres to the long history of jurisprudence defining how to 
determine the economic reality.'' The State AGs agreed that treating 
investments as a separate factor is ``consistent with the case law.'' 
Gale Healthcare Solutions expressed ``support [for] the proposal to 
treat worker investment as a standalone factor in the economic reality 
analysis rather than as part of [the] opportunity for profit or loss 
analysis.'' Others, including NELP, Real Women in Trucking, IBT, and 
AFL-CIO, expressed similar support.
    A number of commenters also supported the substance of the NPRM's 
discussion of the investments factor. For example, Leadership 
Conference appreciated the clarification that the NPRM's investments 
factor would provide, stating that ``[a] true independent contractor 
should make significant capital or entrepreneurial investments in their 
business, especially relative to the entity that hired them.'' The 
Shriver Center agreed that the investments of ``a true independent 
contractor . . . must be capital or entrepreneurial, as opposed to 
tools that a worker is required by a business to have in order to 
perform a job.'' Others, including Farmworker Justice, Real Women in 
Trucking, and LIUNA, commented similarly. See also NELP, Winebrake & 
Santillo, LLC, Gale Healthcare Solutions.
    ROC United described as crucial the NPRM's clarification ``that 
`the use of a personal vehicle that the worker already owns to perform 
work--or that the worker leases as required by the employer to perform 
work--is generally not an investment that is capital or entrepreneurial 
in nature.' '' AFL-CIO ``strongly encourage[d] [the Department] to 
include in the Final Rule its observation'' regarding a worker's use of 
a personal vehicle. LA Fed & Teamsters Locals agreed that the NPRM's 
approach to a worker's use of a personal vehicle was right and added 
that evaluating the worker's investment relative to the employer's ``is 
critical because even when employers push the cost of tools and 
supplies onto the workers doing the work at the core of the employer's 
business, the employers often have even larger investments.''
    Some commenters that generally supported the Department's six-
factor analysis requested changes to or clarifications of the 
investments factor. In particular, a number of commenters addressed 
costs and expenses that employers require workers to bear or that they 
otherwise impose on workers and argued that such costs and expenses are 
not of a capital or entrepreneurial nature indicating independent 
contractor status. For example, Intelycare asserted that when a nursing 
agency shifts fees for malpractice insurance onto workers, those fees 
are not an investment by the workers. Intelycare added: ``We urge the 
Department to close such loopholes and instruct that companies cannot 
shift or attempt to disguise their own investments in an effort to 
avoid employee classification.'' Gale Healthcare Solutions likewise 
requested that the Department ``clarify that when a company shifts its 
`investment' cost or a typical cost of doing business to workers (e.g., 
. . . purchasing group malpractice insurance and deducting the cost 
from workers' pay), this transferred cost does not constitute worker 
investment.'' LA Fed & Teamsters Locals requested that the Department 
make ``clear in its final rule that any investments that an employer 
requires fall into th[e] category of non-probative investments, and 
provide additional guidance to ensure that employers cannot find 
additional ways to manipulate these factors.'' NELP similarly requested 
that the Department ``clarify that investments made by a worker that 
reflect a contractual demand by the hiring entity, rather than an 
independent business investment decision or meaningful negotiation 
between business parties, should not weigh towards independent 
contractor status.'' NELP added: ``Without this clarification, hiring 
entities may misclassify workers as independent contractors and require 
or pressure them, as a condition of receiving work, to make 
expenditures that appear large in comparison to an undercapitalized 
hiring entity--such as a fly-by-night subcontractor or labor broker--to 
avoid accountability.''
    Having considered these comments, the Department agrees that costs 
unilaterally imposed by an employer on a worker are not capital or 
entrepreneurial in nature. Where the worker has no meaningful say 
either in the fact that the cost will be imposed or the amount, the 
cost cannot be an investment indicating that the worker is in business 
for themself. Using malpractice insurance for nurses as an example, if 
such insurance is required by law or regulation and a nursing staffing 
agency purchases and maintains the insurance for the nurses and passes 
that cost on to, or imposes a charge for insurance on, the nurses, that 
cost does not indicate independent contractor status. But, if insurance 
is required by law or regulation, and the nurse can choose among 
policies based on their prices and coverages and does independently 
procure a policy, then the cost of the insurance could be capital or 
entrepreneurial in nature and indicative of independent contractor 
status. For these reasons, the Department is modifying the relevant 
sentence from the regulatory text regarding the investments factor to 
add the following text: ``and costs that the

[[Page 1678]]

potential employer imposes unilaterally on the worker.'' \271\
---------------------------------------------------------------------------

    \271\ NELP additionally commented that ``[c]larifying the 
relationship between [the investments and opportunity for profit or 
loss] factors will help identify situations (like the personal 
vehicle example . . .) where a corporation may be transferring the 
cost of doing business to its workers, who are required to make 
expenditures that are not independent decisions impacting their 
businesses' profits or losses.'' The Department believes that its 
discussion in this paragraph and the following paragraph, as well as 
its discussion below regarding the investments factor as it relates 
to the opportunity for profit or loss factor, provide additional 
clarity.
---------------------------------------------------------------------------

    Relatedly, Real Women in Trucking stated that truck drivers who 
wholly own or independently finance a truck are true owner-operators 
because ``[t]his type of investment gives [them] the ability to keep 
their truck if they decide to stop working for any particular company, 
and accordingly some measure of economic independence.'' The commenter 
further stated that, in contrast, ``employer-sponsored leases for work 
equipment, including for trucks, are not investments of the kind that 
weigh in favor of independent contractor classification.'' The 
Department generally agrees with this distinction, although it is 
hesitant to state that the existence of an employer-sponsored lease can 
never indicate independent contractor status. Consistent with the 
discussion of malpractice insurance in the previous paragraph, if a 
driver is not required to lease a truck from the employer, is able to 
consider independent financing options, is able to meaningfully 
negotiate the terms of the lease with the employer, is not required by 
the employer to work for it for a minimum period of time nor prohibited 
by it from using the leased truck to work for others, and then decides 
to lease from the employer, the cost of the truck leased from the 
employer could be capital or entrepreneurial in nature, especially if 
the lease could ultimately result in the driver's wholly owning the 
truck.\272\
---------------------------------------------------------------------------

    \272\ On the other hand, where a driver has ``the means to 
engage in the freight-hauling business only because [the employer] 
advanced a truck, equipment, and many other resources up front on 
[the employer's] own credit'' and is charged for those costs, the 
investment factor indicates employee status. Brant v. Schneider 
Nat'l, 43 F.4th 656, 671 (7th Cir. 2022).
---------------------------------------------------------------------------

    Regarding the proposed regulatory text's statement that the costs 
to workers of tools to perform specific jobs are not capital or 
entrepreneurial investments, LIUNA suggested the following addition: 
``The mere utility of a worker's tools to perform similar work for 
other employers does not render the worker's purchase of those tools an 
entrepreneurial investment, especially where the pertinent employer 
invests far more in facilitating or purchasing the employees' work.'' 
In support, LIUNA stated that ``[t]he weight of authority . . . 
overwhelmingly suggests that the potential utility of a workers' tools 
for other projects does not render those workers[] independent 
contractors.'' This statement, however, overlooks that the economic 
realities analysis considers the totality of the circumstances. A 
worker's use of tools alone does not determine whether the worker is an 
employee or independent contractor. Moreover, the Department believes 
that a worker's purchase of tools and equipment for use performing 
multiple jobs for multiple employers can be a capital or 
entrepreneurial investment. The regulatory text already explains that 
the nature of such purchases of tools and equipment needs to be 
determined and that such costs to a worker and the worker's other 
investments should be considered on a relative basis with the 
employer's investments in its overall business. Accordingly, the 
Department declines LIUNA's suggestion.
    NELA stated that the NPRM ``correctly focuses on whether 
investments are capital or entrepreneurial in nature'' but expressed 
concerns that the ``Department's decision to separate the `investment' 
prong from the `opportunities for profit and loss' prong . . . goes too 
far, and detracts from . . . needed clarity.'' According to NELA, 
``[a]n expenditure is only an `investment' when it may impact profit 
and loss,'' and ``[i]f an employee has spent money for work but has no 
opportunity for profit and loss as a result, then the conclusion should 
be that they are not `investing' in anything.'' NELA requested that the 
NPRM ``be edited to clarify that `investment' inherently implies the 
possibility of profit and is only `capital or entrepreneurial in 
nature' . . . when it has a nexus with profit and loss.'' The 
Department agrees that whether the worker's expenditures may result in 
profits or losses to the worker is highly relevant to whether those 
expenditures are capital or entrepreneurial in nature. However, 
because, as explained further below, the investment factor is not 
synonymous with the opportunity for profit or loss factor and because 
adding a ``nexus with profit or loss'' requirement is not supported by 
the weight of the case law that has historically viewed the two factors 
as analytically distinct under the economic reality test, the 
Department declines to promulgate an absolute requirement that 
expenditures have ``a nexus with profit and loss'' to be capital or 
entrepreneurial in nature. Moreover, such a requirement could be viewed 
as similar to the 2021 IC Rule's approach of combining the 
consideration of investments with opportunity for profit or loss--an 
approach that the Department is rejecting as discussed below. For all 
the reasons stated herein, the Department is restoring investments as 
its own separate factor. Although some overlaps between factors are 
understandable, tying investments to profits and losses in the absolute 
manner suggested by NELA would be contrary to the Department's goal of 
rectifying the 2021 IC Rule's treatment of investments as part of the 
opportunity for profit or loss factor.
    NELA further stated that the NPRM was ``correct to incorporate a 
relative-investment analysis'' in this factor, but that ``the 
Department should explain that the relative-investment analysis is 
qualitative, not quantitative, to better align this prong with the 
overarching dependence/independence inquiry.'' According to NELA, ``[a] 
qualitative review of relative investments helps determine whether the 
investment is entrepreneurial in nature,'' but ``[a]n analysis that 
instead focuses on a quantitative comparison of investments is rarely 
conclusive, because not all industries are equally capital-intensive.'' 
NELA added that ``the threshold question of which expenditures are 
entrepreneurial `investments' versus `tools' makes quantitative 
comparison confusing and inconclusive.'' See also NELP (The Department 
should ``clarify[] that the comparison of investments must be 
qualitative.''); Real Women in Trucking (``While a single tractor 
trailer is a relatively small investment compared to the fleets of 
trucks owned by some firms, when wholly owned or independently 
financed, it is sufficient to support a personal trucking business, and 
thereby meets the standard discussed in the Proposed Rule.'').
    Having considered these comments, the Department agrees that 
focusing the comparison of the worker's and the employer's investments 
on their qualitative natures is helpful. As NELA points out, different 
industries may be more or less ``capital-intensive.'' Thus, focusing 
only on the quantitative measures (e.g., dollar values or size) of the 
investments may not achieve the full probative value of comparing the 
investments. On the other hand, comparing the investments in a 
qualitative manner (i.e., the types of investments) is a better 
indicator of whether the worker is economically

[[Page 1679]]

dependent on the employer for work or is in business for themself. That 
is because regardless of the amount or size of their investments, if 
the worker is making similar types of investments as the employer or 
investments of the type that allow the worker to operate independently 
in the worker's industry or field, then that fact suggests that the 
worker is in business for themself. The comment from Real Women in 
Trucking captures this point well. Although the driver who wholly owns 
or is independently financing a single truck is making a quantitatively 
smaller investment (in dollars and size) than the employer that has a 
fleet of trucks, the driver is making a similar type of investment as 
the employer and a sufficient investment so that the driver can operate 
independently in that industry--suggesting independent contractor 
status. Another example is an individual photographer who has cameras 
and related equipment, has software to edit photos, and works out of 
their home. Although the individual may not have the extent of 
equipment, software with every capability, or a leased office space 
like a larger firm, the type of investments that the individual has 
made are sufficient in this case for the individual to operate 
independently in the photography field--suggesting independent 
contractor status. Accordingly, the Department is revising the last 
sentence of the proposed regulatory text for the investments factor to 
be two sentences and to read: ``The worker's investments need not be 
equal to the potential employer's investments and should not be 
compared only in terms of the dollar values of investments or the sizes 
of the worker and the potential employer. Instead, the focus should be 
on comparing the investments to determine whether the worker is making 
similar types of investments as the potential employer (even if on a 
smaller scale) to suggest that the worker is operating independently, 
which would indicate independent contractor status.'' \273\
---------------------------------------------------------------------------

    \273\ IBT commented that, ``[a]s it is currently written, this 
proposed factor could be misinterpreted as it unintentionally 
excludes from consideration, many of the conditions workers who work 
for platform-based companies are subject to.'' IBT added: ``By 
overemphasizing workers' ability to increase earnings through 
minimal investment or personal initiative, the proposed rule risks 
inviting employers to engage in further tactics to exclude more of 
their workers from the FLSA's protections.'' The Department 
disagrees with this characterization, especially considering the 
modifications that it has made to the investments factor. For all of 
the reasons explained herein, the Department believes that it has 
struck the right balance by focusing on the nature of the worker's 
investment (it should be capital or entrepreneurial to indicate 
independent contractor status) and by qualitatively comparing the 
worker's investments to the employer's investments to determine if 
the worker is making similar types of investments as the employer to 
suggest that the worker is in business for themself.
---------------------------------------------------------------------------

    Numerous commenters opposed, disagreed with, and/or requested 
changes to or clarifications of the proposed investments factor. For 
example, several commenters opposed the NPRM's proposed treatment of 
investments as its own separate factor. NRF & NCCR stated that 
``investments are so interrelated with profits and losses that 
analyzing them separately is duplicative and unnecessary,'' and that 
the 2021 IC Rule, ``following Second Circuit precedent,'' ``brings 
clarity and helps reduce overlap to this analysis.'' N/MA stated that 
``[i]nvestment by a worker in their own business creates an expense, 
which by definition creates an equation whether the worker may 
experience loss or profit depending on the worker's net profits.'' CWI 
stated that, ``because the investment factor is already sufficiently 
addressed in the opportunity-for-profit-or-loss factor, there is no 
need for it to be addressed again as a standalone factor.'' CWI 
disagreed with the Department's characterization of the 2021 IC Rule on 
this point, stating that the 2021 IC Rule ``provides that both 
initiative and investment must be considered, though both are not 
required'' and thus ``provides that the satisfaction of either is a 
necessary condition for the opportunity-for-profit-or-loss factor, but 
not that either is per se sufficient'' (emphases added). See also 
Coalition of Business Stakeholders. FSI stated that the NPRM 
``introduces redundancy and double-counting by assessing a worker's 
`investment' in the business as a `standalone factor.' '' The commenter 
further stated that although the Supreme Court in Silk articulated 
investment as a separate factor than opportunity for profit or loss, 
the Court ``analyzed them together,'' which the commenter asserted that 
the Department ``fail[ed] to address.'' Other commenters, such as ABC, 
North American Meat Institute, and the U.S. Chamber, also disagreed 
with the NPRM's treatment of investments as its own separate factor.
    Having considered the comments, the Department agrees with the 
comments discussed above from commenters including AFL-CIO, IBT, LA Fed 
& Teamsters Locals, NELP, and NWLC, and is retaining investments as a 
separate factor in the economic realities analysis. The Department's 
approach is consistent with the overwhelming majority of federal 
appellate case law and the Department's practice prior to the 2021 IC 
Rule. Almost all of the federal courts of appeals consider investments 
as a separate factor.\274\ In addition, the Department consistently 
identified investments as a separate factor in the analysis prior to 
the 2021 IC Rule.\275\ The Department understands that the Second and 
D.C. Circuits consider investments and opportunity for profit or loss 
as one factor.\276\ However, treating investments as a separate factor 
is consistent with the approach taken by most federal appellate courts, 
the Department's intent for this final rule to be as grounded as 
possible in the case law, and the Department's prior guidance. And as 
explained below, treating investments as a separate factor rather than 
including it in the opportunity for profit or loss factor as the 2021 
IC Rule ensures that investments are considered in each case and may 
result in a fuller consideration of relevant facts.
---------------------------------------------------------------------------

    \274\ See, e.g., DialAmerica, 757 F.2d at 1382; McFeeley, 825 
F.3d at 241; Hobbs, 946 F.3d at 829; Off Duty Police, 915 F.3d at 
1055; Brant, 43 F.4th at 665; Alpha & Omega, 39 F.4th at 1082; 
Driscoll, 603 F.2d at 754; Paragon, 884 F.3d at 1235; Scantland, 721 
F.3d at 1311.
    \275\ See, e.g., WHD Op. Ltr. (Aug. 13, 1954); WHD Op. Ltr. 
FLSA-795 (Sept. 30, 1964); WHD Op. Ltr. (Oct. 12, 1965); WHD Op. 
Ltr. (Sept. 12, 1969); WHD Op. Ltr. WH-476, 1978 WL 51437, at *1 
(Oct. 19, 1978); WHD Op. Ltr., 1986 WL 1171083, at *1 (Jan. 14, 
1986); WHD Op. Ltr., 1986 WL 740454, at *1 (June 23, 1986); WHD Op. 
Ltr., 1995 WL 1032469, at *1 (Mar. 2, 1995); WHD Op. Ltr., 1995 WL 
1032489, at *1 (June 5, 1995); WHD Op. Ltr., 1999 WL 1788137, at *1 
(July 12, 1999); WHD Op. Ltr., 2000 WL 34444352, at *1 (July 5, 
2000); WHD Op. Ltr., 2000 WL 34444342, at *3 (Dec. 7, 2000); WHD Op. 
Ltr., 2002 WL 32406602, at *2 (Sept. 5, 2002); WHD Fact Sheet #13, 
``Employment Relationship Under the Fair Labor Standards Act 
(FLSA)'' (July 2008); AI 2015-1,available at 2015 WL 4449086 
(withdrawn June 7, 2017).
    \276\ See, e.g., Franze, 826 F. App'x at 76; Superior Care, 840 
F.2d at 1058-59; Morrison, 253 F.3d at 11 (citing Superior Care, 840 
F.2d at 1058-59).
---------------------------------------------------------------------------

    The Department recognizes that the consideration of investments may 
be related to the consideration of the opportunity for profit or loss. 
As explained above in response to a comment from NELA, whether the 
worker's expenditures may result in profits or losses to the worker is 
highly relevant to whether those expenditures are capital or 
entrepreneurial in nature. The U.S. Chamber, for example, cited the 
Fourth Circuit's decision in McFeeley to support its argument that 
``[i]nvesting in one's business necessarily entails creating an 
opportunity for profit or risking a loss on that investment.'' In 
McFeeley, the court noted that the two factors ``relate logically to 
one other'' \277\ but nonetheless articulated them

[[Page 1680]]

separately \278\ and ultimately made determinations on each factor as 
it related to the workers' status as employees or independent 
contractors.\279\ And even assuming that the Supreme Court in Silk 
``analyzed them together'' as FSI argued, the Court did articulate the 
two factors separately.\280\
---------------------------------------------------------------------------

    \277\ 825 F.3d at 243.
    \278\ Id. at 241.
    \279\ Id. at 243 (``These two factors thus fail to tip the 
scales in favor of classifying the dancers as independent 
contractors.'').
    \280\ 331 U.S. at 716. Whether the Court in Silk actually 
analyzed the two factors together is questionable, particularly with 
respect to the ``driver-owners.'' The Court concluded that ``[i]t is 
the total situation, including the risk undertaken [a reference to 
the facts that they ``own their own trucks'' and ``hire their own 
helpers''], the control exercised, the opportunity for profit from 
sound management, that marks these driver-owners as independent 
contractors.'' Id. at 718.
---------------------------------------------------------------------------

    Moreover, as decisions from the Fifth Circuit and other Circuits 
demonstrate, investments may be relevant to whether the worker is 
economically dependent on the employer separate and apart from the 
worker's opportunity for profit or loss. For example, the Fifth Circuit 
found in Parrish that the investment factor favored employee status 
(although it merited ``little weight'' in that case given the nature of 
the work) and that the opportunity for profit or loss factor favored 
independent contractor status.\281\ In Cromwell, the Fifth Circuit 
conversely found that the investment factor indicated independent 
contractor status because the workers ``invested a relatively 
substantial amount in their trucks, equipment, and tools'' but that 
their opportunity for profit or loss was ``severely limit[ed].'' \282\ 
In Nieman, the Eleventh Circuit found that the investment factor 
weighed in favor of independent contractor status while the opportunity 
for profit or loss factor did ``not weigh in favor of either'' 
independent contractor or employee status.\283\ And in Scantland, the 
Eleventh Circuit found that the opportunity for profit or loss factor 
``point[ed] strongly toward employee status'' although the investment 
factor weighed slightly in favor of independent contractor status.\284\
---------------------------------------------------------------------------

    \281\ 917 F.3d at 382-85.
    \282\ Cromwell v. Driftwood Elec. Contractors, Inc., 348 F. 
App'x 57, 60-61 (5th Cir. 2009).
    \283\ 775 F. App'x at 624-25.
    \284\ 721 F.3d at 1316-18.
---------------------------------------------------------------------------

    The 2021 IC Rule's treatment of investments as part of its 
opportunity for profit or loss factor further reinforces the 
Department's decision to treat investments as a separate factor. The 
2021 IC Rule stated that its opportunity for profit or loss factor 
indicates independent contractor status if the worker exercises 
initiative or if the worker manages their investment in the 
business.\285\ Although ``the effects of the [worker's] exercise of 
initiative and management of investment are both considered'' under its 
opportunity for profit or loss factor, the 2021 IC Rule clearly stated 
that a worker ``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.'' \286\ Thus, contrary to, for example, the 
argument of CWI that there would be a ``balancing test,'' the 2021 IC 
Rule provided that, if either initiative or investment suggested 
independent contractor status, the other could not change that outcome 
even if it suggested employee status. The 2021 IC Rule's approach to 
investments was accordingly flawed because it, in some cases, 
eliminated the role of investments in helping to determine a worker's 
status, particularly when the investments or the lack thereof indicated 
that the worker was an employee.
---------------------------------------------------------------------------

    \285\ 86 FR 1247 (``This factor 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 investment in or capital 
expenditure on, for example, helpers or equipment or material to 
further his or her work.'').
    \286\ Id.
---------------------------------------------------------------------------

    In sum, nothing in this final rule forecloses consideration, in an 
appropriate case, of investments as they relate to the worker's 
opportunity for profit or loss. However, for all of the reasons set 
forth above and consistent with this final rule's totality-of-the-
circumstances approach, treating investments as a separate factor in 
the analysis ensures that investments are accorded, at least at the 
outset of the analysis, the same considerations as the other factors 
and that the probative value of the investments toward the worker's 
dependence or independence will affect the ultimate outcome of the 
analysis.
    A few commenters objected to the proposed regulatory text's 
statement that the investments factor ``considers whether any 
investments by a worker are capital or entrepreneurial in nature.'' 
\287\ CWI commented that ``[n]othing in Silk or Rutherford construed 
the factor so narrowly,'' and that ``limiting investments to those that 
are `capital or entrepreneurial' would disproportionately impact 
underserved communities'' because ``the standard imposes significant 
barriers for individuals without the financial resources needed for 
capital and entrepreneurial investments--i.e., it penalizes, and 
removes freedom in choosing work arrangements, from those without pre-
existing financial resources.'' Flex made a similar point, stating that 
``tools need not be `capital or entrepreneurial in nature' to have the 
effect of helping the worker achieve economic independence.''
---------------------------------------------------------------------------

    \287\ 87 FR 62275 (proposed Sec.  795.110(b)(2)).
---------------------------------------------------------------------------

    Having considered these comments, the Department adopts the 
proposal that whether the worker's investments are capital or 
entrepreneurial in nature is probative of whether they indicate 
employee or independent contractor status. Considering the worker's 
investment in this manner is consistent with the overall inquiry of 
determining whether the worker is economically dependent on the 
employer for work or is in business for themself because a capital or 
entrepreneurial investment indicates that the worker is operating as an 
independent business. More specifically, capital or entrepreneurial 
investments tend to help a worker work for multiple companies--a 
characteristic of an independent business. Accordingly, the examples in 
the regulatory text (``increasing the worker's ability to do different 
types of or more work, reducing costs, or extending market reach'') 
generally involve efforts to work independently for multiple companies. 
Focusing on whether the worker's investments are capital or 
entrepreneurial in nature does not construe the factor ``narrowly,'' as 
CWI asserted. As explained below in response to specific comments 
asserting that this factor is limiting, there are no minimum-dollar 
thresholds or other requirements for investments to be capital or 
entrepreneurial and thus indicate independent contractor status. 
Instead, focusing on the nature of the worker's investments ties this 
factor to the worker's economic dependence or independence.
    Many federal appellate court decisions have emphasized how the 
worker's investment must be capital in nature for it to indicate 
independent contractor status. For example, the Seventh Circuit 
determined in Lauritzen that migrant farm workers were not independent 
contractors, but employees, due in part to the lack of capital 
investments made by the workers.\288\ The court explained that 
investments that establish a worker's status as an independent 
contractor should be ``risk capital [or] capital investments, and not 
negligible items or labor itself. . . . The workers here are 
responsible only for providing their own gloves [which] do not 
constitute a

[[Page 1681]]

capital investment.'' \289\ In Paragon, the Tenth Circuit explained 
that ``the relevant `investment' is `the amount of large capital 
expenditures, such as risk capital and capital investments, not 
negligible items, or labor itself.' '' \290\ The Fifth Circuit has 
focused on whether the worker has any ``risk capital'' in the work and 
has found this factor to indicate employee status when all or an 
overwhelming majority of the risk capital is provided by the 
employer.\291\ And the Sixth Circuit has described this factor as the 
``capital investment factor.'' \292\
---------------------------------------------------------------------------

    \288\ See 835 F.2d at 1537.
    \289\ Id.
    \290\ 884 F.3d at 1236 (quoting Snell, 875 F.2d at 810).
    \291\ See Mr. W Fireworks, 814 F.2d at 1052; Pilgrim Equip., 527 
F.2d at 1314.
    \292\ See Off Duty Police, 915 F.3d at 1056 (quoting Donovan v. 
Brandel, 736 F.2d 1114, 1118-19 (6th Cir. 1984)).
---------------------------------------------------------------------------

    Moreover, CWI's efforts to use Silk and Rutherford to undercut the 
Department's approach are unpersuasive. In Silk, the unloaders 
``provided only picks and shovels,'' and there was nothing to suggest 
that their ``simple tools'' were capital or entrepreneurial in 
nature.\293\ On the other hand, the ``driver-owners'' at issue in Silk 
``own[ed] their own trucks'' and ``hire[d] their own helpers,'' and at 
least some worked ``for any customer.'' \294\ The circumstances of the 
driver-owners, and particularly the indication that their owned trucks 
and hired helpers allowed them to manage their businesses, operate 
independently, and work for multiple customers, suggest that their 
investments were capital or entrepreneurial in nature. And Rutherford 
is not instructive because the workers merely owned some tools specific 
to their boning work--nothing that suggested any type of investment to 
the Court indicating that they were independent contractors.\295\ 
Focusing on whether the worker's investments are capital or 
entrepreneurial nature is thus consistent with Silk and Rutherford and 
is not a narrowing of those decisions.
---------------------------------------------------------------------------

    \293\ 331 U.S. at 717-18.
    \294\ Id. at 719.
    \295\ 331 U.S. at 725.
---------------------------------------------------------------------------

    Appraisal Institute and Real Estate Evaluation Advocacy Association 
asked whether ``an appraiser seeking out specialized education, 
training, and certification'' is making a capital or entrepreneurial 
investment ``even when those trainings or certifications are industry 
requirements for certain categories of work.'' As a general matter and 
as opposed to costs that a potential employer unilaterally imposes on a 
worker, a worker's efforts to obtain specialized education, training, 
and certification that are required by an industry can be capital or 
entrepreneurial in nature if (for example and as explained in the 
regulatory text) they increase the worker's ability to do different 
types of or more work or extend market reach.
    CLDA asserted that the ``rule commentary also states the investment 
must be large, must be a capital expenditure, and must be 
entrepreneurial in nature.'' It added: ``This ignores the practical 
realities of starting a business. Few entrepreneurs can start a 
business with multi-million-dollar investments in equipment, 
technology, and real estate.'' Direct Selling Association (``DSA'') 
similarly commented that focusing on whether the investment is capital 
or entrepreneurial in nature ``would disproportionately impact 
underserved communities that direct selling serves such as Hispanics.'' 
Stating that ``practically any individual can start [a direct selling 
business] for an average of $82.50,'' it added that the Department 
proposed ``a rule that would penalize this low-cost business by 
requiring a large investment to point towards being an independent 
contractor.'' TheDream.US commented that ``Dreamers certainly have 
skills and initiative, but not the resources to make the level of 
capital investment that the DOL seems to be proposing.'' Although the 
NPRM cited cases discussing ``large'' expenditures,\296\ the NPRM 
focused on the nature of the investments, did not propose any minimum-
dollar threshold, and absolutely did not suggest that ``multi-million-
dollar'' or even ``large'' investments are required for this factor to 
indicate independent contractor status. As explained above, focusing on 
the nature of the investments and whether they are capital or 
entrepreneurial in nature is most probative of whether the worker is 
economically dependent on the employer for work or in business for 
themself. Consistent with that focus, there is no minimum-dollar 
threshold or requirement that the investment be ``large'' or of a 
certain level for a worker's investment to be capital or 
entrepreneurial in nature.
---------------------------------------------------------------------------

    \296\ 87 FR at 62241 (citing Paragon, 884 F.3d at 1236 (quoting 
Snell, 875 F.2d at 810); Lauritzen, 835 F.2d at 1537).
---------------------------------------------------------------------------

    MEP stated that the examples of capital or entrepreneurial 
investments in the proposed regulatory text ``unnecessarily limit the 
personal investments that should be considered in the analysis and seem 
to suggest that independent contractors can only be those individuals 
who want to expand their business, increase their workload, or extend 
the business' market reach.'' These examples, however, are preceded in 
the regulatory text by the words ``such as'' and are plainly a 
nonexhaustive set of examples--none of which have to be satisfied.\297\ 
A worker's investments are most likely to be capital or entrepreneurial 
in nature if they create or further the worker's ability to work for 
multiple employers (as these examples suggest), but the examples are 
not limiting as MEP asserted. Likewise, in response to comments 
discussed below about particular types of investments, such as 
computers, phones, and specialized software, the Department is not 
suggesting that certain types of investments are always or can never be 
capital or entrepreneurial. Instead, the focus should be on the nature 
of the investment in the circumstances.
---------------------------------------------------------------------------

    \297\ Id. at 62275 (proposed Sec.  795.110(b)(2)).
---------------------------------------------------------------------------

    Numerous commenters raised concerns with the statement in the 
proposed regulatory text that: ``Costs borne by a worker to perform 
their job (e.g., tools and equipment to perform specific jobs and the 
workers' labor) are not evidence of capital or entrepreneurial 
investment and indicate employee status.'' \298\ For example, Coalition 
of Business Stakeholders stated that the proposed provision ``is far 
too broad of a directive to be of any use in conducting an independent 
contractor analysis'' and that it would require factfinders to ``ignore 
any amount of investment a worker made in his or her tools and 
equipment, even if those tools and equipment were--as in the case of a 
software security auditor who provides his own specially designed 
laptop--highly specialized and expensive.'' CWI stated that, contrary 
to the proposed regulatory text, ``such investments are plainly a 
function of the business-like decisions that contractors must make in 
choosing between the projects available to them'' because ``[t]hey may 
purchase equipment that allows them to complete a particular job more 
quickly--and thus more profitably--or may bypass projects requiring 
discrete expenditures that would lower profitability.'' ABC added 
``independent contractors in the construction industry who invest in 
their own tools and equipment are in fact acting as entrepreneurs, and 
such investment should continue to be recognized as indicative of 
independent contractor status.'' The U.S. Chamber

[[Page 1682]]

stated this provision ``contradicts the weight of case law, which has 
held that a worker's investment in the equipment necessary to perform a 
discrete job is evidence of independent contractor status'' and that 
``[e]ven the Fifth Circuit, which utilizes a `relative investment' 
inquiry, has found this to be true''). The U.S. Chamber added that 
``workers can be in business for themselves without having to expend 
huge sums of money,'' and that ``[a] `knowledge-based' worker, such as 
an IT worker, may be able to perform independent work with only a 
laptop or tablet, which are seemingly ubiquitous and relatively 
inexpensive.'' Relatedly, Fight for Freelancers asked whether ``the 
investment in a computer, a cell phone and some specialized software 
constitute a meaningful enough investment to indicate independent 
contractor status under [the investments factor]?'' Moreover, although 
WFCA agreed with evaluating the worker's ``capital expenditures,'' it 
expressed concern that the NPRM ``eliminates one of the major capital 
expenses of many independent contractors--tools and equipment.'' WFCA 
identified ``specialty tools'' such as a ``floor scrapper'' and ``power 
stretchers,'' and stated that `[t]hese tools and equipment are major 
investments and should be recognized in evaluating whether the 
installer is an independent contractor or an employee.'' WFCA suggested 
modifying this provision in the regulatory text so that it provides 
that ``investment in tools and equipment to perform specific jobs 
(other than common household tools or equipment) are evidence of 
capital or entrepreneurial investment and indicate independent 
contractor status.'' Flex commented: ``When a worker's investment in 
tools and equipment allows the worker to move from client to client, 
the worker's investment in those tools and equipment makes the worker 
less economically reliant on any one client.'' CPIE, noting that ``the 
Tenth Circuit reasoned that `[t]he mere fact that workers supply their 
own tools or equipment does not establish status as independent 
contractors' '' (citing Paragon, 884 F.3d at 1236), commented that 
``not establishing status as independent contractors is vastly 
different from establishing status as employees,'' and that ``[a]t 
most, a finding that an individual bears that costs of performing a 
service would be neutral.'' OOIDA expressed concern that this provision 
``might be construed as saying that the purchase or financing of 
equipment like a truck or trailer does not weigh in favor of 
independent contractor status since this equipment is used to complete 
a job.'' It asked the Department to ``better clarify between the `tools 
and equipment' that are used by a worker to perform specific jobs and 
may not indicate independent contractor status with the `capital and 
entrepreneurial' investments that do.'' NHDA expressed concern that a 
``medium duty Class 6 box truck, which costs between $50,000--$90,000 
on average . . . may not indicate independence under the Proposed Rule, 
because . . . a medium duty truck is arguably expedient to perform the 
business of home delivery transportation.''
---------------------------------------------------------------------------

    \298\ Id. As explained above, the Department is modifying this 
provision in response to comments to add ``and costs that are 
unilaterally imposed by the potential employer on the worker.''
---------------------------------------------------------------------------

    Having considered these comments, the Department continues to 
believe that it is helpful to provide guidance regarding workers who 
provide tools and equipment to perform a specific job, but acknowledges 
that the ``to perform their job'' language in the proposed regulatory 
text can be made more precise. Applying the general principle from the 
regulatory text that the focus should be on whether the investment is 
capital or entrepreneurial in nature and that capital or 
entrepreneurial investments tend to increase the worker's ability to do 
different types of or more work, reduce costs, or extend market reach, 
investment in tools or equipment to perform a specific job would not 
qualify as capital or entrepreneurial. As the Department explained in 
the NPRM, ``an investment that is expedient to perform a particular job 
(such as tools or equipment purchased to perform the job and that have 
no broader use for the worker) does not indicate independence.'' \299\ 
On the other hand, a worker may invest in tools and equipment for 
reasons beyond performing a particular job, such as to increase the 
worker's ability to do different types of or more work, reduce costs, 
or extend market reach. Such investments can be capital or 
entrepreneurial in nature. To the extent that the ``to perform their 
job'' language in the proposed regulatory text suggested otherwise, the 
Department is removing that language. Accordingly, the Department is 
further modifying the regulatory text so that this provision reads: 
``Costs to a worker of tools and equipment to perform a specific job, 
costs of workers' labor, and costs that the potential employer imposes 
unilaterally on the worker, for example, are not evidence of capital or 
entrepreneurial investment and indicate employee status.'' A worker may 
have expenses to perform a specific job and also make investments that 
generally support, expand, or extend the work performed which may be of 
a capital or entrepreneurial nature. Thus, the existence of expenses to 
perform a specific job will not prevent this factor from indicating 
independent contractor status so long as there are also investments 
that are capital or entrepreneurial in nature.
---------------------------------------------------------------------------

    \299\ Id. at 62241.
---------------------------------------------------------------------------

    A number of commenters expressed concerns with the statement in the 
NPRM's preamble that ``the use of a personal vehicle that the worker 
already owns to perform work--or that the worker leases as required by 
the employer to perform work--is generally not an investment that is 
capital or entrepreneurial in nature.'' \300\ Several of those 
commenters, however, gave examples of vehicles that are plainly not the 
type of vehicles identified in this statement. See, e.g., NHDA 
(purchasing or leasing ``personal vehicles for the primary purpose of 
starting a transportation business, whether full-time or part-time''); 
U.S. Chamber (purchasing ``a car to use as a driver for a ride-sharing 
application''); WFCA (purchasing ``a vehicle that is capable of 
carrying the weight of flooring materials and tools''). The NPRM's 
statement does not cover vehicles of the types in these examples that a 
worker purchased for a business purpose--vehicles which can be 
investments of a capital or entrepreneurial nature.\301\
---------------------------------------------------------------------------

    \300\ Id.
    \301\ N/MA, while commenting on this statement regarding 
personal vehicles, gave as an example a ``photographer who purchases 
more sophisticated special camera equipment expecting that he or she 
will use it in their work.'' Again, purchasing specialized equipment 
for use in work can be an investment that is capital or 
entrepreneurial in nature.
---------------------------------------------------------------------------

    CLDA commented that ``most entrepreneurs start their businesses 
with what they already have,'' stating that ``[t]hey start with using . 
. . their car as their delivery vehicle.'' CLDA added that ``[t]hose 
items may have started as personal items, but they become critical 
business tools and critical business investments when the entrepreneur 
starts using them to build a business.'' The U.S. Chamber commented 
that the NPRM's ``absolutist statement ignores the fact that 
contractors may utilize their personal vehicles in a way that shows 
entrepreneurial activity. For example, if workers forgo selling their 
personal vehicle and, instead, choose to use their vehicle to drive for 
a ridesharing platform, that is quintessentially entrepreneurial 
activity. The fact that they had already owned their vehicle is 
immaterial.'' Uber commented that ``[w]hile it is true that drivers on 
platforms like Uber's

[[Page 1683]]

may be using vehicles they owned before they started driving, drivers 
can, and some do, choose to invest in, for example, a luxury vehicle in 
order to earn more by way of higher-end engagements . . . [or] a hybrid 
or electric vehicle specifically to increase their fuel economy.'' MEP 
stated that ``[i]ndividuals may not make . . . investments [in things 
such as personal vehicles] for the purpose of performing work, but 
individuals can choose to monetize those investments through 
independent work arrangements, such as via the gig economy.'' It added 
that ``[u]sing these pre-owned investments to engage in independent 
work should reflect economic independence, which is the ultimate 
inquiry in the worker classification analysis.'' CWI suggested that the 
NPRM's ``discussion of vehicle investments should be withdrawn, and 
that the weight that each investment is afforded should instead be 
evaluated under the totality of the circumstances in which each such 
investment occurred.''
    Having considered the comments, the Department agrees with the 
comments discussed above from commenters that supported the NPRM's 
statement regarding personal vehicles, including AFL-CIO, LA Fed & 
Teamsters Locals, and ROC United, and reaffirms this statement. Whether 
a vehicle owned or leased by a worker and used to perform work is a 
capital or entrepreneurial investment does depend on the totality of 
the circumstances. In the scenario where a worker already owns a 
vehicle and happens to then use it to perform work, the acquisition of 
that vehicle was not for a business purpose and generally cannot be a 
capital or entrepreneurial investment. As the Eleventh Circuit 
explained in Scantland, the ``fact that most technicians will already 
own a vehicle suitable for the work'' suggests that there is ``little 
need for significant independent capital.'' \302\ If a worker already 
owns a vehicle for personal use and then modifies, upgrades, or 
customizes the vehicle to perform work, the worker's investment in 
modifying, upgrading, or customizing the vehicle could be a capital or 
entrepreneurial investment. In other scenarios, whether the vehicle is 
a capital or entrepreneurial investment often depends on whether the 
vehicle was purchased for a personal or business purpose. Where any 
vehicle is suitable to perform the work, purchase of the vehicle is 
generally not a capital or entrepreneurial investment. When the worker 
owns a vehicle with certain specifications (such as a van or truck) to 
perform the work and the worker also uses the vehicle for personal 
reasons, that personal use is relevant, but the vehicle may still be a 
capital or entrepreneurial investment. For example, the Sixth Circuit 
has found that, where the workers' vehicles ``could be used for any 
purpose, not just on the job,'' they did not indicate independent 
contractor status.\303\ The Fifth Circuit has considered the purpose of 
the vehicle and how the worker uses it, and in Mr. W Fireworks, it 
noted that most of the workers in that case purchased vehicles for 
personal and family reasons, not business reasons, in concluding that 
the investment factor indicated employee status.\304\ The Fifth Circuit 
has also noted that, ``[a]lthough the driver's investment of a vehicle 
is no small matter, that investment is somewhat diluted when one 
considers that the vehicle is also used by most drivers for personal 
purposes.'' \305\ In sum, focusing on the purpose of the vehicle and 
how it is used is consistent with the overarching inquiry of examining 
the economic realities of the worker's relationship with the employer. 
And the reality for a worker who already owns a vehicle for personal 
use and then uses it (without any modifications) to perform work is 
that the vehicle was not purchased for a business purpose and generally 
is not a capital or entrepreneurial investment.\306\ Even where a 
personal vehicle is not a capital investment indicating independent 
contractor status, there may be other facts relevant to the investment 
factor, and the worker's ultimate status will be determined by 
application of all of the factors, consistent with the totality-of-the-
circumstances analysis.
---------------------------------------------------------------------------

    \302\ 781 F.2d at 1318.
    \303\ Off Duty Police, 915 F.3d at 1056.
    \304\ 814 F.2d at 1052.
    \305\ Express Sixty-Minutes, 161 F.3d at 304; see also Keller, 
781 F.3d at 810-11 (fact that equipment could be used ``for both 
personal and professional tasks'' weakens the indication of 
independent contractor status).
    \306\ WPI stated that ``the NPRM posits that a worker buying a 
car is an immaterial investment for purposes of independent 
contractor classification if they also use the car for personal 
reasons.'' The commenter, however, mischaracterized the NPRM's 
statement, which addressed a personal vehicle that the worker 
already owns (and thus invested in for reasons other than a business 
purpose) and then uses to perform work. In the different scenario 
posited by the commenter, a car purchased by a worker may be an 
investment of a capital or entrepreneurial nature if purchased for a 
business purpose even if the worker also uses the car for personal 
reasons. Coalition of Business Stakeholders similarly 
mischaracterized the NPRM's statement, saying that the NPRM 
``presumptively declares that a vehicle, should be considered 
`generally not an investment that is capital or entrepreneurial in 
nature' '' (quoting the NPRM). The NPRM's statement, however, 
addressed only a vehicle already owned by a worker that the worker 
then uses to perform work.
---------------------------------------------------------------------------

    Finally, numerous commenters opposed the NPRM's proposal to 
consider the worker's investments ``on a relative basis with the 
employer's investments in its overall business.'' \307\ That proposed 
regulatory text further provided that ``[t]he worker's investments need 
not be equal to the employer's investments, but the worker's 
investments should support an independent business or serve a business-
like function for this factor to indicate independent contractor 
status.'' \308\
---------------------------------------------------------------------------

    \307\ 87 FR 62275 (proposed Sec.  795.110(b)(2)).
    \308\ Id.
---------------------------------------------------------------------------

    For example, CWI expressed ``grave concerns'' with comparing 
investments, stating that this approach ``is inconsistent with law, 
uninformative to the economic realities test, and ultimately injects 
nothing but further uncertainty into the analysis.'' CWI added that the 
Supreme Court in Silk addressed only the workers' investments and not 
the employer's investments, and that an ``employer investing in its own 
business provides absolutely no insight into whether the worker is 
economically dependent on that business.'' CWI further stated that 
``[i]t is hardly surprising that virtually all workers--employees and 
independent contractors alike--have fewer resources than businesses,'' 
but ``[t]hat fact, however, does not influence the question of economic 
dependence for either group.'' NRF & NCCR requested that any 
consideration of relative investments ``be stricken entirely,'' raising 
similar concerns to CWI. NRF & NCCR added that consideration of 
relative investments would create barriers to entry in businesses 
because workers ``would effectively be excluded from contracting with 
any but the smallest of companies.'' The IFA requested clarification in 
the franchise context, noting that franchise opportunities require 
varying upfront investments, but ``[t]his does not mean that someone 
who invests in a lower-cost franchise opportunity is any less an 
independent business person than someone with the means to invest a 
million dollars in a franchise.'' N/MA argued that considering relative 
investments is inconsistent with Silk because the Supreme Court in that 
case ``addressed the investment of the worker as part of the economic 
realities test only by reference to the worker's investment.'' The 
commenter added: ``A putative employer's level of investment in its own 
business provides no insight into

[[Page 1684]]

whether the worker is economically dependent on that business, as the 
work and investment made by the worker may be in an entirely different 
area of services than that even performed by the putative employer.'' 
FSI stated that the Department ``offers no reasoned explanation why 
that relative inquiry is probative of independent contractor status, 
contrary to the 2021 Rule's conclusion that it measures an irrelevant 
comparison of respective organizational size.''
    Club for Growth Foundation commented that the 2021 IC Rule was 
correct to reject a relative investments analysis. It added: ``The size 
of the hiring business has no relevance to whether the worker is a 
contractor or an employee. Consider a talented translator who 
translates a book, on the same terms and for the same fee, into French 
for a local college press and into Spanish for a major commercial 
publishing house. Why should she be considered more likely to be an 
employee when doing the Spanish work?'' OOIDA similarly commented that 
``it doesn't make sense that an owner-operator would be an independent 
contractor if they are working with a three-truck carrier but then be 
judged differently if they go to work for a carrier with hundreds or 
thousands of trucks.'' The CA Chamber, CLDA, Flex, NACS, NHDA, and 
Scopelitis, made similar points. See also ABC; CPIE; WFCA.
    Having considered these comments, the Department continues to 
believe that comparing the worker's investments to the employer's 
investment is well-grounded in the case law and the Department's prior 
guidance. The Department further believes that comparing types of 
investments is indicative of whether a worker is economically dependent 
on the employer for work or is in business for themself.
    Although the Supreme Court in Silk did not make such a comparison, 
federal courts of appeals applying the factors from Silk routinely make 
that comparison. For example, the Fifth Circuit ``consider[s] the 
relative investments'' and has explained that, ``[i]n considering this 
factor, `we compare each worker's individual investment to that of the 
alleged employer.' '' \309\ The Sixth Circuit has explained that 
``[t]his factor requires comparison of the worker's total investment to 
the `company's total investment, including office rental space, 
advertising, software, phone systems, or insurance.' '' \310\ The 
Fourth Circuit has similarly compared the employers' payment of rent, 
bills, insurance, and advertising expenses to the workers' ``limited'' 
investment in their work.\311\ In addition, the Third,\312\ Ninth,\313\ 
and Tenth \314\ Circuits have compared the worker's investments to the 
employer's investments. Moreover, the Department has previously 
provided guidance that the worker's investments and the employer's 
investments should be compared. In AI 2015-1, the Department explained 
that a worker's investment ``should not be considered in isolation'' 
because ``it is the relative investments that matter.'' \315\ AI 2015-1 
further explained that, in addition to ``the nature of the 
investment,'' ``comparing the worker's investment to the employer's 
investment helps determine whether the worker is an independent 
business.'' \316\ The Department has also compared the worker's and the 
employer's relative investments in opinion letters issued by WHD.\317\ 
In sum, the relative investments approach is firmly supported by the 
case law and the Department's precedent.\318\
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    \309\ Hobbs, 946 F.3d at 831-32 (quoting Cornerstone Am., 545 
F.3d at 344). In Parrish, the Fifth Circuit compared the relative 
investments as part of its analysis but accorded the relative 
investment factor ``little weight in the light of the other summary-
judgment-record evidence supporting IC-status.'' 917 F.3d at 382-83. 
This does not support the conclusion that this factor is not useful; 
instead, it simply reflects the Fifth Circuit's faithful application 
in that case of a totality-of-the-circumstances approach considering 
many factors, no one of which was dispositive.
    \310\ Off Duty Police, 915 F.3d at 1056 (quoting Keller, 781 
F.3d at 810).
    \311\ McFeeley, 825 F.3d at 243.
    \312\ Verma, 937 F.3d at 231 (summarizing how courts have viewed 
this factor in cases examining the employment status of exotic 
dancers: ``all concluded that `a dancer's investment is minor when 
compared to the club's investment' '') (quoting the district court's 
decision).
    \313\ Driscoll, 603 F.2d at 755 (strawberry growers' investment 
in light equipment, including hoes, shovels, and picking carts was 
``minimal in comparison'' with employer's total investment in land 
and heavy machinery).
    \314\ Paragon, 884 F.3d at 1236 (``To analyze this factor, we 
compare the investments of the worker and the alleged employer.''); 
Flint Eng'g, 137 F.3d at 1442 (``In making a finding on this factor, 
it is appropriate to compare the worker's individual investment to 
the employer's investment in the overall operation.'').
    \315\ 2015 WL 4449086, at *8 (withdrawn June 7, 2017).
    \316\ Id.
    \317\ See WHD Op. Ltr., 2002 WL 32406602, at *1-2 (Sept. 5, 
2002) (workers' ``hand tools, which can cost between $5,000 and 
$10,000,'' were ``small in comparison to [the employer's] 
investment,'' but the ``amount is none the less substantial'' and 
``thus indicative of an independent contractor relationship''); WHD 
Op. Ltr., 2000 WL 34444342, at *4 (Dec. 7, 2000) (comparing ``the 
relative investments'' of the worker and the employer is the correct 
approach).
    \318\ Flex stated that the Department's proposal to compare the 
worker's and the employer's relative investments ``directly 
contradicts the Department's subregulatory guidance in Fact Sheet 
#13, which for decades has advised that `the amount of the alleged 
contractor's investment in facilities and equipment' is not only 
relevant to a worker's status but tends to support classification as 
an independent contractor.'' Fact Sheet #13 has been revised several 
times over the past years and will be revised to reflect this final 
rule. Regardless, there is no basis for Flex's characterization that 
the version of Fact Sheet #13 available at the time of the NPRM 
advised that this factor ``tends to support classification as an 
independent contractor'' as that language is not in the Fact Sheet.
---------------------------------------------------------------------------

    That said, the Department understands the concerns raised by many 
commenters with merely comparing the size of and dollar expenditures by 
the worker to those of the employer, especially for workers who are 
sole proprietors. Accordingly, as explained above in response to 
comments from NELA and others that suggested that the comparison of the 
worker's and the employer's investments should focus on the 
``qualitative'' nature of their respective investments, the Department 
is modifying the last sentence of the proposed regulatory text for the 
investments factor to be two sentences and to read: ``The worker's 
investments need not be equal to the potential employer's investments 
and should not be compared only in terms of the dollar values of 
investments or the sizes of the worker and the potential employer. 
Instead, the focus should be on comparing the investments to determine 
whether the worker is making similar types of investments as the 
potential employer (even if on a smaller scale) to suggest that the 
worker is operating independently, which would indicate independent 
contractor status.'' This modification should address commenters' 
concerns that the size of and/or dollar investments of the employer 
will determine the outcome when comparing the investments. As explained 
above, comparing the qualitative (rather than primarily the 
quantitative) value of the investments is a better indicator of whether 
the worker is economically dependent on the employer for work or is in 
business for themself. That is because, regardless of the amount or 
size of their investments, if the worker is making similar types of 
investments as the employer or investments of the type that allow the 
worker to operate independently in the worker's industry or field, then 
that fact suggests that the worker is in business for themself.\319\
---------------------------------------------------------------------------

    \319\ Comparing the investments qualitatively also addresses the 
Eighth Circuit's ruling in Karlson that the district court was 
correct to allow evidence of the worker's and the employer's 
relative investments, but also correct to not allow the worker to 
ask the employer about the dollar amount of its investment in order 
to simply compare the dollar value of the employer's investment to 
the worker's investment. See 860 F.3d at 1096.

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[[Page 1685]]

    Applying this qualitative approach to, for example, the 
hypothetical truck driver described by OOIDA is instructive. The 
hypothetical suggests that a driver ``would be an independent 
contractor if [the driver is] working with a three-truck carrier,'' but 
the same driver would be an employee if the driver goes ``to work for a 
carrier with hundreds or thousands of trucks.'' \320\ Comparing the 
driver's investment qualitatively with each carrier, however, should 
produce the same indicator of employee or independent contractor 
status. With respect to either carrier, the focus should be on whether 
the driver is making similar types of investments as the carrier (even 
if on a smaller scale) so that the driver (like the carrier) can 
operate independently in the industry. As the application of a 
qualitative comparison to this hypothetical shows, this focus better 
aligns the relative investment analysis with the ultimate inquiry of 
whether the worker is dependent on the employer for work or in business 
for themself.\321\
---------------------------------------------------------------------------

    \320\ This hypothetical and the hypotheticals offered by Club 
for Growth Foundation, Flex, and other commenters overlook the 
totality-of-the-circumstances nature of the economic realities 
analysis. No one fact or factor (including comparing the worker's 
investments to the employer's investments) will necessarily 
determine a worker's status as an employee or independent 
contractor.
    \321\ ACLI commented that ``[n]othing in the Proposed Rule 
explains whether the [relative investments] analysis is focused on 
investments that the company made in the specific worker's business 
(i.e., paying for the worker's staff, rent, tools or equipment) or 
whether the analysis focuses on the overall investment of the 
company in the entirety of its separate business operations (i.e., 
advertisements, branding, overhead for headquarters, etc.).'' See 
also American Securities Association (``It is unclear whether the 
analysis is focused on investments that the company made in the 
specific worker's business (i.e., purchasing tools or equipment for 
the individual worker) or whether the analysis focuses on the 
overall investment of the company in its business operations (i.e., 
branding, marketing campaigns, etc.).''). The proposed and final 
regulatory text, however, clearly indicate that the worker's 
investments should be considered on a relative basis with ``the 
employer's investments in its overall business.'' 29 CFR 
795.110(b)(2). The ACLI also requested that the Department ``clarify 
how the relative investments of the worker and the employer would be 
measured.'' See also CPIE (``The NPRM offers no guidance on how to 
distinguish between those arrangements for which its proposed 
comparison of an individual's investment with a company's investment 
in its overall businesses would be relevant and those arrangements 
for which its proposed comparison should be disregarded.''). The 
Department has provided additional guidance in the discussion above 
and by modifying the regulatory text to convey that ``the focus 
should be on comparing the investments qualitatively'' more than by 
``comparing dollar values of investments or the sizes of the worker 
and the employer.'' 29 CFR 795.110(b)(2). CPIE and IBA suggested 
modifying the relative investments analysis to ``measure an 
individual's investment in the specific items the individual 
requires to perform the individual's services, or compare the 
relative investment in those specific items by an individual and the 
company.'' These commenters state that such a modification would 
avoid the need to address the relative size and magnitude of the 
worker and the employer and would be consistent with the ultimate 
inquiry of economic dependence. For all of the reasons explained 
above, however, the Department believes that those goals are better 
accomplished by focusing relative investments on a qualitative 
comparison.
---------------------------------------------------------------------------

    ACLI commented that the proposed ``Relative Investment factor 
conflicts with . . . the Ability to Profit or Loss Based On Managerial 
Skill factor'' because the Department is ``saying that a worker's 
effectiveness in managing their overhead and expenses to maximize 
profit suggests independent contractor status, but that a worker's 
failure to invest sizeable sums to offset the company's investment 
suggests employment status.'' It added that the opportunity for profit 
or loss factor ``should be given greater weight than the relative 
investment factor so that workers who are skilled in managing their own 
overhead expenses are not penalized and deemed employees simply because 
they are better businesspeople and need to invest less and less over 
time as their businesses mature.'' American Securities Association made 
a similar point. As an initial matter, the Department is not giving any 
factor any greater predetermined weight than any of the other factors 
for all of the reasons explained in this final rule. And as reiterated 
in this final rule, workers will not be ``deemed employees'' when 
applying the economic realities analysis based on one fact or factor 
because the analysis considers the totality of the circumstances. The 
Department's modifications to the investments factor, and particularly 
the emphasis on comparing the worker's investments and the employer's 
investments qualitatively more than quantitatively, should address any 
concern that ``a worker's failure to invest sizeable sums to offset the 
company's investment suggests employment status.''
    The Department is finalizing the investments factor (Sec.  
795.110(b)(2)) with the revisions discussed herein.
Example Investments by the Worker and the Potential Employer
    A graphic designer provides design services for a commercial design 
firm. The firm provides software, a computer, office space, and all the 
equipment and supplies for the worker. The company invests in marketing 
and finding clients and maintains a central office from which to manage 
services. The worker occasionally uses their own preferred drafting 
tools for certain jobs. In this scenario, the worker's relatively minor 
investment in supplies is not capital in nature and does little to 
further a business beyond completing specific jobs. Thus, these facts 
indicate employee status under the investment factor.
    A graphic designer occasionally completes specialty design projects 
for the same commercial design firm. The graphic designer purchases 
their own design software, computer, drafting tools, and rents an 
office in a shared workspace. The graphic designer also spends money to 
market their services. These types of investments support an 
independent business and are capital in nature (e.g., they allow the 
worker to do more work and extend their market reach). Thus, these 
facts indicate independent contractor status under the investment 
factor.
3. Degree of Permanence of the Work Relationship (Sec.  795.110(b)(3))
    For this factor, the Department proposed that the degree of 
permanence of the work relationship would ``weigh[ ] in favor of the 
worker being an employee when the work relationship is indefinite in 
duration or continuous, which is often the case in exclusive working 
relationships,'' and that this factor would ``weigh[ ] in favor of the 
worker being an independent contractor when the work relationship is 
definite in duration, non-exclusive, project-based, or sporadic based 
on the worker being in business for themself and marketing their 
services or labor to multiple entities.'' The Department noted that 
independent contractors may have ``regularly occurring fixed periods of 
work,'' but that ``the seasonal or temporary nature of work by itself 
would not necessarily indicate independent contractor classification.'' 
To further clarify, the Department proposed that ``[w]here a lack of 
permanence is due to operational characteristics that are unique or 
intrinsic to particular businesses or industries and the workers they 
employ, rather than the workers' own independent business initiative,'' 
this would not indicate that the workers are independent 
contractors.\322\
---------------------------------------------------------------------------

    \322\ See generally 87 FR 62243-45, 62275 (proposed Sec.  
795.110(b)(3)).
---------------------------------------------------------------------------

    As the Department noted in the NPRM and in the 2021 IC Rule, courts 
and the Department routinely consider the permanence of the work 
relationship as part of the economic reality analysis under the FLSA to 
determine employee

[[Page 1686]]

or independent contractor status.\323\ Courts typically describe this 
factor's relevance as follows: `` `Independent contractors' often have 
fixed employment periods and transfer from place to place as particular 
work is offered to them, whereas `employees' usually work for only one 
employer and such relationship is continuous and of indefinite 
duration.'' \324\ For example, a typical employee often has an at-will 
work relationship with the employer and works indefinitely until either 
party decides to end that work relationship. Conversely, an independent 
contractor does not usually seek such a permanent or indefinite 
engagement with one entity. Because of these general characteristics of 
work relationships, the length of time or duration of the work 
relationship has long been considered under the ``permanence'' factor 
as an indicator of employee or independent contractor status.\325\
---------------------------------------------------------------------------

    \323\ See 87 FR 62243; 86 FR 1192 (citing a variety of federal 
appellate case law: 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); see also WHD Op. Ltr., 
2002 WL 32406602, at *3 (Sept. 5, 2002); WHD Op. Ltr., 2000 WL 
34444342, at *5 (Dec. 7, 2000) ; WHD Fact Sheet #13.
    \324\ Snell, 875 F.2d at 811 (citing Donovan v. Sureway 
Cleaners, 656 F.2d 1368, 1372 (9th Cir. 1981)); see also Keller, 781 
F.3d at 807 (same); WHD Op. Ltr., 2002 WL 32406602, at *3 (Sept. 5, 
2002) (same).
    \325\ See, e.g., Parrish, 917 F.3d at 386-87 (noting that one of 
the relevant considerations under the permanency factor is the total 
length of the working relationship between the parties); Capital 
Int'l, 466 F.3d at 308-09 (in analyzing the degree of permanency of 
the working relationship, the ``more permanent the relationship, the 
more likely the worker is to be an employee''); DialAmerica, 757 
F.2d at 1385 (finding that ``the permanence-of-working-relationship 
factor indicates that the home researchers were `employees' '' 
because they ``worked continuously for the defendant, and many did 
so for long periods of time''); Pilgrim Equip., 527 F.2d at 1314 
(``the permanent nature of the relations between [the employer] and 
these operators indicates dependence''); see also Reyes v. Remington 
Hybrid Seed Co., 495 F.3d 403, 408 (7th Cir. 2007) (describing an 
independent contractor as an individual who ``appears, does a 
discrete job, and leaves again''); Reich v. Circle C. Invs., Inc., 
998 F.2d 324, 328 (5th Cir. 1993) (``[a]lthough not determinative, 
the impermanent relationship between the dancers and the [employer] 
indicates non-employee status'').
---------------------------------------------------------------------------

    Consistent with case law analyzing this factor, the Department 
proposed to provide further specificity by noting that an indefinite or 
continuous relationship is often consistent with an employment 
relationship, but that a worker's lack of a permanent or indefinite 
relationship with an employer is not necessarily indicative of 
independent contractor status if it does not result from the worker's 
own independent business initiative.\326\ The Department also proposed 
to continue to recognize that a lack of permanence may be inherent in 
certain jobs--such as temporary and seasonal work--and that this lack 
of permanence does not necessarily mean that the worker is in business 
for themself instead of being economically dependent on the employer 
for work. For example, courts have also recognized that the temporary 
or seasonal nature of some jobs may result in a ``lack of permanence . 
. . due to operational characteristics intrinsic to the industry rather 
than to the workers' own business initiative.'' \327\ In such 
instances, a lack of permanence alone is not an indicator of 
independent contractor status.
---------------------------------------------------------------------------

    \326\ See, e.g., Superior Care, 840 F.2d at 1060-61; see also AI 
2015-1, 2015 WL 4449086, at *10 (withdrawn June 7, 2017).
    \327\ Superior Care, 840 F.2d at 1060-61 (citing Mr. W 
Fireworks, 814 F.2d at 1053-54); see also Flint Eng'g, 137 F.3d at 
1442 (finding short duration of work relationships in oil and gas 
pipeline construction work to be intrinsic to the industry rather 
than a ``choice or decision'' on the part of the workers).
---------------------------------------------------------------------------

    Many commenters agreed with the Department's overall proposal for 
this factor. See, e.g., AFL-CIO; IBT, LA Fed & Teamsters Locals; NDWA; 
NELP; NWLC; REAL Women in Trucking; UFCW. The LA Fed & Teamsters Locals 
noted in particular that by relegating the permanence factor to 
``secondary status,'' the 2021 IC Rule had negated the significance of 
``effectively indefinite working relationships'' and that the 
Department's proposal ``corrects this issue'' by returning the factor 
to ``an equal basis with all other factors.'' NELP concurred that ``[a] 
worker whose work relationship is indefinite or continuous or who is 
performing a job that is regularly required by the business is more 
likely to be an employee than a worker who performs work that is 
definite in duration, project-based, or sporadic.''
    Many commenters also agreed with the portion of the Department's 
proposal that addressed situations in which a lack of permanency is 
inherent in the work, such as temporary or seasonal positions, which 
the Department had proposed as not necessarily indicating independent 
contractor status if it is not the result of the worker's own business 
initiative. See, e.g., Gale Healthcare Solutions; LA Fed & Teamsters 
Locals; LIUNA; NABTU; NELP. Gale Healthcare Solutions agreed that a 
lack of permanence may be due to operational characteristics intrinsic 
to the industry rather than the workers' own business initiative, and 
it provided the example of temporary or seasonal forces such as ``flu 
season'' that can drive temporary nursing demand in the healthcare 
industry. It analogized this to the Second Circuit's decision in 
Superior Care, where temporary nurses' lack of permanence did not 
preclude them from being employees because ``this reflected `the nature 
of their profession and not their success in marketing their skills 
independently.' '' And commenters such as Farmworker Justice and the 
New Mexico Center on Law and Poverty affirmed the importance of 
recognizing that farmwork can be seasonal and/or temporary, but that 
this does not weigh against employee status for farmworkers, as many 
courts have recognized.\328\
---------------------------------------------------------------------------

    \328\ As noted in the NPRM, agriculture is an industry where 
courts often view permanency as working continuously for the 
duration of a harvest season or returning in multiple years. See, 
e.g., Paragon, 884 F.3d at 1237 (permanence factor favored employee 
status because the worker was hired temporarily for the harvest 
season ``[b]ut his employment was permanent for the duration of each 
harvest season''); Lauritzen, 835 F.2d at 1537 (agricultural 
harvesters' relationship with employer was ``permanent and exclusive 
for the duration of that harvest season'' and permanency was also 
indicated by the fact that many of the same migrant workers returned 
for the harvest each year; the court noted that ``[m]any seasonal 
businesses necessarily hire only seasonal employees, but that fact 
alone does not convert seasonal employees into seasonal independent 
contractors'').
---------------------------------------------------------------------------

    The primary concern commenters raised about the Department's 
proposal to consider the degree of permanence of the work relationship 
as an indicator of employee or independent contractor status is that a 
long-term pattern of interaction is valued in business relationships, 
and that it can indicate the vitality and stability of a business 
where, for example, satisfied long-term clients or customers continue 
to use their services or contract for particular work. See, e.g., CPIE; 
Fight for Freelancers; N/MA; NRF & NCCR; OOIDA; SIFMA; SHRM; U.S. 
Chamber. Similarly, commenters such as CWI and the U.S. Chamber noted 
that independent contractors may have mutually beneficial business 
relationships for a long or indefinite time period, which brings into 
question whether an ``indefinite'' work relationship is probative of 
employee status.\329\ Commenters raising such

[[Page 1687]]

concerns did not want the fact that an independent contractor had 
fostered successful, long-term business relationships to indicate that 
these economically-independent businesses were actually employees of 
the entities that continued to use their services. They contended that 
the analysis should be more nuanced, including CWI's comment that ``as 
is the case with most aspects of the economic realities analysis, 
`[t]he inferences gained from the length of time of the relationship 
depend on the surrounding circumstances.' ''
---------------------------------------------------------------------------

    \329\ One of the cases relied on by these commenters is Donovan 
v. Brandel, 736 F.2d 1114, 1117 (6th Cir. 1984), where the court 
determined that migrant farmworker families who sometimes returned 
annually to harvest pickles during a 30-40 day harvest season and 
``considered their jobs as migrant farm laborers to be opportunities 
for supplementing their income if their family situation allowed'' 
were engaged in a ``mutually satisfactory arrangement'' that was 
``no more indicative of the employment relationship than when a 
businessman repeatedly uses the same subcontractors due to 
satisfaction with past performance.'' The Department is careful to 
note that Brandel is not necessarily representative of the way 
courts have viewed the permanence factor or employment status of 
agricultural workers who perform seasonal work, nor were these 
commenters specifically criticizing the regulatory language proposed 
by the Department that was almost identical to the language in the 
2021 IC Rule recognizing that the short duration of seasonal work 
such as in agriculture would not necessarily indicate independent 
contractor classification. See 86 FR 1247 (Sec.  795.105(d)(2)(ii)); 
see also, e.g., Lauritzen, 835 F.2d at 1536-37 (noting that Brandel 
has been ``narrowed and distinguished''); Cavazos v. Foster, 822 F. 
Supp. 438, 441-42 (W.D. Mich. 1993) (collecting decisions issued 
after Brandel holding that migrant farmworkers are employees).
---------------------------------------------------------------------------

    The Department agrees that the permanence factor, like other 
factors in the economic reality test, is best understood in the overall 
context of the relationship between the parties where all relevant 
aspects are considered. The Department also clearly recognizes and 
appreciates that people who are in business for themselves often rely 
on repeat business and long-term clients or customers in order for 
their business to remain economically viable or successful. Thus, the 
Department notes that the proposed regulatory text does not reduce the 
permanence analysis to a simple long-term/short-term question. Instead, 
it looks to the general characteristics historically identified by 
courts and the Department regarding the permanency factor, which 
indicate employee status where there is a longer-term, continuous, or 
indefinite work relationship, and independent contractor status where 
the work is definite in duration, nonexclusive, project-based, or 
sporadic due to the worker being in business for themself. It 
explicitly recognizes that an independent contractor may have 
``regularly-occurring fixed periods of work.'' As shown in the example, 
a 3-year relationship between a cook who provides specialty meals and 
an entertainment venue does not automatically result in the cook being 
an employee of the venue, particularly where the cook acts as a 
``freelancer'' by providing meals intermittently to the venue while 
marketing their meal preparation services to multiple customers and the 
cook can determine whether to provide meals for specific events at the 
venue based on any reason, including because the cook is too busy with 
other work.
    Several commenters expressed a mistaken belief that having a degree 
of permanence in a work relationship would automatically make workers 
employees, see, e.g., N/MA; SBA Office of Advocacy, or that the 
Department was creating a ``per se'' rule that work of continuous or 
indefinite duration equates to employee status, see, e.g., CWI; NRF & 
NCCR. Commenters who raised this concern generally asked the Department 
to either modify the regulatory text or eliminate this factor from 
consideration. However, as the Department has repeatedly explained, the 
economic reality test is a totality-of-the-circumstances test where no 
one factor is dispositive. Even if the degree of permanence in a work 
relationship indicates employee status, this is just one factor that 
would be considered along with other factors such as control, 
opportunity for profit or loss, investment, integral, and skill and 
initiative. The Department does not believe there is a scenario in 
which, for example, a worker who controls conditions of employment, 
sets their own fees, hires helpers, and markets their business is 
converted from an independent contractor to an employee solely because 
they have long-lasting relationships with some clients.
    Some commenters suggested clarifications to better capture the 
permanency factor, in their view. For example, IBT and NELP suggested 
that the Department focus on whether the worker's role or position in a 
business is long-term, regular, or indefinite, rather than focusing on 
the individual's tenure, because high turnover of individuals in a 
particular position does not mean that the position or role within a 
business is not long-term, but that the job may be economically 
unsustainable or too dangerous for the worker. The Department agrees 
that a short-term duration of work may not be indicative of independent 
contractor status for these and other reasons. However, the Department 
notes that while this factor is known as the ``permanency'' factor, 
which could be observed literally by the length of an individual 
worker's tenure, the regulatory text also provides guidance regarding 
whether the work was on an indefinite or continuous basis. The 
Department believes that this captures situations where a position 
began as an indefinite or continuous one but was cut short--without the 
need to focus on the nature of the position or role within a business. 
Further, the commenters' suggestion is not, to the Department's 
knowledge, an analysis that has been adopted for this factor by the 
courts.
    NELP also suggested that the Department note that an employer may 
manipulate the permanence of a work relationship by firing or 
terminating a worker, and that if a worker lacks the power to influence 
their own permanence, this should weigh in favor of employee status. 
The Department notes that consideration of whether this type of 
manipulation to evade the obligations of the FLSA has occurred would 
seem to be more appropriate in an enforcement situation than in the 
regulatory text.
    One commenter, CWI, objected to the Department's inclusion of 
``[w]here a lack of permanence is due to operational characteristics 
that are unique or intrinsic to particular businesses or industries and 
the workers they employ, rather than the workers' own business 
initiative, this factor is not indicative of independent contractor 
status'' because it felt this language fails to account for the fact 
that ``many types of independent contractor work are often limited or 
sporadic in duration precisely because such work is only needed for a 
discrete period of time'' and that ``the critical question is whether 
the worker acted like a business.'' The U.S. Chamber also contended 
that it ``makes no difference whether . . . project-to-project work 
occurs as a result of `operational characteristics,' '' urging the 
Department to more clearly identify that whether a worker is acting 
independently is better viewed through the lens of whether the worker 
chooses ``how, when, and the volume of services to provide.'' The 
Department agrees with these commenters that the critical question is 
whether the worker is in business for themself, which is why the 
proposed regulatory language would require consideration of whether a 
lack of permanence is due to the workers' own business initiative. 
Commenters such as NABTU and the NDWA supported the Department's 
proposal in this respect, noting that in industries like construction 
and home care, employment can be temporary and sporadic, and that 
consideration of whether the worker exercised independent business 
initiative was important.
    The Department continues to believe that it is consistent with the 
case law and relevant to the overall question of economic reality to 
consider whether short periods of work are due to workers acting 
independently to obtain business opportunities or to the operational 
characteristics of particular industries

[[Page 1688]]

and the workers they employ.\330\ However, after considering the 
comments received, the Department finds that a clearer articulation of 
the final sentence in the proposed regulatory text would be beneficial 
to employees, employers, independent contractors, and the Department's 
enforcement staff. Therefore, the last sentence of Sec.  795.110(b)(3) 
has been rephrased to emphasize whether the worker is exercising their 
own business initiative: ``Where a lack of permanence is due to 
operational characteristics that are unique or intrinsic to particular 
businesses or industries and the workers they employ, this factor is 
not necessarily indicative of independent contractor status unless the 
worker is exercising their own independent business initiative.'' 
(Emphasis added.) The Department believes this formulation makes it 
clearer that the proper analysis is not categorically based on 
operational characteristics of particular industries, as some 
commenters seemed to have read into the proposal, and that it is 
important to consider whether the worker is exercising independent 
business initiative with respect to these periods of work.
---------------------------------------------------------------------------

    \330\ See, e.g., Flint Eng'g, 137 F.3d at 1442 (temporary rig 
welders exhibited sufficient permanency because such temporary work 
was intrinsic in the industry rather than a ``choice or decision'' 
by the workers); Superior Care, 840 F.2d at 1061 (lack of permanence 
did not preclude temporary nurses from being employees because this 
reflected ``the nature of their profession and not their success in 
marketing their skills independently''), Mr. W Fireworks, 814 F.2d 
at 1054 (``in applying the Silk factors courts must make allowances 
for those operational characteristics that are unique or intrinsic 
to the particular business or industry, and to the workers they 
employ'').
---------------------------------------------------------------------------

    Many commenters suggested industry-specific analyses for the 
permanence factor. See, e.g., ACLI (insurance agents); AFL-CIO 
(platform-based companies); American Securities Association and LPL 
Financial (financial advisors); MEP (applications on smart phones); 
NABTU (construction); NAFO (forestry); National Association of Realtors 
(``NAR'') (real estate brokers). Because the Department is promulgating 
a general rule, it believes that this type of industry-specific 
guidance would be better suited to potential subregulatory guidance. 
The Department agrees that these types of factual analyses would, 
however, be highly relevant when applying the factors to particular 
situations and should certainly be considered by parties and 
factfinders. As some commenters noted, however, see, e.g., CWI and U.S. 
Chamber, the operational characteristics of a particular business or 
industry would not take precedence over the overall inquiry as to 
whether, as a matter of economic reality, the worker is in business for 
themself.
    A smaller number of commenters addressed the Department's proposal 
to recognize that the exclusivity of a work relationship is 
appropriately considered under the permanency factor and to reject the 
2021 IC Rule's approach of considering exclusivity just under the 
control factor based on whether the worker has the ability to work for 
others.\331\ IBT strongly supported the inclusion of this consideration 
``because working exclusively for a particular employer clearly speaks 
to the permanence of the work relationship.'' Farmworker Justice, 
LIUNA, and NABTU highlighted the case law discussed in the NPRM where 
courts found that working exclusively for a particular employer for the 
duration of a seasonal or temporary job was indicative of employee 
status, agreeing that this was the appropriate analysis.\332\
---------------------------------------------------------------------------

    \331\ See 87 FR 62244-45; see, e.g., Parrish, 917 F.3d at 386-87 
(noting that one of the relevant considerations under the permanency 
factor is whether any plaintiff worked exclusively for the potential 
employer); Keller, 781 F.3d at 807 (noting that ``even short, 
exclusive relationships between the worker and the company may be 
indicative of an employee-employer relationship''); Scantland, 721 
F.3d at 1319 (noting that ``[e]xclusivity is relevant'' to the 
permanency of the work relationship); see also WHD Op. Ltr., 2002 WL 
32406602, at *3 (Sept. 5, 2002) (considering exclusivity under 
permanence factor); WHD Op. Ltr., 2000 WL 34444342, at *5 (Dec. 7, 
2000) (same).
    \332\ See, e.g., Lauritzen, 835 F.2d at 1537 (agricultural 
harvesters' relationship with employer was ``permanent and exclusive 
for the duration of that harvest season''); Mr. W Fireworks, 814 
F.2d at 1054 (the ``proper test for determining the permanency of 
the relationship'' in a seasonal industry is ``whether the alleged 
employees worked for the entire operative period of a particular 
season''); see also Flint Eng'g, 137 F.3d at 1442 (temporary rig 
welders' relationship with employer was `` `permanent and exclusive 
for the duration of' the particular job for which they [were] 
hired'') (quoting Lauritzen, 835 F.2d at 1537).
---------------------------------------------------------------------------

    The Coalition of Business Stakeholders, NHDA, and NRF & NCCR 
commented that they preferred to have exclusivity considered only under 
the control factor, as in the 2021 IC Rule. Similarly, the American 
Trucking Association contended that the permanence factor was redundant 
with the control factor because the only relevant aspect of the tenure 
of the parties' relationship is whether the entity contracting with the 
worker exercised coercion to prevent them from pursuing other business. 
Another commenter, FSI, objected that the Department had proposed to 
include exclusivity under the permanence factor based in part on the 
weight of the federal appellate case law rather than applying its own 
independent reasoning.
    The Department continues to believe, as discussed in the NPRM, that 
when analyzing worker classification under the FLSA, all facts that may 
be relevant to a particular factor should be considered, consistent 
with the totality-of-the-circumstances approach taken by courts.\333\ 
The case law clearly indicates that facts regarding the exclusivity of 
a work relationship are salient under both the permanence and control 
factors. In many cases courts considered this under permanence,\334\ 
and in many cases courts consider this under both permanence and 
control,\335\ while a smaller number of cases considered this only as 
part of a control analysis.\336\ Because the weight of federal 
appellate authority does not confine consideration of exclusivity to 
the control factor, and because the Department has historically viewed 
exclusivity as relevant to permanence,\337\ the Department does not 
believe it is appropriate to silo these facts under the control 
factor.\338\ For

[[Page 1689]]

example, in Keller the court considered the exclusivity of the work 
relationship under the permanence factor because an exclusive work 
relationship is a hallmark of the regularity of many employment 
relationships, and under the control factor because an employer's 
action that directly or indirectly prevents workers from working for 
others (thereby imposing an exclusive relationship) is a relevant 
mechanism of control.\339\ The Department believes it is appropriate to 
consider the weight of the case law when providing guidance, as the 
Department is doing consistently in this rule. For these reasons, the 
Department concludes that exclusivity should remain in the permanence 
factor and that it may also be considered under the control factor to 
the extent it speaks to the employer's control.
---------------------------------------------------------------------------

    \333\ See 87 FR 62244-45.
    \334\ See, e.g., Hobbs, 946 F.3d at 835; Henderson v. Inter-Chem 
Coal Co., Inc., 41 F.3d 567, 570 (10th Cir. 1994); Carrell v. 
Sunland Constr., Inc., 998 F.2d 330, 332, 334 (5th Cir. 1993); 
Superior Care, 840 F.2d at 1060-61; Lauritzen, 835 F.2d at 1537; 
DialAmerica, 757 F.2d at 1384.
    \335\ See, e.g., Parrish, 917 F.3d at 382, 386-87; Keller, 781 
F.3d at 807-09, 814; Scantland, 721 F.3d at 1314, 1319; Cornerstone 
Am., 545 F.3d at 344, 346.
    \336\ See, e.g., Razak, 951 F.3d at 145-46; Saleem, 854 F.3d at 
141.
    \337\ See, e.g., WHD Op. Ltr., 2002 WL 32406602, at *3 (Sept. 5, 
2002); WHD Op. Ltr., 2000 WL 34444342, at *5 (Dec. 7, 2000).
    \338\ The 2021 IC Rule also recognized that some courts analyze 
the exclusivity of the work relationship as part of the permanence 
factor, 86 FR 1192, and the Department considered in its NPRM for 
that rule whether to include exclusivity under the permanence factor 
and change the articulation to ``permanence and exclusivity of the 
working relationship'' in order ``to be more accurate,'' 85 FR 
60616, ultimately rejecting an approach that would ``blur[ ] the 
lines'' between the factors, 86 FR 1193. As explained, upon further 
consideration of the importance of a totality-of-the-circumstances 
test where all relevant facts inform the economic dependence 
determination, the Department believes it is more accurate to 
consider the exclusivity of the work relationship under both 
permanence and control factors, especially as it may contribute to a 
fuller understanding of the parties' work relationship. See Keller, 
781 F.3d at 807-09, 814 (explaining that consideration of the 
control exercised by the business that precluded the worker's 
ability to work for others ``informs our analysis of the permanency 
and exclusivity of the relationship''); Scantland, 721 F.3d at 1319 
(``looking through the lens of economic dependence vel non, long 
tenure, along with control, and lack of opportunity for profit, 
point strongly toward economic dependence''). Courts may find 
exclusivity to be relevant under other factors as well, consistent 
with the totality-of-the circumstances approach. See, e.g., Hobbs, 
946 F.3d at 833, 835 (finding that the work schedule imposed by the 
employer prevented workers from engaging in outside work, which was 
relevant under the opportunity for profit or loss factor as well as 
the permanence factor).
    \339\ Keller, 781 F.3d at 807-09, 814-15.
---------------------------------------------------------------------------

    LIUNA suggested certain edits to the proposed regulatory text to 
better capture, in its view, the case law discussed in the NPRM where 
courts found that working exclusively for a particular employer for the 
duration of a seasonal or temporary job was indicative of employee 
status. LIUNA commented that the first sentence of the proposed 
regulatory text did not properly reflect this case law because it could 
be read solely as a characterization of work relationships that are 
indefinite or continuous: ``This factor weighs in favor of the worker 
being an employee when the work relationship is indefinite in duration 
or continuous, which is often the case in exclusive working 
relationships.'' It suggested that the Department better align the 
regulatory text with the case law by substituting the language 
regarding exclusivity in that sentence with the phrase ``or exclusive 
of work for other employers.'' The Department agrees that the concept 
of exclusivity should not be limited to work relationships that are 
indefinite or continuous, and that it is more precise and aligned with 
the case law to substitute the language suggested, which the Department 
is adopting in this final rule. The Department wishes to emphasize, 
however, that the disjunctive word ``or'' is used in the regulatory 
text, and that it is intended to mean that exclusivity is not required 
in order for this factor to weigh in favor of employee status.\340\
---------------------------------------------------------------------------

    \340\ LIUNA recognized that the Department might be concerned 
that ``more emphatically stating the relationship between permanency 
and exclusivity would risk suggesting that a non-exclusive working 
relationship never supports employee status,'' which it noted would 
be inaccurate, as the Department discussed in the NPRM. The 
Department concurs that this would be inaccurate for the reasons 
discussed in the NPRM and herein, and that clarifying this aspect 
should not be understood to require an exclusive relationship in 
order to establish employee status.
---------------------------------------------------------------------------

    LIUNA requested further clarifying edits that would remove 
``project-based'' from the general description of work relationships 
that weigh in favor of independent contractor status in order to add a 
more specific sentence stating that exclusivity in definite-term, 
project-based working relationships in industries that require project-
based work ``such as certain segments of the agricultural or 
construction industries'' is probative of employee status. Similarly, 
Outten & Golden noted that project-based work can be indicative of 
employment when it is ``regular, repeated, or when it is project-based, 
but still long-term'' and it recommended including in the regulatory 
text the examples of seasonal or temporary work that were discussed in 
the NPRM as being consistent with an employment relationship, such as 
seasonal construction, agriculture, and retail work and temporary 
staffing agencies. See also NELA; Nichols Kaster PLLP.\341\ The 
Department declines to remove ``project-based'' from the general 
description of work relationships that weigh in favor of independent 
contractor status because courts and the Department have associated 
project-based work with independent contractor status,\342\ but it 
notes that ``project-based'' work alone is not dispositive of whether 
this factor weighs in favor of independent contractor status because 
all considerations relating to the permanence of the work should be 
considered. The Department also declines to add a more specific 
sentence or examples as requested because the Department has determined 
that it is not appropriate to address particular industries in this 
regulation of general applicability.
---------------------------------------------------------------------------

    \341\ Nichols Kaster also requested that the Department include 
additional language from the preamble in the final regulatory text. 
The Department declines this suggestion in the interest of providing 
succinct statements regarding each factor of the economic reality 
test in this final rule. The Department notes, however, that the 
preamble will be accessible for additional information regarding the 
rule.
    \342\ See, e.g., Henderson, 41 F.3d at 570 (facts that supported 
an inference that a mechanic was economically dependent on the 
employer included that he ``primarily, if not exclusively'' worked 
for the employer for over three years rather than being hired for a 
specific repair project); Carrell, 998 F.2d at 332, 334 (finding 
welders to be independent contractors where they worked for multiple 
employers on a project-by-project basis rather than exclusively for 
one employer); AI 2015-1, 2015 WL 4449086, at *10 (withdrawn June 7, 
2017).
---------------------------------------------------------------------------

    NHDA posited that whether a work relationship is exclusive is less 
illustrative of whether a worker is in business for themself than the 
reason for the exclusivity, and that where a worker freely chooses to 
have an exclusive relationship with one transportation provider because 
of a ``satisfying selection of routes or loads that permits the worker 
to attain financial goals,'' that worker should ``not be judged as less 
in business for themselves than a worker who contracts with multiple 
transportation providers.'' The Department agrees that an exclusive 
relationship alone would not be determinative of the economic reality 
of the working relationship, and that it is important to look at all 
relevant factors, including factors referenced by the comment such as 
the worker's opportunity for profit or loss, to aid in the analysis. 
The Department notes that by recognizing that exclusivity weighs in 
favor of the worker being an employee, the Department is not stating 
either that independent contractors can never have exclusive 
relationships with other businesses or that employees who have 
nonexclusive relationships with employers because they work multiple 
jobs become independent contractors.
    To the contrary, as discussed in the NPRM, although an exclusive 
relationship is often associated with an employment relationship and a 
sporadic or project-based, nonexclusive relationship is more frequently 
associated with independent contractor classification, courts have 
explained that simply having more than one job or working irregularly 
for a particular employer does not remove a worker from employee status 
and the protections of the FLSA. For example, in Silk, the 
``unloaders'' came to the coal yard ``when and as they please[d] . . . 
work[ing] when they wish and work[ing] for others at will.'' \343\ The 
Court nevertheless determined that the unloaders were employees: ``That 
the unloaders did not work regularly is not significant. They did work 
in the course of the employer's trade or business. This brings them 
under the coverage of the Act.'' \344\ Similarly, as the Second Circuit 
explained in Superior Care, the fact that the temporary nurses 
``typically work[ed] for several employers,'' was ``not dispositive of 
independent contractor status'' as ``employees may work for more than 
one employer

[[Page 1690]]

without losing their benefits under the FLSA.'' \345\
---------------------------------------------------------------------------

    \343\ 331 U.S. at 706.
    \344\ Id. at 718.
    \345\ Superior Care, 814 F.2d at 1060; see also Saleem, 854 F.3d 
at 142 n.24 (``It is certainly not unheard of for an individual to 
maintain two jobs at the same time, and to be an `employee' in each 
capacity.''); Keller, 781 F.3d at 808 (agreeing with the Second 
Circuit that ``employees may work for more than one employer without 
losing their benefits under the FLSA''); Circle C Invs., 998 F.2d at 
328-29 (noting that ``[t]he transient nature of the work force is 
not enough here to remove the dancers from the protections of the 
FLSA''); McLaughlin v. Seafood, Inc., 867 F.2d 875, 877 (5th Cir. 
1989) (per curiam) (``The only question, therefore, is whether the 
fact that the workers moved frequently from plant to plant and from 
employer to employer removed them from the protections of the FLSA. 
We hold that it did not.''); Hart v. Rick's Cabaret Int'l, Inc., 967 
F. Supp. 2d 901, 921 (S.D.N.Y. 2013) (noting that ``countless 
workers . . . who are undeniably employees under the FLSA--for 
example, waiters, ushers, and bartenders''--work for multiple 
employers).
---------------------------------------------------------------------------

    Courts have also determined that the fact that a worker does not 
rely on the employer as their exclusive or primary source of income is 
not indicative of whether an employment relationship exists.\346\ For 
example, the Sixth Circuit explained: ``[W]hether a worker has more 
than one source of income says little about that worker's employment 
status. Many workers in the modern economy, including employees and 
independent contractors alike, must routinely seek out more than one 
source of income to make ends meet.'' \347\ Commenters supported the 
Department's clarification in the NPRM, which the Department reiterates 
here, that exclusivity is not required in order to find a degree of 
permanence and that working multiple jobs does not necessarily favor 
independent contractor status--particularly because, as the Sixth 
Circuit noted, many workers' financial needs require them to have 
multiple sources of income. See, e.g., IBT; LCCRUL & WLC; NELP. LCCRUL 
& WLC described a current client who ``often has to work for a variety 
of gig economy jobs simultaneously, such as Uber Eats, GoPuff, 
Instacart, and Caviar, to keep her finances afloat.'' And NELP observed 
that in ``low-wage industries, particularly in services such as 
transportation, delivery, or home care, many workers juggle multiple 
jobs with multiple entities not as an exercise of their own business 
judgment but as a necessity to cobble together a living wage in an 
underpaying economy.''
---------------------------------------------------------------------------

    \346\ Superior Care, 814 F.2d at 1060; see also Halferty, 821 
F.2d at 267-68 (``it 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 (noting that ``[t]here is no legal basis'' to say that work 
that constitutes a second source of income indicates a worker's lack 
of economic dependence on a job because the proper analysis is 
``whether the workers are dependent on a particular business or 
organization for their continued employment'').
    \347\ Off Duty Police, 915 F.3d at 1058. The 2021 IC Rule 
correctly noted that a handful of cases improperly conflate having 
multiple sources of income with a lack of economic dependence on the 
potential employer. See 86 FR 1173, 1178. The 2021 IC Rule 
characterized such a ``dependence-for-income'' analysis as incorrect 
and a ``dependence-for-work'' analysis as correct. Id. at 1173. This 
critique continues to be valid, as is the observation that ``[i]t is 
possible for a worker to be an employee in one line of business and 
an independent contractor in another.'' Id. at 1178 n.19.
---------------------------------------------------------------------------

    Finally, the Department noted in the NPRM that where workers 
provide services under a contract that is routinely or automatically 
renewed, courts have determined that this indicates permanence and an 
indefinite working arrangement associated with employment.\348\ The 
proposed regulation noting that work relationships that are indefinite 
in duration or continuous weigh in favor of employee status is 
consistent with this case law. Some commenters mistakenly believed that 
the regulatory text explicitly stated that contractual renewals equate 
to employee status and objected for largely the same reasons commenters 
objected to their reading of the proposed regulatory text to imply that 
businesses could not have long-term relationships with clients without 
being considered employees of their clients, to which the Department 
responded above. See Fight for Freelancers; NRF & NCCR.
---------------------------------------------------------------------------

    \348\ See, e.g., Brant, 43 F.4th at 672 (stating that 
``[a]utomatic [contract] renewal would weigh more heavily in favor 
of employee status''); Scantland, 721 F.3d at 1318 (finding one-year 
contracts that were automatically renewed to ``suggest substantial 
permanence of relationship''); Pilgrim Equip., 527 F.2d at 1314 
(finding laundry operators' one-year contracts that were routinely 
renewed indicated employee status); Acosta v. Senvoy, LLC, No. 3:16-
CV-2293-PK, 2018 WL 3722210, at *9 (D. Or. July 31, 2018) (noting 
that one-year contracts that automatically renew are ``evidence that 
a worker is an employee''); Solis v. Velocity Exp., Inc., No. CV 09-
864-MO, 2010 WL 3259917, at *9 (D. Or. Aug. 12, 2010) (the fact that 
package delivery drivers understood their contracts to be of 
indefinite duration and that contracts were routinely renewed 
without renegotiation indicated employee status).
---------------------------------------------------------------------------

    The Department is finalizing the permanence factor (Sec.  
795.105(b)(3)) with the modifications discussed herein.
Example: Degree of Permanence of the Work Relationship
    A cook has prepared meals for an entertainment venue continuously 
for several years. The cook prepares meals as directed by the venue, 
depending on the size and specifics of the event. The cook only 
prepares food for the entertainment venue, which has regularly 
scheduled events each week. The relationship between the cook and the 
venue is characterized by a high degree of permanence and exclusivity. 
These facts indicate employee status under the permanence factor.
    A cook has prepared specialty meals intermittently for an 
entertainment venue over the past 3 years for certain events. The cook 
markets their meal preparation services to multiple venues and private 
individuals and turns down work for any reason, including because the 
cook is too busy with other meal preparation jobs. The cook has a 
sporadic or project-based nonexclusive relationship with the 
entertainment venue. These facts indicate independent contractor status 
under the permanence factor.
4. Nature and Degree of Control (Sec.  795.110(b)(4))
    In the NPRM, the Department proposed to modify Sec.  
795.105(d)(1)(i), which considered control as a ``core'' factor in the 
economic reality test. The 2021 IC Rule assessed the employer's and the 
worker's ``substantial control over key aspects of the performance of 
the work,'' which included setting schedules, selecting projects, 
controlling workloads, and affecting the worker's ability to work for 
others.\349\ The 2021 IC Rule also stated that ``[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 . . . 
does not constitute control'' for purposes of the economic reality 
test.\350\
---------------------------------------------------------------------------

    \349\ See 86 FR 1246-47 (Sec.  795.105(d)(1)(i)).
    \350\ Id. at 1247 (Sec.  795.105(d)(1)(i)).
---------------------------------------------------------------------------

    In its proposal and consistent with the 2021 IC Rule, the 
Department explained that it continues to believe that issues related 
to scheduling, supervision over the performance of the work (including 
the ability to assign work), and the worker's ability to work for 
others are relevant considerations in evaluating the nature and degree 
of control. The Department's proposal also considered additional 
aspects of control in the workplace that have been identified in the 
case law or through the Department's enforcement experience--such as 
control mediated by technology or control over the economic aspects of 
the work relationship. However, as noted above, the Department's 
proposal did not elevate control as a ``core'' factor in the 
analysis.\351\
---------------------------------------------------------------------------

    \351\ See supra section III.A.
---------------------------------------------------------------------------

    In addition, and contrary to the 2021 IC Rule, the Department's 
proposed regulation included a sentence stating that an employer's 
compliance with

[[Page 1691]]

legal obligations, safety or health standards, or requirements to meet 
contractual or quality control obligations, for example, may indicate 
that the employer is exerting control, suggesting that the worker is 
economically dependent on the employer.
a. Overview of Control Factor
    Commenters from across the spectrum agreed that control was a 
highly relevant factor to the economic reality analysis. See, e.g., Gig 
Workers Rising; U.S. Chamber. Some commenters objected to the 
Department's proposed text that shifted the focus of this factor back 
to the nature and degree of control exerted by the potential employer, 
rather than by the worker. The 2021 IC Rule described the factor as 
considering the worker's and the potential employer's nature and degree 
of control, while the NPRM described the factor as considering 
primarily the potential employer's nature and degree of control.\352\ 
N/MA, for example, commented that ``a worker's right to control the 
manner and means by which a worker provides services is, and should 
remain, a primary consideration in the Department's discussion of the 
right to control factor.'' CWI described this aspect of the proposal as 
``misguided'' because ``[f]ocusing on the individual's control ensures 
that the totality of the worker's business are evaluated, including 
control the worker may have over whether to subcontract, how to manage 
his workforce, whether and how to advertise his services, and whether 
to prioritize, stagger, or overlap projects.'' It added that such 
``considerations are largely lost when the analysis is unduly narrowed 
to an evaluation of an individual putative employer's alleged 
control.'' See also NAM (``Instead of focusing on the control a worker 
exercises over their work (which would evidence that they are in 
business for themselves), the Department would rather determine 
`employee' status on the employer's generally considered control over 
the work.''). In contrast, other commenters agreed with the 
Department's returned focus on the nature and degree of the potential 
employer's control. For instance, the State AGs stated that the ``case 
law is clear that the appropriate focus for this factor must be on the 
employer's control over the worker, and not the worker's control over 
the work.'' Similarly, Farmworker Justice commented that the NPRM 
``helpfully clarifies that a hiring entity/employer who has the ability 
to control key aspects of the work is likely an employer.''
---------------------------------------------------------------------------

    \352\ 86 FR 1180; 87 FR 62275 (proposed Sec.  795.110(b)(4)).
---------------------------------------------------------------------------

    Regarding the proposed scope of the factor, one commenter 
criticized the Department's proposal for eliminating the 2021 IC Rule's 
``express requirement of `substantial' control.'' See Scalia Law 
Clinic. Additionally, business commenters generally disagreed with the 
inclusion of reserved control, stating that that this broadened the 
control factor and introduced additional uncertainty by using this 
``undefined, vague terminology.'' U.S. Chamber; see also CWI. Other 
commenters, however, such as the State AGs, noted that inclusion of 
reserved control is ``the appropriate interpretation of the control 
factor and properly accounts for the variety of today's work 
arrangements.'' See also AFL-CIO (commenting that ``discounting 
contractual or reserved control is inconsistent with congressional 
intent to expand the coverage of the FLSA beyond the narrow confines of 
common law employment'').
    A very large proportion of the comments received regarding the 
control factor addressed the proposal that an employer's compliance 
with legal obligations, safety or health standards, or requirements to 
meet contractual or quality control obligations may indicate control, 
suggesting that the worker is economically dependent on the employer. 
Many commenters objected to this proposal. For example, Flex commented: 
``Legally required control is generally disregarded since that is 
control imposed by the government, not by the client or hiring party. 
The client or hiring party is not choosing to exercise legally required 
control; it is required to do so.'' See also Richard Reibstein, 
publisher of legal blog. The WFCA and others commented that 
``[r]equiring an independent contractor to comply with legal 
obligations, safety standards, contractual obligations, or industry 
standards should not be indicative of control'' because ``[t]hese 
requirements are standard in contracts and subcontracts.'' See also 
Genesis Timber; National Association of Home Builders (``NAHB''); NRF & 
NCCR.
    Other commenters stated that the Department's proposal would 
disincentivize employers to prioritize safety and other beneficial 
policies, because employers would not want to risk workers being 
classified as employees. See, e.g., Kentucky Trucking Association; 
Southeastern Wood Producers Association, Inc. The U.S. Chamber 
commented that workers and businesses should not be discouraged from 
incorporating contractual terms that ``support sound, lawful, safe work 
practices,'' as those terms do not evidence control over the worker by 
the business under the Act's economic realities test. SHRM stated that 
this aspect of the NPRM ``will deter some companies from upholding 
their obligations in this respect by holding the specter of a 
misclassification finding over their heads for simply trying to do 
right by the people who make their businesses viable.'' See also CWI 
(commenting that this aspect of the NPRM ``would effectively encourage 
businesses to avoid measures encouraging legal compliance and the 
safety of both independent workers and the public generally, so that 
they do not increase their risk of misclassification claims''). WPI 
noted that all businesses operate against regulatory backdrops and 
posited the following example: ``a regulation might require all people 
on a construction site to wear a hard hat. The builder might, therefore 
require site visitors, including the eventual tenant, to wear hardhats. 
Is the eventual tenant now the builder's employee based [on] the 
exercise of control over a worksite?'' \353\ And multiple financial 
advisors submitted identical comments stating that ``[t]he Department 
should recognize that [supervision in order to comply with regulatory 
requirements] . . . helps my firm and me stay compliant with securities 
law and should not be viewed as a negative factor when determining my 
status under the [FLSA].'' Flex opposed this proposed language as well, 
and further commented that the proposed regulatory language ``lacks all 
of the context provided in the preamble'' and that, ``[i]f the 
Department's intent is to make clear that there `may' be `some cases' 
in which compliance with legal, safety, or quality control obligations 
`may' be relevant, then the rule should say that and should provide the 
full context contained in the narrative.''
---------------------------------------------------------------------------

    \353\ In its NPRM, the Department explicitly addressed this 
scenario, stating that ``if an employer requires all individuals to 
wear hard hats at a construction site for safety reasons, that is 
less probative of control.'' 87 FR 62248.
---------------------------------------------------------------------------

    Some heavily regulated industries in particular expressed concern 
about this proposed provision, including the trucking, financial 
services, insurance, and real estate industries. Scopelitis stated that 
``the proposal to consider compliance with legal, safety, or quality 
control obligations as employer-like control indicative of an employee 
relationship is untenable in the highly regulated trucking and 
logistics industries and any rollback of

[[Page 1692]]

requirements for owner-operators to comply with such obligations will 
almost certainly lead to less safe roads in our Nation.'' \354\ SIFMA 
commented that ``[i]t is important for the highly regulated securities 
industry that independent contractors do not morph into employees 
merely because they must remain in compliance with federal and state 
securities, banking, and insurance laws.'' The ACLI stated that ``[i]t 
also would place at risk the careful balance that the courts and 
legislatures have fashioned in confirming the importance and viability 
of independent contractor models while ensuring regulatory compliance 
to protect the public.'' And NAR stated that ``[w]hile there may be 
some degree of control over an individuals' work within broker-agent 
relationship as required by state law, the manner in which that work is 
completed--at the individuals' broad discretion, for example--is a 
critical distinction that should not weigh in favor of classification 
as an employee.'' Fight for Freelancers similarly explained that there 
are basic legal obligations for anyone involved in publishing, such as 
contract provisions that prohibit libel or theft of copyrighted 
material, and that such terms are ``not indicative of a business's 
control over how, when and where an article is written.''
---------------------------------------------------------------------------

    \354\ Several commenters, such as the Pennsylvania Motor Truck 
Association for example, included a number of contractual provisions 
in their comment and stated that the Department ``has a duty to 
address each one in the context of any final rule as to whether it 
amounts to control.'' The Department cannot opine on a particular 
employer's discrete contractual provisions in a final rule. As 
stated in the 2021 IC Rule, ``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.'' 86 FR 1182.
---------------------------------------------------------------------------

    Other commenters supported this proposed provision. The AFL-CIO 
commented that the very fact that a government entity or court 
``imposes an obligation on an entity to ensure a workplace or a set of 
workers complies with law strongly suggests that responsible government 
officials believe that the entity stands in a relationship with the 
workers such that it is appropriate for it to do so.'' See also NELA 
(``When the employer, rather than the worker, controls compliance with 
legal, safety, or other obligations, it is evidence that the worker is 
not in fact in business for themselves because they are not doing the 
risk-management work involved in understanding and adhering to the 
legal and other requirements that apply to the work they perform and 
are not assuming the risk of noncompliance.''); NELP (``The Department 
should explain that if a government agency or other entity looks to the 
hiring entity for compliance, that fact alone suggests that the hiring 
entity has the requisite control to demand compliance.''). ROC United 
commented that it was ``an appropriate correction of the 2021 Rule'' 
because delivery companies tend to exert control with respect to 
customer service standards and that ``monitoring of drivers' compliance 
is indicative of the control [those companies] has over them.'' See 
also A Better Balance; Outten & Golden (commenting that the regulation 
should state that controls implemented by the employer to comply with 
legal obligations, safety standards, or contractual or customer service 
standards provides a strong indication of employee status). Finally, 
Intelycare supported this provision of the proposed regulation and 
further commented that the Department should explain that certain 
industries ``are so highly regulated such that it is inherent in the 
nature of the work that the company must comply, and exercise control 
to require their workers to comply, with legal and safety regulations'' 
and that in such circumstances the use of independent contractors is 
``likely inappropriate.''
    Upon consideration, the Department is adopting proposed Sec.  
795.110(b)(4) with several revisions in response to comments received. 
For decades, courts and the Department have taken the view that the 
control factor represents one facet of the economic reality test.\355\ 
As noted in the NPRM, the Department continues to believe that control 
should be analyzed in the same manner as every other factor, rather 
than take an outsized role when analyzing whether a worker is an 
employee or independent contractor. As the Fifth Circuit stated in 
2019, it ``is impossible to assign to each of these factors a specific 
and invariably applied weight.'' \356\
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    \355\ See, e.g., WHD Op. Ltr. (Aug. 13, 1954) (applying six 
factors, of which control was one, that are very similar to the six 
economic reality factors currently used by almost all courts of 
appeals); Shultz v. Hinojosa, 432 F.2d 259, 264-65 (5th Cir. 1970) 
(affirming judgment in favor of Secretary of Labor that 
slaughterhouse worker was an employee under the FLSA under a 
multifactor economic reality test of which control was one of the 
factors).
    \356\ Parrish, 917 F.3d at 380 (quotation marks and citation 
omitted). The federal courts of appeals have taken this position for 
decades. See also, e.g., Scantland, 721 F.3d at 1312 n.2 (the 
relative weight of each factor ``depends on the facts of the case'') 
(citation omitted); Selker Bros., 949 F.2d at 1293 (``It is a well-
established principle that the determination of the employment 
relationship does not depend on isolated factors . . . [, and] 
neither the presence nor the absence of any particular factor is 
dispositive.'').
---------------------------------------------------------------------------

    Regarding comments critiquing the Department's proposed regulatory 
text shifting the focus of this factor back to the nature and degree of 
control exerted by the potential employer rather than by the worker, 
the Department declines to make any alterations to this proposed text. 
The control factor has its roots in the common law, where the inquiry 
was whether the ``employer'' had the ``right to control the manner and 
means by which [work] is accomplished.'' \357\ Courts have 
consistently, and for decades, considered this factor with the focus on 
the potential employer, not the worker. See, e.g., Saleem, 854 F.3d at 
141 (``[A] company relinquishes control over its workers when it 
permits them to work for its competitors.''); Razak, 951 F.3d at 142 
(phrasing the factor as ``the degree of the alleged employer's right to 
control the manner in which the work is to be performed''); McFeeley, 
825 F.3d at 241 (phrasing the factor as the ``degree of control that 
the putative employer has over the manner in which the work is 
performed''); Karlson, 860 F.3d at 1093 (phrasing the factor as ``the 
degree of control exercised by the alleged employer over the business 
operations''); Flint Eng'g, 137 F.3d at 1440 (stating that, when 
``applying the economic reality test, courts generally look at (1) the 
degree of control exerted by the alleged employer over the worker''); 
Scantland, 721 F.3d at 1316 (explaining that ``[t]he economic reality 
inquiry requires us to examine the nature and degree of the alleged 
employer's control''). Congress and the Department have also 
historically focused on the control exerted by the potential employer 
(until the 2021 IC Rule). In the House Report accompanying the 1966 
FLSA Amendments, for example, Congress described the factor as ``[t]he 
degree of control which the principal [potential employer] has in the 
situation'' \358\ and then affirmed that the ``committee fully 
subscribes to these criteria.'' In a 1968 Wage and Hour opinion letter, 
the Department described the factor as ``[t]he nature and degree of 
control retained or exercised by the principal;'' in a 1973 Wage and 
Hour Publication, it described the factor as ``the nature and degree of 
control by the principal;''

[[Page 1693]]

and in longstanding Fact Sheet #13, the factor is also described as 
``[t]he nature and degree of control by the principal.'' \359\ 
Accordingly, the Department believes that the appropriate focus of this 
factor should be on the potential employer.
---------------------------------------------------------------------------

    \357\ Reid, 490 U.S. at 751.
    \358\ See House Report No. 871, 89TH CONG., 1ST SESS., at 43 
(1965). It is clear that Congress was referring to a potential 
employer by the use of the term ``principal'' because its 
articulation of the integral factor in the same section stated: 
``The extent to which the services rendered are an integral part of 
the principal's business.'' In contrast, its articulation of the 
initiative factor stated: ``The initiative, judgment, or foresight 
exercised by the one who performs the services.'' Id. (emphases 
added).
    \359\ WHD Op. Ltr. June 25, 1968; ``Employment Relationship 
Under the Fair Labor Standards Act'', WHD Publication 1297, February 
1973; WHD Fact Sheet #13 (July 2008).
---------------------------------------------------------------------------

    Moreover, as explained in the NPRM and consistent with the economic 
reality analysis, this factor should necessarily focus on whether the 
employer controls meaningful economic aspects of the work relationship 
because that focus is probative of whether the worker stands apart as 
their own business. Simply assessing whether the employer lacks control 
over discrete working conditions (e.g., scheduling) or whether the 
employer exercises physical control over the workplace does not fully 
address whether the employer controls meaningful economic aspects of 
the work relationship.\360\ Specifically, the Fifth Circuit applied 
this analytical approach in a case where an insurance sales firm not 
only ``controlled the hiring, firing, assignment, and promotion of the 
[workers' subordinates],'' but also controlled how the workers priced 
the insurance products, received leads for sales, and defined the 
territory in which the agents could sell products.\361\ These actions 
made it clear that the employer, and not the workers, retained 
meaningful control over the ``economic aspects of the business,'' 
suggesting that the workers were employees.\362\ The Third Circuit has 
similarly held that even though dancers had some scheduling 
flexibility, the control factor weighed in favor of employee status 
because the employer, and not the workers, controlled the economic 
aspects of the dancers' work, such as the price of services, the 
clientele to be served, and the operations of the club in which they 
worked.\363\
---------------------------------------------------------------------------

    \360\ See, e.g., Cornerstone Am., 545 F.3d at 343-44 (finding 
that control weighs in favor of employee status even where the 
employer disclaims control over ``day-to-day affairs'' of the 
workers because the employer controlled the meaningful economic 
aspects of the work). Other elements may also be included in this 
examination of control, such as those identified by the Supreme 
Court in Whitaker House. They include whether the worker could sell 
their products or services ``on the market for whatever price they 
can command;'' whether the worker's compensation was dictated by the 
employer; and whether management could fire the worker for failure 
to obey its regulations. 366 U.S. at 32-33.
    \361\ Cornerstone Am., 545 F.3d at 343-44.
    \362\ Id. at 343.
    \363\ Verma, 937 F.3d at 230.
---------------------------------------------------------------------------

    Regarding the comments received addressing the scope of the control 
factor such as whether reserved control should be included or whether 
the regulation should require ``substantial'' control, the Department 
declines to make the changes requested. First, the Department believes 
that the reference to reserved control should remain in the regulation 
as proposed. Control can certainly be exerted directly in the workplace 
by an employer, such as when it sets a worker's schedule, compels 
attendance, or directs or supervises the work.\364\ As explained in the 
NPRM and addressed fully in section V.D. of this final rule, however, 
the absence of these more apparent forms of control does not invariably 
lead to the conclusion that the control factor weighs in favor of 
independent contractor status.\365\ Employers may also exercise control 
in other ways, including reserved rights to control, because such 
reserved rights may, in some situations, be probative of the economic 
reality of the total situation. Second, the Department declines to 
modify the regulation to require ``substantial control'' as requested 
by the Scalia Law Clinic. The Department does not believe such a 
modifier is appropriate in the regulatory text because the totality of 
the circumstances must be considered, and this heightened requirement 
is not supported by case law. Of course, substantial control can be 
indicative of employee status as several cases have held, but 
``substantial control'' is not a predetermined requisite under the 
economic reality test.\366\ Moreover, as the regulatory text provides, 
``[m]ore indicia of control by the potential employer favors employee 
status; more indicia of control by the worker favors independent 
contractor status.'' \367\ Thus, substantial control by the employer 
would clearly favor employee status, though it is not required.\368\
---------------------------------------------------------------------------

    \364\ See, e.g., Scantland, 721 F.3d at 1314 (finding workers to 
be employees, in part, because they ``were subject to meaningful 
supervision and monitoring by'' their employer).
    \365\ See, e.g., Mr. W Fireworks, 814 F.2d at 1049 (``[T]he lack 
of supervision over minor regular tasks cannot be bootstrapped into 
an appearance of real independence.'') (citation omitted); Antenor, 
88 F.3d at 934 (noting in FLSA joint employment case that the Act 
reaches even those employers who ``[do] not directly supervise the 
activities of putative employees''). This has been the Department's 
perspective for almost 6 decades. See WHD Op. Ltr., FLSA-795, at 3 
(Sept. 30, 1964) (determining that professional divers were 
employees of a diving corporation, despite the lack of control over 
their work, by noting ``that persons may be employees within the 
meaning of the Act even though they are unsupervised in their work, 
are not required to devote any particular amount of time to their 
work, [and] are under no restriction not to work for competitors of 
the employer'').
    \366\ For example, in Driscoll, the Ninth Circuit described the 
control factor as the ``degree of the alleged employer's right to 
control the manner in which the work is to be performed'' but then 
concluded that the employer possessed ``substantial control over 
important aspects'' of the workers' work. 603 F.2d at 755.
    \367\ 29 CFR 795.110(b)(4).
    \368\ The Department also received comments urging it to delete 
this sentence of the proposed regulatory text. See NELP; Outten & 
Golden. These commenters expressed concern that the concluding 
sentence suggested a relative weighing of facts relevant to control 
in lieu of a ``totality of the circumstances'' analysis, and that 
this ``implies a simple arithmetic tallying of the various listed 
facts'' that would ``invite an unnecessary contest that threatens to 
overshadow the purpose of the factor.'' The Department declines to 
delete this sentence because it believes that considering the 
various indicia of control and whether they weigh in favor of 
employee or independent contractor status can be a helpful 
analytical tool. However, the Department agrees that the correct 
analysis is an overall, qualitative analysis, and that the 
considerations described within the control factor should not be 
used as a checklist or in a ``tallying'' fashion, just as the 
economic reality factors should not be tallied but rather considered 
based on the totality of the circumstances.
---------------------------------------------------------------------------

    Finally, current Sec.  795.105(d)(1)(i) states that an employer 
requiring a worker 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 . . . does not constitute control that makes the [worker] 
more or less likely to be an employee.'' \369\ In the NPRM, the 
Department explained that a blanket prohibition on consideration of 
compliance with legal or other obligations would not be appropriate, 
and that certain instances of control should not be excluded as 
irrelevant to the economic reality analysis only because they are 
required by business needs, contractual requirements, quality control 
standards, or legal obligations. Moreover, the Department recognized 
that the ``case law is not uniform on this issue'' and undertook a 
detailed discussion explaining why a complete bar to ever considering 
such compliance with legal, safety, or health obligations, or quality 
control measures would be inappropriate under the economic reality 
test.
---------------------------------------------------------------------------

    \369\ 86 FR 1247 (Sec.  795.105(d)(1)(i)).
---------------------------------------------------------------------------

    The Department took a more nuanced approach in the preamble 
discussion than some commenters recognized in their comments, and it 
continues to find cases such as Scantland and others--which recognize 
that compliance with legal or contractual obligations or quality 
control may be relevant evidence of control--persuasive and more 
consistent with a totality-of-the-circumstances, economic reality 
analysis.\370\ The NPRM explained

[[Page 1694]]

explicitly and with detail that compliance with legal requirements may 
not always be relevant to control, and that such compliance was only 
one facet of control. However, the Department takes seriously the many 
comments received from stakeholders about the proposed regulatory 
language, the legitimate points they raised, and the concerns 
commenters expressed, even though the Department does not necessarily 
agree with all issues raised.
---------------------------------------------------------------------------

    \370\ As the Eleventh Circuit explained in Scantland, the 
``economic reality inquiry requires us to examine the nature and 
degree of the alleged employer's control, not why the alleged 
employer exercised such control.'' 721 F.3d at 1316 (emphasis 
added). The court continued to explain that if ``the nature of a 
business requires a company to exert control over workers to the 
extent that [the employer] has allegedly done, then that company 
must hire employees, not independent contractors.'' Id.; see also 
Schultz v. Mistletoe Express Serv., Inc., 434 F.2d 1267, 1271 (10th 
Cir. 1970) (noting that ``arguments that an independent contractor 
relationship is shown by . . . the need to comply with the 
regulations of federal and state agencies do not persuade us'' 
before affirming the conclusion that workers were employees under 
the FLSA).
---------------------------------------------------------------------------

    In the NPRM, the Department was cognizant of the challenge of 
setting forth a regulation that would capture all of the facts relevant 
to the nature and degree of a potential employer's control while 
balancing the practical considerations of the way businesses, 
particularly in some industries, must simultaneously comply with a host 
of legal, regulatory, and business-related demands. While the 
Department sought to strike the suitable balance between these two 
concerns in the NPRM, the comments have persuaded the Department that 
the provision as proposed may lead to unintended consequences due to 
stakeholder confusion and uncertainty. The Department does not agree, 
however, with commenters who stated that the Department's proposed 
regulatory text would make compliance with the law a ``negative 
factor.'' As noted by commenters, businesses already must comply with 
various legal and regulatory requirements--for example, from the IRS, 
state licensing boards, and city ordinances. Additionally, the 
Department never had a blanket prohibition prior to the 2021 IC Rule on 
the consideration of compliance with legal obligations, and none of the 
mass uncertainty or noncompliance with legal norms suggested by 
commenters were apparent.\371\ Nevertheless, the Department recognizes 
the confusion evident in the comments regarding this provision. The 
Department agrees with commenters, for example, that stated that a 
publication's required compliance with libel law for a writer is not 
probative of a worker's economic dependence on that publication but if 
the publication instructed how, when, and where the work is performed, 
that is relevant to the control analysis. To provide another example, a 
home care agency requiring a criminal background check for all 
individuals with patient contact in compliance with a specific Medicaid 
regulation requiring such checks would not be indicative of control. 
Accordingly, the Department is revising the regulation to state that 
``actions taken by the potential employer for the sole purpose of 
complying with a specific, applicable Federal, State, Tribal, or local 
law or regulation are not indicative of control.''
---------------------------------------------------------------------------

    \371\ For example, in a 2014 Administrator's Interpretation 
``Joint employment of home care workers in consumer-directed, 
Medicaid-funded programs by public entities under the Fair Labor 
Standards Act'' (withdrawn in 2020), the Department stated that 
``under an economic realities analysis, all of the facts and 
circumstances of the relationship between a provider and the state 
must be evaluated, and no single factor is determinative. Relevant 
factors that must be considered when evaluating whether a state 
administering a consumer-directed program is an employer include the 
various legal requirements with which consumer-directed programs 
must comply, and how programs choose to comply with those 
requirements.'' See Administrator's Interpretation 2014-2, available 
at 2014 WL 2816951, at *5; see also Administrator's Interpretation 
2015-1, available at 2015 WL 4449086, at *12 (``Some employers 
assert that the control that they exercise over workers is due to 
the nature of their business, regulatory requirements, or the desire 
to ensure that their customers are satisfied. However, control 
exercised over a worker, even for any or all of those reasons, still 
indicates that the worker is an employee.'').
---------------------------------------------------------------------------

    The Department is further revising the regulation to state that 
``actions taken by the potential employer that go beyond compliance 
with a specific, applicable Federal, State, Tribal, or local law or 
regulation and instead serve the potential employer's own compliance 
methods, safety, quality control, or contractual or customer service 
standards may be indicative of control.'' This part of the regulatory 
text means that a potential employer's control over compliance methods, 
safety, quality control, or contractual or customer service standards 
that goes beyond what is required by specific, applicable Federal, 
State, Tribal, or local law or regulation may in some--but not all--
cases be relevant to the analysis of a potential employer's control if 
it is probative of a worker's economic dependence. For example, in 
contrast to the background check example in the prior paragraph, a home 
care agency's extensive provider qualifications, such as fulfilling 
comprehensive training requirements (beyond training required for 
relevant licenses), may be probative of control. The Department 
continues to believe that control exerted by the employer to achieve 
these ends may be relevant to the underlying analysis of whether the 
worker is economically dependent on the employer, particularly where 
the employer dictates and enforces the manner and circumstances of 
compliance.
    These instances of potential control, however, are relevant only if 
probative of the worker's economic dependence, as with any other 
consideration under the economic reality factors. For example, when an 
employer, rather than a worker, imposes safety or customer service 
obligations beyond what is required by specific, applicable Federal, 
State, Tribal, or local law or regulations, it may be evidence that the 
worker is not in fact in business for themself. In those instances, 
they are not doing the entrepreneurial tasks that suggest that they are 
responsible for understanding and adhering to requirements that apply 
to the work or services they are performing such that they are assuming 
the risk of noncompliance--a typical and expected risk that workers in 
business for themselves regularly assume. Moreover, the Department 
understands that parties representing a wide array of business 
relationships enter into contracts, and this regulation should not 
inhibit those practices. For example, if a potential employer requires 
all workers to sign a contract acknowledging that the business's 
general policy is that invoices for work projects must be submitted 
within a particular timeframe, this is not indicative of control 
because such a generally applicable contractual term does not itself 
suggest that a worker is economically dependent on the employer for 
work. In contrast, if a potential employer requires all workers to sign 
a contract outlining specifically how, when, and where the work must be 
performed, that specific direction would be indicative of control 
because it suggests that the workers are not operating independently. 
The Department believes that this revised text will be able to 
encompass control that is relevant to the overall analysis of economic 
dependence while providing businesses with a clear rule regarding 
compliance with specific legal obligations.
    As the Department emphasized in the NPRM and again emphasizes here, 
the facts and circumstances of each case must be assessed, and the 
manner in which the employer chooses to implement such obligations will 
be highly relevant to the analysis. For example, under this final 
regulatory text, it is not indicative of control if a potential 
employer requires everyone who enters a construction site to wear a 
hard hat as required by city ordinance.

[[Page 1695]]

However, if a potential employer chooses a specific time and location 
for its own weekly safety briefings that are not specifically required 
by law and requires all workers to attend, that may be probative of 
control. Similarly, it is not probative of control if a potential 
employer requires workers to provide proof of insurance required by 
state law, but if a potential employer mandates what insurance carrier 
workers must use, that may be probative of control.
    The Department reminds stakeholders that this is merely one aspect 
of one factor of a multifactor test. Even if compliance with specific 
safety, contractual, customer service, or quality control requirements 
is indicative of control in a specific case, this does not compel a 
particular conclusion that the control factor favors employee status or 
that the overall analysis requires a particular result.\372\ Thus, the 
final rule does not preclude a finding that a worker is an independent 
contractor where an employer obligates workers, for example, to comply 
with its own safety standards or quality control measures, after also 
considering other relevant factors in the economic reality analysis.
---------------------------------------------------------------------------

    \372\ For example, a court can consider control exerted over 
workers to comply with safety obligations as not indicative of 
control and nevertheless conclude upon consideration of all of the 
factors that such workers were employees under the FLSA. See Rick's 
Cabaret, 967 F. Supp. 2d at 916, 922.
---------------------------------------------------------------------------

    With these general principles in mind, the next sections address 
the Department's proposals regarding several aspects of control to be 
considered in determining whether the nature and degree of control 
indicates that the worker is an employee or an independent contractor. 
This discussion is intended to be an aid in assessing common aspects of 
control--including scheduling, supervision, price setting, and ability 
to work for others--but should not be considered an exhaustive list, 
given the various ways in which an employer may control a worker or the 
economic aspects of the work relationship. Additional changes to the 
final regulatory text in response to comments are also discussed 
throughout these sections.
b. Scheduling
    As a consideration under the control factor, the Department 
proposed that``[f]acts relevant to the employer's control over the 
worker include whether the employer sets the worker's schedule[.]'' 
\373\ While the 2021 IC Rule similarly recognized that a potential 
employer's control over ``key aspects of the performance of the work, 
such as by controlling the individual's schedule'' is relevant to 
determining employee or independent contractor status, the 2021 IC Rule 
also suggested that the worker's ``substantial control over key aspects 
of the performance of the work'' may be demonstrated simply by ``by 
setting his or her own schedule.'' \374\ As explained in the NPRM, 
after further consideration and review of the case law, the Department 
considered that framing to be too narrow because it shifted focus away 
from the employer's control--potentially allowing a finding of 
independent contractor status under the control factor based solely on 
a worker setting their own schedule, irrespective of other relevant 
considerations under control--and did not encompass actions the 
employer may take that would limit the significance of the worker's 
ability to set their own schedule.
---------------------------------------------------------------------------

    \373\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
    \374\ 86 FR 1246-47 (Sec.  795.105(d)(1)(i)).
---------------------------------------------------------------------------

    The Department recognizes that many independent contractor 
relationships include the worker's ability to start and end work as 
they see fit.\375\ And the Department noted that such scheduling 
freedom may be probative of a worker's independent contractor 
status.\376\ Yet, multiple courts of appeals have determined that 
workers were employees, rather than independent contractors, even when 
they had the flexibility to choose their work schedule.\377\ Further, 
the Department noted that employers may still be able to limit the 
number of hours available for a worker to choose or arrange the 
sequence or pace of the work in such a way that it would not be 
possible for the worker to have a truly flexible schedule, thus 
exhibiting control that could indicate that a worker is an 
employee.\378\
---------------------------------------------------------------------------

    \375\ See, e.g., Franze, 826 F. App'x at 77 (noting that 
schedule flexibility ``weigh[s] in favor of independent contractor 
status''); Karlson, 860 F.3d at 1094-96 (affirming a jury verdict 
finding a process server to be an independent contractor, in part, 
because the worker ``was not required to report for work[,] . . . 
did not punch a time clock,'' and did not have a set schedule, 
report a daily schedule to the employer, or face discipline for not 
working); Express Sixty-Minutes, 161 F.3d at 303 (determining that 
the employer ``had minimal control'' over the delivery drivers in 
part because the drivers ``set their own hours and days of work'' 
and could reject deliveries ``without retaliation,'' which was 
evidence that the worker was an independent contractor).
    \376\ 87 FR 62249 (citing Saleem, 854 F.3d at 146 (finding 
drivers who were able to set schedules that ``were entirely of their 
making'' were properly found to be independent contractors where, 
among other factors, drivers could select routes, there was no 
incentive structure for them to drive at certain times, and they 
could exercise business-like initiative)).
    \377\ See, e.g., Verma, 937 F.3d at 230, 232 (finding the 
ability to set hours, select shifts, stay beyond a shift, and accept 
or reject work to be ``narrow choices'' when evaluated against other 
types of control exerted by the employer and that a ``holistic 
assessment'' of all factors showed that the workers were not, ``as a 
matter of economic reality, operating independent businesses for 
themselves''); Paragon, 884 F.3d at 1235-38 (finding that even 
though a worker could set his own schedule, he was an employee, in 
part, because his flat rate of pay did not allow him profit based on 
his performance); DialAmerica, 757 F.2d at 1384-86 (finding 
telephone survey workers who set their own hours and were free from 
supervision to be employees); Sureway, 656 F.2d at 1370-71 
(``circumstances of the whole activity'' show that laundry company 
``exercises control over the meaningful aspects of the cleaning 
[work]'' despite the fact that workers could set their own hours).
    \378\ 87 FR 62248 (citing Flint Eng'g, 137 F.3d at 1441 (``The 
record indicates rig welders cannot perform their work on their own 
schedule; rather, pipeline work has assembly line qualities in that 
it requires orderly and sequential coordination of various crafts 
and workers to construct a pipeline.''); Doty v. Elias, 733 F.2d 
720, 723 (10th Cir. 1984) (``Since plaintiffs could wait tables only 
during the restaurant's business hours, [the employer] essentially 
established plaintiffs' work schedules.'')).
---------------------------------------------------------------------------

    As the Department noted, courts have often found that a worker's 
ability to set their own schedule, by itself, provides only minimal 
evidence that a worker is an independent contractor, particularly when 
the hiring entity exerts other types of control; therefore, the freedom 
to set one's schedule should be evaluated against other forms of 
control implemented by an employer.\379\ The Department also cited the 
Tenth Circuit's common-sense observation that ``flexibility in work 
schedules is common to many businesses and is not significant in and of 
itself.'' \380\ For example, in Silk, the ``unloaders'' who came to the 
coal yard ``when and as they please[d]'' were employees rather than

[[Page 1696]]

independent contractors.\381\ Flexibility that allows workers to use 
time between tasks or jobs may also be an inherent component of some 
business models, but such flexibility does not preclude a finding that 
the employer has sufficient control over a worker in other ways to 
weigh in favor of employee status. For instance, the Department noted 
that ``the power to decline work, and thus maintain a flexible 
schedule, is not alone persuasive evidence of independent contractor 
status when the employer can discipline a worker for doing so.'' \382\ 
Moreover, both employees and independent contractors may possess 
scheduling flexibility in their working relationships.
---------------------------------------------------------------------------

    \379\ See, e.g., Verma, 937 F.3d at 230 (the Third Circuit found 
the ability to set hours, select shifts, stay beyond a shift, and 
accept or reject work to be ``narrow choices'' when evaluated 
against other types of control by the employer, such as setting the 
price for services); Hill v. Cobb, No. 3:13-CV-045-SA-SAA, 2014 WL 
3810226, at *4-5 (N.D. Miss. Aug. 1, 2014) (finding that even though 
workers had no specific hours or schedule and could ``come and go as 
[they] pleased'' the employer ``maintained extensive control over 
the remaining aspects'' of the business such that the control factor 
weighed in favor of employee status); Wilson v. Guardian Angel 
Nursing, Inc., No. 3:07-0069, 2008 WL 2944661, at *15-16 (M.D. Tenn. 
July 31, 2008) (finding that although nurses could accept or reject 
shifts the employer exercised substantial control in other respects, 
such as over the manner in which nurses conducted their duties).
    \380\ 87 FR 62249 (citing Snell, 875 F.2d at 806) (emphasis 
added); see also Circle C. Invs., 998 F.2d at 327 (finding that the 
employer had ``significant control'' over dancers indicating 
employee status even though they had ``input . . . as to the days 
that they wish to work''); Doty, 733 F.2d at 723 (``A relatively 
flexible work schedule alone, however, does not make an individual 
an independent contractor rather than an employee.''); Walling v. 
Twyeffort, Inc., 158 F.2d 944, 947 (2d Cir. 1946) (holding that 
workers who ``are at liberty to work or not as they choose'' were 
employees under FLSA).
    \381\ 331 U.S. at 706, 718.
    \382\ 87 FR 62249; see, e.g., Off Duty Police, 915 F.3d at 1060-
62 (noting that ``[a]lthough workers could accept or reject 
assignments, multiple workers testified that [the employer] would 
discipline them if they declined a job,'' which supported a finding 
that the control factor favored employee status for one set of 
workers; testimony that another set of workers may not have been 
punished for declining work did not clearly support either employee 
or independent contractor status under the control factor '); see 
also Parrish, 917 F.3d at 382 (ability to turn down projects without 
negative repercussion was among the reasons the control factor 
weighed in favor of independent contractor status).
---------------------------------------------------------------------------

    As the discussion in the NPRM concluded, control over a worker's 
schedule exhibits just that: one form of control.\383\ Both employees 
and independent contractors can take advantage of flexible work 
arrangements, which is why such scheduling flexibility, on its own, may 
not clearly indicate that the employer lacks control over the 
worker.\384\ As the Department noted, this approach is consistent with 
the economic realities, totality-of-the-circumstances approach, where 
such scheduling flexibility should be weighed along with other aspects 
of control the employer may be implementing.
---------------------------------------------------------------------------

    \383\ See, e.g., Mr. W Fireworks, 814 F.2d at 1048 (noting that 
work schedules compelled by the employer were, among other 
considerations within control, evidence that, ``[a]s a matter of 
economic reality'' the employer ``exercise[d] great control'' over 
the workers and thus, ultimately employee status).
    \384\ See 87 FR 62249 (citing Collinge, 2015 WL 1299369, at *4 
(finding that the fact that on-demand ``[d]rivers are free to wait 
at home for their first delivery of the day, and . . . are free to 
`kill time' on a computer or run personal errands'' in between jobs 
did not demonstrate lack of control ``because [it] merely show[s] 
that [the employer] is unable to control its drivers when they are 
not working, an irrelevant point.'') (footnotes omitted)).
---------------------------------------------------------------------------

    Several commenters expressed general support for the NPRM's 
discussion of scheduling flexibility. For example, the AFL-CIO noted 
that ``[t]he NPRM . . . correctly makes clear that . . . `scheduling 
flexibility is not necessarily indicative of independent contractor 
status where other aspects of control are present[.]' '' In their 
comments, ACRE et al. and the Washington Center for Equitable Growth 
agreed that flexible work schedules can be common to employees and 
independent contractors alike and ACRE et al. noted that ``flexible 
schedules alone do not determine a worker's employment status.'' See 
also NPWF. PowerSwitch Action supported the NPRM's discussion of 
scheduling flexibility, commenting that the economic reality inquiry 
``is not illuminated by whether a worker can choose to perform their 
work at nights instead of days (or vice versa), in short several-hour 
increments over a single day or several days, or in periods that vary 
seasonally.'' It contended that workers classified as employees have 
historically included workers with great scheduling flexibility across 
various industries, indicating that such freedoms are not synonymous 
with being an independent contractor. The LA Fed & Teamsters Locals 
agreed, noting that scheduling flexibility, alone, is a ``poor 
indicator[ ] of the economic realities of the contemporary working 
relationship'' unless that fact can ``actually demonstrate the worker's 
economic independence.'' NWLC noted that ``[t]he Department's guidance 
here is consistent with court decisions finding, for instance, that 
nurses, dancers, and delivery drivers . . . were employees even though 
they had substantial control over their work hours, because their 
employers retained control over prices for their services and/or other 
important elements of their jobs.''
    Some commenters addressed industry specific practices. For example, 
ROC United noted that their members, who are restaurant workers, 
``frequently decide when and how long to work,'' yet, ``once working, 
they have very little control over how they actually do the work,'' 
suggesting their economic dependence. UFCW similarly commented that, in 
their experience working with drivers, app-based companies ``threaten 
to expel workers from the platform or reduce the availability of work 
shifts, unless the worker continuously accepts jobs;'' a situation that 
limits the benefit of flexibility.\385\ REAL Women in Trucking 
applauded ``the Department's decision to broaden its framing of the 
scheduling element from the 2021 Rule and to focus on whether apparent 
scheduling flexibility actually provides for economic independence or 
whether the worker is still functionally dependent.'' It noted that 
truckers can be constrained by other forms of control--such as 
retaliation for declining too many offered loads--and stated the 
proposal's ``emphasis on whether apparent scheduling flexibility is 
constrained by economic reality is accordingly well considered.''
---------------------------------------------------------------------------

    \385\ The comment noted specific practices that erode the 
benefit of scheduling flexibility, such as app-based platforms 
offering first access to premium deliveries or allowing workers 
first access to select shifts on the condition that they have 
accepted enough jobs in the prior month.
---------------------------------------------------------------------------

    The law firm Nichols Kaster noted that, in their experience, 
``employers who misclassify their workers as independent contractors 
rely on the workers' ability to decline work as evidence of lack of 
control. But there is oftentimes no meaningful choice because declining 
work can result in discipline or other consequences.'' It suggested 
including language from the preamble in the final rule to emphasize 
this point. NELA agreed with the Department's discussion of scheduling 
flexibility and similarly suggested that the Department include more 
information about scheduling flexibility in the final rule. Moreover, 
Gale Healthcare Solutions noted that the term ``scheduling 
flexibility'' needs further refinement, since workers in the healthcare 
industry may have the flexibility to select their preferred shift from 
a job board but do not have the flexibility to decide when the shift 
starts and ends, and this ``inherently less `flexibility' '' would 
indicate employee status. The Department declines commenters' 
suggestions to include additional content in the final regulatory text 
for this factor. The current proposal was intended to provide succinct 
statements regarding each factor of the economic reality test with the 
understanding that the preamble will be accessible for additional 
information regarding the rule, as will future subregulatory guidance.
    Several commenters also expressed concern with the Department's 
approach, asserting that scheduling flexibility is a strong indicator 
of independent contractor status. For instance, Uber stated that ``a 
worker's ability to autonomously determine their own work schedule 
(days, hours, time of day, and more) is a strong predictor of 
independent status--on Uber, drivers and couriers can start and stop 
work whenever and wherever they choose, accepting only those offers 
they want to take[.]'' DoorDash asserted that ``[n]ot only is 
scheduling flexibility a significant distinction between employment and 
independent work: it gets to the very heart of the economic

[[Page 1697]]

reality test.'' See also National Propane Gas Association.
    SHRM suggested that the Department's treatment of scheduling 
flexibility is misguided because, for example, ``contract work may 
provide [low-wage earners] with control over their schedules, providing 
the ability to maximize their earnings and better attend to their 
personal obligations.'' Multiple individuals, like one ``independent 
healthcare professional,'' stressed that many people like them want 
``the freedom to engage in flexible work arrangements that best meet 
our needs.''
    The Department recognizes that many workers need and desire 
flexibility in their work schedules and seek out job opportunities that 
provide that flexibility. And, in some cases, control over one's 
schedule can be probative of an employer's lack of control over a 
worker, indicating that they may be an independent contractor.\386\ 
However, case law has consistently held that scheduling flexibility may 
be a relatively minor freedom, especially in those cases where a worker 
is prevented from exercising true flexibility because of the pace or 
timing of work or because the employer maintains other forms of 
control, such as the ability to punish workers who may seek to exercise 
flexibility on the job.\387\ In this way, the 2021 IC Rule's focus on 
scheduling flexibility as a fact that demonstrates ``substantial 
control over key aspects of the performance of the work'' misapplied 
relevant cases that suggest the opposite conclusion.\388\ The proper 
lens for the test is the totality-of-the-circumstances analysis, which 
considers scheduling flexibility along with other forms of control the 
employer might exert, as well as with other factors in the economic 
reality test.\389\
---------------------------------------------------------------------------

    \386\ See, e.g., Express Sixty-Minutes, 161 F.3d at 303 
(determining that the employer ``had minimal control'' over the 
delivery drivers in part because the drivers ``set their own hours 
and days of work'' and could reject deliveries ``without 
retaliation,'' which was evidence that the worker was an independent 
contractor).
    \387\ See, e.g., Verma, 937 F.3d at 230 (ability to set hours, 
select shifts, stay beyond a shift, and accept or reject work were 
``narrow choices'' when evaluated against other types of control by 
the employer, such as setting the price for services); Off Duty 
Police, 915 F.3d at 1060 (``Although workers could accept or reject 
assignments, multiple workers testified that [the employer] would 
discipline them if they declined a job,'' which was evidence of the 
employer's ultimate control); Flint Eng'g, 137 F.3d at 1441 (``The 
record indicates rig welders cannot perform their work on their own 
schedule; rather, pipeline work has assembly line qualities in that 
it requires orderly and sequential coordination of various crafts 
and workers to construct a pipeline.'').
    \388\ 86 FR 1247-48.
    \389\ See, e.g., Pilgrim Equip., 527 F.2d at 1312 (``In the 
total context of the relationship neither the [workers'] right to 
hire employees nor the right to set hours indicates such lack of 
control by [the employer] as would show these operators are 
independent from it.'') (emphasis added).
---------------------------------------------------------------------------

    Some commenters asserted that consideration of scheduling 
flexibility should take into account specific industry and/or 
contractual arrangements that limit its availability. For example, NRF 
& NCCR commented that the Department's proposed approach ``ignores key 
realities of business relationships common to retailers and 
restaurants.'' Examples include individuals who rent retail space but 
are constrained by limited operating hours of the building in which 
they rent, food delivery workers who may only be able to deliver food 
when a restaurant is open, or cleaning crews who can only do their work 
at night. They asserted that these types of limitations do not 
necessarily indicate that the worker lacks control over their schedule. 
The CA Chamber echoed this sentiment, noting that ``[a] business 
engaging a contractor to perform services is likely to have certain 
dates or times that they would prefer or possibly need that work to be 
performed,'' suggesting the Department did not take this reality into 
account. See also AFPF (asserting that the control analysis is 
complicated ``by adding to it such items of routine contractual terms'' 
like scheduling which ``cast no meaningful light on employer-employee 
status.''). The PGA noted, specific to its industry, that ``[golf] 
teaching professionals set their own schedules,'' yet ``their ability 
to teach at a particular space may be limited by the space's operating 
hours or conflicting events that require the use of the property.'' 
They asserted that this limitation ``should not be viewed as an example 
of a lack of control by the teaching professional.''
    Dart contended that if the Department's perspective is that limited 
scheduling control by the worker indicates employee status, then many 
drivers who independently ``elect to transport similar loads along the 
same routes over a period of time, risk losing their status and 
independence under this factor.'' They asserted that drivers who wish 
to remain independent would thus have to ``arbitrarily switch routes 
and carriers, and . . . bear whatever costs or inefficiencies such 
switches may give rise to, simply to preserve their independent status 
under this factor'' and requested that the Department adopt ``language 
which specifically incorporates consideration of the reality of the 
industry in question.''
    In addition, DoorDash suggested that the type of flexibility its 
workers possess is fundamentally different from the flexibility an 
employee may obtain from an employer. For instance, ``[h]aving some 
room to voice a preference about shifts or work remotely isn't true 
scheduling flexibility, because the ultimate control still belongs to 
their employers, who dictate things like deadlines and meeting 
schedules that can't be shirked.'' In contrast, DoorDash noted that its 
platform allows workers to work on their own time and walk away, 
potentially for weeks or months at a time.
    The Department disagrees that its formulation of the control factor 
must explicitly consider unique contractual or industry-specific 
scenarios that might affect scheduling flexibility. The language of the 
proposed rule noted that ``[f]acts relevant to the employer's control 
over the worker include whether the employer sets the worker's 
schedule,'' or where the employer ``places demands on workers'' that do 
not allow them to work . . . when they choose.'' \390\ To the extent a 
potential employer is exerting control over when and for how long an 
individual can work, that fact is indicative of the employer's control. 
And even in those scenarios where the worker's schedule is constrained 
by contract or employer requirements, such scheduling control is only 
one fact among many that could be considered under the control factor.
---------------------------------------------------------------------------

    \390\ 87 FR 62275.
---------------------------------------------------------------------------

    Finally, some commenters asserted that the Department's shift in 
focus to the employer's control was misguided. CWI suggested that 
``where a result or service is perishable or deadline driven, based on 
the consumer's desire or the nature of the product or service, it is 
inappropriate to describe the final deadline as evidence of the 
business setting the worker's schedule.'' In this way, CWI argued, a 
focus on scheduling flexibility solely from the perspective of the 
employer, ``prevents a counterbalancing of those separate actions by 
the employee that, separate and apart from its direct interactions with 
the putative employer, establish he is in business for himself.'' 
Similarly, N/MA noted that a shift in focus ``from the worker's right 
to control the manner and means by which the work is performed to the 
purported employer's control . . . [is] misdirected,'' and does not 
consider ``the totality of the worker's business . . . including . . . 
whether the worker . . . determines to prioritize, stagger, or overlap 
projects from multiple entities'' as they see fit.

[[Page 1698]]

    The Department's decision to present the control factor from the 
perspective of the employer's control over the economic aspects of the 
working relationship conforms to relevant case law describing the 
factor and also represents a common-sense understanding that an 
employer's ability to control a worker's time may be probative of the 
worker's status.\391\ And as discussed earlier, where a worker has the 
ability to set their own work schedule, courts have often found this to 
be less significant relative to other ways in which the employer exerts 
control. As such, scheduling flexibility should not be considered 
potentially dispositive of the control factor as articulated in the 
2021 IC Rule. Moreover, the rule does not eliminate the relevance of 
the worker's ability to control their schedule in the analysis, as the 
rule notes that ``more indicia of control by the worker,'' such as 
control over one's schedule, may ``favor[ ] independent contractor 
status.'' \392\
---------------------------------------------------------------------------

    \391\ For discussion of this issue generally, see section 
V.C.4(a).
    \392\ Id.
---------------------------------------------------------------------------

    The Department is finalizing the scheduling portion of the control 
factor at Sec.  795.105(b)(4) as proposed.
c. Supervision
    With respect to the consideration of supervision within the control 
factor, the Department proposed that ``[f]acts relevant to the 
employer's control over the worker include whether the employer . . . 
supervises the performance of the work'' including ``whether the 
employer uses technological means of supervision (such as by means of a 
device or electronically)'' or ``reserves the right to supervise or 
discipline workers.'' \393\ In describing its proposal, the Department 
noted the common-sense observation that an employer's close supervision 
of a worker on the job may be evidence of the employer's control over 
the worker, which is indicative of employee status. Conversely, as the 
Department noted, the lack of close supervision may be evidence that a 
worker is free from control and is in business for themself.\394\ 
However, courts have found that traditional forms of in-person, 
continuous supervision are not required to determine that this factor 
weighs in favor of employee status.\395\
---------------------------------------------------------------------------

    \393\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
    \394\ Id. at 62249.
    \395\ See, e.g., Driscoll, 603 F.2d at 756 (farmworkers could be 
employees of a strawberry farming company even where the potential 
employer exercised little direct supervision over them); Twyeffort, 
158 F.2d at 947 (rejecting an employer's contentions that its 
tailors are independent contractors because they are ``free from 
supervision, are at liberty to work or not as they choose, and may 
work for other employers if they wish'').
---------------------------------------------------------------------------

    A lack of supervision is not alone indicative of independent 
contractor status,\396\ such as when the employer's business or the 
nature of the work make direct supervision unnecessary. For example, in 
Off Duty Police, the Sixth Circuit determined that security officers 
were employees although they were ``rarely if ever supervised'' on the 
job, noting that ``the actual exercise of control `requires only such 
supervision as the nature of the work requires.' '' \397\ Moreover, 
``the level of supervision necessary in a given case is in part a 
function of the skills required to complete the work at issue.'' \398\ 
As the court noted, there was a limited need to supervise where 
officers in that case ``had far more experience and training than 
necessary to perform the work assigned.'' \399\ And in DialAmerica, the 
Third Circuit concluded that homeworkers were employees even though 
they were subject to little direct supervision (a fact typical of 
homeworkers generally).\400\ As the Second Circuit stated, ``[a]n 
employer does not need to look over his workers' shoulders every day in 
order to exercise control.'' \401\
---------------------------------------------------------------------------

    \396\ 87 FR 62249 n.393 (noting that the legislative history of 
the FLSA supports this point directly, since the definition of 
``employ'' was explicitly intended to cover as employment 
relationships those relationships where the employer turned a blind 
eye to labor performed for its benefit) (citing Antenor, 88 F.3d at 
934)).
    \397\ 915 F.3d at 1061-62 (quoting Peno Trucking, Inc. v. Comm'r 
of Internal Revenue, 296 F. App'x 449, 456 (6th Cir. 2008)).
    \398\ Id. at 1061.
    \399\ Id. at 1062.
    \400\ 757 F.2d at 1383-84. See also McComb v. Homeworkers' 
Handicraft Coop., 176 F.2d 633, 636 (4th Cir. 1949) (``It is true 
that there is no supervision of [homeworkers'] work; but it is so 
simple that it requires no supervision.'').
    \401\ Superior Care, 840 F.2d at 1060; cf. Antenor 88 F.3d at 
933 n.10 (explaining in an FLSA joint employment case that ``courts 
have found economic dependence under a multitude of circumstances 
where the alleged employer exercised little or no control or 
supervision over the putative employees'').
---------------------------------------------------------------------------

    In the NPRM, the Department also explained that employers may rely 
on training and hiring systems that make direct supervision 
unnecessary. As the Department noted, in Keller v. Miri Microsystems 
LLC, an employer relied on pre-hire certification programs and 
installation instructions when hiring their satellite dish 
installers.\402\ The court noted that the employer had little day-to-
day control over the workers and did not supervise the performance of 
their work, but that a factfinder could ``find that [the employer] 
controlled [the installer's] job performance through its initial 
training and hiring practices.'' \403\ The Department also highlighted, 
from the Fifth Circuit's statement in Parrish, that the ``lack of 
supervision [of the individual] over minor regular tasks cannot be 
bootstrapped into an appearance of real independence.'' \404\ Yet, the 
Department recognizes that a worker's ability to work without 
supervision may be probative of their independent contractor status, 
such as in Nieman, where the court affirmed a district court's 
conclusion that an insurance claims investigator was properly 
classified as an independent contractor, in part, because the 
investigator worked largely without supervision when setting up 
appointments, and deciding where to work and how and when to complete 
his assignments.\405\
---------------------------------------------------------------------------

    \402\ 781 F.3d at 814.
    \403\ Id.
    \404\ 917 F.3d at 381 (quoting Pilgrim Equip., 527 F.2d at 1312) 
(alteration in original)).
    \405\ Nieman, 775 F. App'x at 624-25.
---------------------------------------------------------------------------

    Finally, the Department noted that supervision can come in many 
different forms beyond physical ``over the shoulder'' supervision, 
which may not be immediately apparent.\406\ For instance, supervision 
can be maintained remotely through technology instead of, or in 
addition to, being performed in person, such as when supervision is 
implemented via monitoring systems that can track a worker's location 
and productivity, and even generate automated reminders to check in 
with supervisors.\407\ Additionally, an employer can remotely supervise 
its workforce, for instance, by using electronic systems to verify 
attendance, manage tasks, or assess performance.\408\

[[Page 1699]]

Thus, a totality-of-the-circumstances analysis properly includes not 
only exploring ways in which supervision is expressly exercised, but 
also those instances where supervision is not apparent but still used 
by the employer--either through the job's structure, training, or the 
use of technological tools.
---------------------------------------------------------------------------

    \406\ 87 FR 62250.
    \407\ Id. (citing, for example, Ruiz v. Affinity Logistics 
Corp., 754 F.3d 1093, 1102-03 (9th Cir. 2014) (finding in a state 
wage-and-hour case that techniques used by an employer to monitor 
its furniture delivery drivers were a form of supervision that made 
it more likely that the drivers were employees; as the court noted, 
the employer ``closely monitored and supervised'' the drivers by, 
among other things, ``conducting `follow-alongs'; requiring that 
drivers call their . . . supervisor after every two or three stops; 
monitoring the progress of each driver on the `route monitoring 
screen'; and contacting drivers if . . . [they] were running late or 
off course''). See also Scantland, 721 F.3d at 1314 (finding 
``meaningful supervision and monitoring'' in part because the 
employer required cable installers to log in and out of a service on 
their cell phones to record when they arrived on a job, when they 
completed a job, and what their estimated time of arrival was for 
their next job).
    \408\ See id. (relying on the Department's enforcement 
experience in this area). For example, an employer's use of 
electronic visitor verification (``EVV'') systems can be evidence of 
an employment relationship, especially in those instances where the 
employer uses the systems to set schedules, discipline staff, or run 
payroll systems, for example. See Domestic Service Final Rule 
Frequently Asked Questions (FAQs), U.S. Department of Labor (March 
20, 2023, 4:30 p.m.), https://www.dol.gov/agencies/whd/direct-care/faq#g11 (discussing EVV systems at question #10 in relation to an 
FLSA joint employment analysis).
---------------------------------------------------------------------------

    Several commenters supported the Department's discussion of 
supervision generally. For instance, LCCRUL & WLC noted that case law 
confirms the fact that, ``direct, on-site supervision'' is not a 
prerequisite to find that a worker is an employee. As LCCRUL & WLC 
noted, the Department's approach toward supervision allows a ``more 
accurate and comprehensive determination of the economic reality of the 
parties' relationship.'' ACRE et al., PowerSwitch Action and other 
commenters noted that the Department's description of supervision is 
helpful, since it highlights the many ways in which a worker might be 
controlled at work through direct management or technological 
surveillance.
    Commenters such as NELP and ROC United commended the Department's 
decision to address technologically-mediated supervision, since, as 
NELP noted, ``[m]any businesses today manage their workforces with 
monitoring systems that track productivity, location, and attendance.'' 
Providing this focus, NELP explained, ``will ensure that supervision is 
analyzed regardless of the medium used to accomplish it.'' As CLASP & 
GFI commented, ``new technologies make[ ] it easier for employers to 
keep close tabs on workers and simultaneously disengage from modes of 
management that, in a pre-digital world, would likely have been 
indicators of an employment relationship.'' The use of such technology, 
they noted, may particularly effect low-wage workers whose jobs can be 
easier to measure, such as warehouse workers whose efficiency in moving 
material can be readily quantified, or delivery drivers, whose speed, 
routes, and drop-off points can be managed digitally. As they describe, 
in some industries, digital ``surveillance has completely supplanted 
in-person supervision in cases where the nature of the work would 
otherwise require an onsite supervisor.''
    While some comments supported the overall approach to supervision 
in the NPRM, others suggested that the Department go further, either by 
adding additional context to the regulatory text or discussing 
additional facets of supervision. For instance, Nichols Kaster 
commented that the Department's approach is helpful since ``supervision 
can take multiple forms'' and employers have often argued that their 
workers are independent contractors by citing to the fact that they 
don't engage in in-person supervision of their work. However, it, along 
with NELA, called on the Department to include more information from 
the preamble discussion in the final regulatory text, specifically 
language addressing supervision via automated systems and that the lack 
of apparent supervision would not necessarily be indicative of a 
worker's independent contractor status.
    Similarly, NELP requested that the Department include language in 
the final regulatory text specifically clarifying ``that a lack of 
direct supervision may still support a finding of an employer's right 
to control if an employer can simply exert control when it deems it in 
the employer's interest to do so.'' Outten & Golden noted that the text 
of the final rule should also encompass the concept of ``monitoring,'' 
since ``many workers who work remotely . . . are primarily `supervised' 
through digital monitoring.'' In addition, Gale Healthcare Solutions 
and IntelyCare suggested that the Department include supervision 
provided by onsite or related entities such as scenarios where 
healthcare staff sent by an employer to a worksite receive 
``supervisory-like feedback'' on their performance that can be 
communicated back to their employer. Moreover, Gale Healthcare was 
concerned that if the Department indicated in the final rule that 
initial training--which some employers have deployed in lieu of direct 
supervision--is indicative of control, and thus employee status, that 
employers who wish to continue engaging independent contractors may 
forego such training, which could harm individuals in the healthcare 
industry.
    The Department declines to adopt the additional regulatory language 
suggested by commenters, as it believes additional discussion is more 
appropriate for future subregulatory guidance. In response to NELP, the 
Department understands its suggestion as requesting additional detail 
regarding reserved control, which is discussed elsewhere in this final 
rule. The Department also declines to add the phrase ``monitoring'' to 
the final regulatory text as requested by Outten & Golden. As described 
below, the Department agrees that supervision of a worker includes all 
forms of supervision which go to the worker's performance of the work. 
Thus, while the act of collecting data through monitoring systems could 
be used to supervise the performance of work, it might instead serve 
other operational needs of the employer not related to control. 
Therefore, adding ``monitoring'' to the regulatory text would not be 
helpful at highlighting this distinction. Moreover, to the extent 
Outten & Golden's comments were intended to include monitoring to 
capture situations where the employer would monitor a worker and then 
exert supervisory control when needed or desired, the Department is 
confident that this scenario is very similar to its discussion of 
reserved control where an employer possesses supervisory control but 
elects to exert it when it chooses.\409\ Where an employer reserves the 
right to use electronic or digital means of supervision--rather than 
traditional in-person supervision--to monitor a worker and thus correct 
or direct the performance of the work when it deems necessary, then 
this too would be relevant to the economic reality analysis.\410\ 
Accordingly, the Department concludes that the regulatory language 
describing the control factor contains sufficient information to inform 
stakeholders about the scope of this factor.
---------------------------------------------------------------------------

    \409\ See section V(D).
    \410\ See generally Superior Care, 840 F.2d at 1060 (finding 
that the employer's reserved right to perform in-person supervision 
of nursing staff was relevant to the economic reality analysis).
---------------------------------------------------------------------------

    The Department also recognizes the situation that Gale Healthcare 
Solutions and IntelyCare raise regarding supervision that may be 
performed by other entities where the work is performed and relayed 
back to a potential employer. However, the Department declines to add 
specific language addressing this scenario, since this scenario would 
require a fact-specific inquiry. For example, if a potential employer 
is exercising control, but delegates it to a third party that is 
conducting onsite supervision and then reports that to the employer, 
then the same analysis regarding the employer's supervision would 
apply. Finally, to Gale Healthcare's concern regarding training, while 
it may be indicative of other factors in the economic reality test 
(e.g., skill and initiative), its relevance for the purposes of this 
portion of the control analysis is to simply highlight how training may 
be used by some employers to avoid any necessary supervision once the 
worker begins performing work. Such training that is not a replacement 
for close supervision,

[[Page 1700]]

such as apprising workers of safety protocols, would not necessarily be 
indicative of supervisory-like control.
    UFCW commended the Department's focus on providing additional 
context to the control factor analysis, specifically the ways in which 
an employer might use technology to supervise its workforce. However, 
as discussed in the section on examples used in the preamble, UFCW, 
several of its locals, and the AFL-CIO would also have the Department 
go further by providing additional examples of ways in which employers 
use technology, including surveillance, data collection, and 
algorithmic management tools, to supervise workers. According to UFCW, 
since ``employers in all industries are rapidly exploiting electronic 
surveillance to supervise workers,'' the final rule ``should 
additionally explain that a company's use of nontransparent computer 
algorithms (programming codes) to manage workers is evidence indicative 
of employer control.''
    The Department agrees with commenters like the AFL-CIO that control 
over the performance of work that is exercised by means of data, 
surveillance, or algorithmic supervision is relevant to the control 
inquiry under the economic reality test. Such tools could be used 
directly by the employer or on their behalf to supervise the 
performance of the work. Digital tools are many times developed, 
controlled, and deployed to assist in (or independently conduct) 
supervision in ways that would have otherwise required in-person 
oversight. However, the Department believes that such tools, including 
algorithmic control, if used by the employer to supervise the 
performance of the work, are already captured by the regulatory text 
addressing a potential employer's use of ``technological means of 
supervision (such as by means of a device or electronically).'' 
Relatedly, the Department declines to add additional language 
suggesting actions like mere data collection would constitute 
supervision for the purposes of control. Like monitoring, an employer 
may collect data on business operations for purposes unrelated to its 
relationship to workers. Yet, the Department recognizes that where the 
employer collects information that then is used for the purposes of 
supervision and thus goes beyond information collection, that may be 
probative of an employer's control under this factor.
    Several commenters disagreed with the Department's approach 
regarding supervision. CWI noted that a lack of supervision may in fact 
reflect that a worker is an independent contractor as independent 
contractors are often ``retained precisely because they perform work 
that the putative employer does not,'' which results in less 
supervision. CWI further contended that a lack of supervision should 
edge toward a finding of independent contractor status in most cases. 
This concern was echoed by N/MA, which suggested that the Department's 
approach ``turns the control factor upside down by effectively ignoring 
a lack of putative employer control.'' Many independent contractors, N/
MA contended, function without supervision precisely because of the 
specialized or technical services they render. N/MA asserted that 
``work that does not require supervision by the hiring entity is 
exactly the type of work that should be recognized as more likely to 
result in a determination of a lack of control over the manner and 
means by which the work is performed, and indicative of independence.''
    The Department agrees with commenters that a lack of supervision 
may be probative of a worker's independent contractor status. That fact 
is reflected in case law as well as the Department's proposal.\411\ For 
example, regarding N/MA's comment, the Department agrees that workers 
who deliver technical or specialized services may use that technical 
expertise to operate without supervision (either because the employer 
need not supervise a technically-proficient worker or the employer does 
not have the expertise themselves to meaningfully supervise). In such 
circumstances, an employer's lack of supervision may support a finding 
that the control factor weighs in favor of independent contractor 
status. The Department notes however, also consistent with case law, 
that the lack of supervision on its face should not halt a full 
analysis.\412\ Lack of direct or in-person supervision may not indicate 
that the control factor weighs in favor of independent contractor 
status if there are other ways in which the employer is able to 
accomplish the same manner of control that would have otherwise been 
performed through close, in-person supervision over the performance of 
the work. As the Department indicated, for example, the employer may 
rely on detailed training or instructions, deploy electronic tools to 
direct the performance of the work remotely, or retain the right to 
conduct in-person supervision.
---------------------------------------------------------------------------

    \411\ See, e.g., Chao v. Mid-Atlantic Installation Servs., Inc., 
16 F. App'x 104, 106-08 (4th Cir. 2001) (agreeing with the district 
court's analysis that the ability to complete jobs in any order, 
conduct personal affairs, and work independently is evidence that 
leans toward identifying a worker as an independent contractor).
    \412\ See, e.g., Superior Care, 840 F.2d at 1060 (``An employer 
does not need to look over his workers' shoulders every day in order 
to exercise control.''); Driscoll, 603 F.2d at 756 (farmworkers 
could be employees of a strawberry farming company even where the 
employer exercised little direct supervision over them); Twyeffort, 
158 F.2d at 947 (rejecting an employer's contention that its tailors 
are independent contractors because they are ``free from 
supervision, are at liberty to work or not as they choose, and may 
work for other employers if they wish'').
---------------------------------------------------------------------------

    CWI further suggested that the Department's proposal missed a 
critical distinction. By focusing merely on the fact that supervision 
may be maintained by technological means, they asserted that the 
proposal did not distinguish between supervision through technology 
that is ``targeted toward the direction of the manner in and means by 
which the worker performs his work'' and monitoring that is ``targeted 
toward the particular goods or services at issue.'' \413\ The 
California and U.S. Chambers of Commerce and WPI agreed, with WPI 
similarly contending that electronic monitoring ``has little to no 
impact on economic realities, and that it is an often-commonplace 
component of normal arm's-length contracts.'' See also Cambridge 
Investment Research, Raymond James, and WFCA. As Flex similarly noted, 
technology is used to manage basic business functions and compliance 
monitoring, as well as ``enhance[ ] the user experience for consumers'' 
such as noting a driver's location, arrival time, or facilitating the 
exchange of money for the consumer. See also DSA; NHDA. Moreover, Flex 
noted that federal regulations require electronic monitoring for safety 
purposes in some industries, like trucking.\414\ See also; American 
Trucking Association; State Trucking Associations; U.S. Chamber. 
Therefore, to avoid confusion, Flex suggested that references to 
technology should be stricken from the rule. See also DSA; PGA; Raymond 
James.
---------------------------------------------------------------------------

    \413\ The comment noted, for example, that distributors of 
perishable goods like food and medicine use technological monitoring 
``to ensure product integrity, compliance with customer and 
regulatory commitments, and even the safety of the public at 
large,'' not necessarily to exercise control over the worker as an 
employee.
    \414\ For discussion of comments related to actions taken to 
comply with regulatory requirements see section V(C)(4)(a).
---------------------------------------------------------------------------

    CWI also stated, however, that technological supervision ``coupled 
with some manner of corrective direction about the means and manner of 
performance may evidence employment,'' yet they commented that the 
Department's proposal ``sweeps too broadly.'' The Coalition of Business

[[Page 1701]]

Stakeholders noted that the language in the proposal could encompass 
the employer's or worker's use of everyday technologies that are used 
to run a contemporary workplace. Finally, the CA Chamber noted that 
independent contractors are also supervised, suggesting that it would 
be ``nonsensical to assert that you would hire a contractor and never 
oversee their services or check in on progress.''
    The Department agrees with commenters such as CWI and WPI that 
employers may at times use technology to track information critical to 
their business or, as the CA Chamber notes, the mere status of work 
performed by a worker. Such actions can be performed consistent with an 
independent contractor relationship with a worker, even when the data 
being collected is generated from the actions of the worker. The 
Department thus agrees with CWI, for example, that the proposed 
regulatory text missed this nuanced distinction. However, as CWI noted, 
where such tracking is then paired with supervisory action on behalf of 
the employer such that the performance of the work is being monitored 
so it might then be directed or corrected, then this type of behavior 
may suggest that the worker is under the employer's control. Thus, the 
Department is adding additional language to the control factor to 
clarify that the relevant consideration is not simply the employer's 
use of technology to supervise, but the use of technology ``to 
supervise the performance of the work.'' This is why the Department 
disagrees with Flex's call to eliminate any reference to technology and 
WPI's assertion that the use of technology never implicates the 
analysis under the economic reality test. Such a complete bar would 
suggest that a worker's performance of the work can never be controlled 
or directed by technology, which is not correct, especially when such 
tools are not only ubiquitous in many employment settings, but also are 
specifically deployed by some employers to supervise and direct the 
means through which a worker performs their job. Moreover, the 
Department does not believe that the inclusion of a reference to 
technology, as noted by the Coalition of Business Stakeholders, would 
act as an unbounded factor, pulling in all forms of technology used in 
modern workplaces. The only forms of technology referenced by the rule 
are those that are deployed by the employer as a means of supervising 
the performance of the work which are thus probative of economic 
dependence, not all technologies that the employer might be using in 
their business.
    The Department notes that comments received regarding the 
proposal's discussion of an employer's reserved control over the 
worker, including reserved rights to supervise, are addressed in the 
discussion of reserved rights in section V.D.
    The Department is finalizing the supervision portion of the control 
factor at Sec.  795.105(b)(4) with the revisions discussed herein.
d. Setting a Price or Rate for Goods or Services
    Regarding the control factor's treatment of the ability to set a 
price or rate for goods or services, the Department proposed that this 
factor consider whether the ``employer controls economic aspects of the 
working relationship . . . including control over prices or rates for 
services.'' \415\ As the Department noted, facts related to the 
employer's ability to set prices or rates of service relate directly to 
whether the worker is economically dependent on the employer for work 
and help answer the question whether the worker is in business for 
themself.\416\
---------------------------------------------------------------------------

    \415\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
    \416\ 87 FR 62250.
---------------------------------------------------------------------------

    At the outset, the Department noted that workers in business for 
themselves are generally able to set (or at least negotiate) their own 
prices for services rendered.\417\ The Department further noted that 
one of the early Supreme Court cases applying the economic reality test 
concluded that the workers were employees in part because they were not 
``selling their products on the market for whatever price they can 
command.'' \418\ The Court explained that, instead, the workers were 
``regimented under one organization, manufacturing what the 
organization desires and receiving the compensation the organization 
dictates.'' \419\ The Department also cited multiple court of appeals 
and district court decisions finding that an employer's command over 
the price or rate for services indicated their control over the worker 
and that the worker was thus less likely to be in business for 
themself.\420\
---------------------------------------------------------------------------

    \417\ Id.
    \418\ Whitaker House, 366 U.S. at 32.
    \419\ Id.
    \420\ 87 FR 62250-51 (citing Verma, 937 F.3d at 230 
(identifying, among other things, the employer's setting the price 
and duration of private dances as indicative of ``overwhelming 
control'' over the performance of the work); Off Duty Police, 915 
F.3d at 1060 (concluding that certain security guards were 
employees, in part, because ``[the employer] set the rate at which 
the workers were paid''); McFeeley, 825 F.3d at 241-42 (affirming 
that a nightclub owner was exercising significant control because, 
among other things, it set the fees for private dances); Cornerstone 
Am., 545 F.3d at 343-44 (finding the control factor weighed in favor 
of employee status where employer controlled ``meaningful'' economic 
aspects of the work, including pricing of products sold); Selker 
Bros., 949 F.2d at 1294 (finding that, among other things, the fact 
that the employer set the price of cash sales of gasoline reflected 
the employer's ``pervasive control'' over the workers); Agerbrink v. 
Model Serv., LLC, 787 F. App'x 22, 25-26 (2d Cir. 2019) (determining 
that there were material facts in dispute regarding the worker's 
``ability to negotiate her pay rate,'' which related to the degree 
of control exerted by the employer, and rejecting the employer's 
contention that the worker had control over her pay rate simply 
because she could either work for the amount offered or not work for 
that amount, stating that this ``says nothing of the power to 
negotiate a rate of pay''); Karnes v. Happy Trails RV Park, LLC, 361 
F. Supp. 3d 921, 929 (W.D. Mo. 2019) (finding park managers to be 
employees in part because the park owners ``set all the prices''); 
Hurst v. Youngelson, 354 F. Supp. 3d 1362, 1370 (N.D. Ga. 2019) 
(finding relevant to the control analysis that the plaintiff was not 
free to set the prices she charged customers and had no ability to 
waive or alter cover charges for her customers).
---------------------------------------------------------------------------

    Conversely, the Department noted that when a worker negotiates or 
sets prices, those facts weigh in favor of independent contractor 
status.\421\ For instance, in Eberline v. Media Net, LLC, the court 
found that a jury had sufficient evidence to conclude that a worker 
exerted control over meaningful aspects of his business in part due to 
``testimony that installers could negotiate prices for custom work 
directly with the customer and keep that money without consequence.'' 
\422\
---------------------------------------------------------------------------

    \421\ Id. at 62251.
    \422\ 636 F. App'x 225, 227 (5th Cir. 2016); see also Nelson v. 
Texas Sugars, Inc., 838 F. App'x 39, 42 (5th Cir. 2020) (finding 
that because ``the dancers set their own schedule, worked for other 
clubs, chose their costume and routine, decided where to perform 
(onstage or offstage), kept all the money that they earned, and even 
chose how much to charge customers for dances, a reasonable jury 
could conclude that the Club did not exercise significant control 
over them'') (emphasis added).
---------------------------------------------------------------------------

    The Department also noted that the price of goods and services may 
sometimes be included in contracts between a business and an 
independent contractor.\423\ The Department quoted McFeeley, where the 
court observed that a worker doesn't ``automatically become[ ] an 
employee covered by the FLSA the moment a company exercises any control 
over him. After all, a company that engages an independent contractor 
seeks to exert some control, whether expressed orally or in writing, 
over the performance of the contractor's duties[.]'' \424\ Yet, the 
Department cautioned that the presence of a contract does not obviate 
the need for a complete analysis regarding the control exerted by the 
employer, such as the worker's ability to negotiate and alter the terms

[[Page 1702]]

of the contract. As the discussion in the NPRM concluded, it is 
evidence of employee status when an entity other than the worker sets a 
price or rate for the goods or services offered by the worker, or where 
the worker simply accepts a predetermined price or rate without 
meaningfully being able to negotiate it.\425\
---------------------------------------------------------------------------

    \423\ 87 FR 62251.
    \424\ Id. n. 410 (quoting McFeeley, 825 F.3d at 242-43).
    \425\ Id. (citing Scantland, 721 F.3d at 1315 (reversing summary 
judgment for the employer based in part on evidence that the workers 
``could not bid for jobs or negotiate the prices for jobs'')).
---------------------------------------------------------------------------

    Multiple commenters supported the Department's inclusion and 
description of price setting under the control factor. For example, the 
LA Fed & Teamsters Locals stated that this inclusion is a ``recognition 
of the great significance of an employer's control over setting prices 
for services'' which is ``much more reliable indicia of entrepreneurial 
status than less significant aspects of control.'' Such an approach, it 
suggested, will prevent employers from ``offering [workers] minor forms 
of control while effectively setting a ceiling on the workers' earnings 
by maintaining control over the rates offered to customers.'' The law 
firm Nichols Kaster noted that the proposal ``expounds on this 
important point and provides focus and clarity on what `economic 
aspects' means.'' NELP stated that the Department's discussion of price 
setting appropriately recognized that price-setting is a form of 
control, since an independent contractor ``controls, and has the right 
to control, all important business decisions,'' including ``what good 
or service to sell and at what price.'' As NELP further noted, 
``without the power to set prices for goods or services, a worker will 
likely be economically dependent on an employer for work, and if she 
wants to increase earnings, her only option is to work longer, harder, 
or more jobs.'' REAL Women in Trucking commended the Department for 
providing ``helpful clarity'' regarding price setting generally, 
providing an example of a worker's ability to negotiate rates where 
drivers select jobs from a ``free-market load board'' where they can 
negotiate the rates for their services and sign a rate contract 
directly with brokers.
    Some commenters suggested revisions to the proposed regulatory 
language. For example, UFCW urged the Department to amend the 
discussion regarding control to include a discussion of information 
asymmetries, noting that where a company conceals pricing data, that 
would indicate that a worker is not an independent contractor, since 
the worker lacks key information regarding price that would affect 
entrepreneurial decisions they might make. ACRE et al. similarly 
suggested that the Department ``clarify in the rule that another factor 
in determining if workers are considered employees must include if a 
corporation exercises control over workers through pay structures,'' 
specifically bonus pay systems used by some transportation network 
companies that encourage workers to drive more. ACRE et al. also 
suggested that the Department clarify that price (or wage) setting is 
so critical to the analysis that ``workers who can not independently 
set their own wage rates are, per se, not independent contractors.'' 
See also Jobs With Justice; NELA; Outten & Golden; PowerSwitch Action.
    The Department agrees that the lack of information regarding prices 
may prevent a worker from negotiating prices to further their own 
business. The Department believes that this concept was captured in the 
proposed language that the Department is finalizing which states that 
``[w]hether the employer controls economic aspects of the working 
relationship'' should be considered, including ``control over prices or 
rates for services.'' \426\ Control over price is one specific example 
and is not meant to be exhaustive. Further, the Department believes 
that defining the relationship in terms of ``information asymmetry'' 
would be less helpful to businesses that are trying to understand their 
obligations, since that term is ambiguous. Moreover, the Department is 
confident that situations in which the employer is controlling specific 
payment terms or pay structures are captured by the proposed regulatory 
language because the relevant inquiry focuses on an employer's control 
of ``economic aspects of the working relationship,'' which can embrace 
a nonexclusive set of considerations that may be relevant to a specific 
working relationship. Finally, the Department declines to adopt 
multiple commenters' suggestion to state that a worker's lack of 
control over prices would suggest conclusively that they are not 
independent contractors. As mentioned throughout this final rule, the 
Department declines suggestions to predetermine the weight of certain 
considerations, facts, or individual factors. The Department notes, 
however, that in a particular case, after considering all the facts of 
a particular relationship, control over pricing may be highly relevant 
to whether the control factor weighs in favor of employee or 
independent contractor status. This approach is consistent with case 
law, where a court ``adapt[s] its analysis to the particular working 
relationship, the particular workplace, and the particular industry in 
each FLSA case.'' \427\
---------------------------------------------------------------------------

    \426\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
    \427\ McFeeley, 825 F.3d at 241.
---------------------------------------------------------------------------

    Some commenters were opposed to the inclusion of price setting or 
the extent to which it may be used to illuminate the control factor of 
the economic reality test. For instance, the CA Chamber noted that 
while it ``generally agree[s] with the description of this facet of the 
control factor,'' it was concerned that it may receive too much weight 
in the analysis because some employees, ``such as salaried white-collar 
workers'' can negotiate their pay, while others, like an ``hourly 
employee on an assembly line'' may not. Therefore, the CA Chamber 
stated that considerations regarding price control, ``should have 
limited use in the analysis because it is not a defining feature of 
employment generally.'' See also AFPF; Richard Reibstein, publisher of 
legal blog.
    The IFA noted its concern with the Department's treatment of price 
as it related to franchising relationships. IFA explained, 
``[f]ranchisors commonly suggest resale prices for offerings across the 
franchise system and, subject to applicable law, may set minimum or 
maximum prices for products or services, or have uniform advertising 
requirements for system-wide promotions.'' IFA requested that the 
Department, ``expressly state that, in the franchise context, the fact 
that a franchisor sets prices for goods or services is not probative of 
an employment relationship.'' Similarly, ACLI shared that 
considerations regarding price are misplaced for the insurance 
industry, as ``neither insurers nor insurance agents have unlimited 
discretion to adjust prices however they see fit.'' In fact, 
``[c]onsistent with the requirement of financial solvency, insurance 
agents and advisors have no say or influence over the price of the 
products that they sell on behalf of firms, and they are prohibited by 
law from `rebating' any of the commissions earned from those sales,'' a 
fact that ``effectively bars them from getting involved in, or setting, 
pricing.'' The Alternative and Direct Investment Securities Association 
noted a similar arrangement among some investment advisors, who cannot 
fully negotiate rates for commissions because such rates are, in part, 
determined by the application of SEC regulations. Similarly, C.A.R. 
noted that real estate industry commission payments in California are 
required to be paid through a broker (with a written

[[Page 1703]]

agreement on how the commission will be shared between broker and 
salesperson). And the Coalition of Cattle Associations stated that 
cattle health processing crews, workers common in the cattle industry 
that care for herds, are similarly paid indirectly by a cattle farm 
that contracts for services of a company that engages crew members.
    CWI commented that considerations around prices or rates are 
superfluous because ``[a] worker's ability to negotiate or otherwise 
impact the amounts that he earns for his work is already fully 
incorporated in the opportunity-for-profit-or-loss factor.'' Thus, CWI 
suggested that since this consideration should be withdrawn as it is 
redundant. The N/MA similarly noted that such overlapping analysis 
results in ``improper[ ] double counting.'' See also CMAA. & NRA.
    The Department declines to adopt commenters' proposals to de-
emphasize the relevance of control over prices or rates of service. 
Just as the Department declined the suggestion that it elevate the role 
of control over prices, the Department concludes that giving this 
consideration less weight would similarly undermine a totality-of-the-
circumstances analysis. An employer's control over pricing should be 
one fact among all other facts considered under the control factor as 
it may be probative of a worker's economic dependence on a potential 
employer.
    The Department recognizes that many industries, occupations, or 
even business sectors set prices and rates for goods or services in 
ways that are unique, as noted by commenters like ACLI and IFA. 
However, workers who are truly in business for themselves will 
generally control the fundamental economic components of their 
business, including the prices to charge customers or clients for the 
goods or services offered. As discussed in section V.C.4.a, the 
Department is revising the final regulatory text of this factor to 
state: ``Actions taken by the potential employer for the sole purpose 
of complying with a specific, applicable Federal, State, Tribal, or 
local law or regulation are not indicative of control.'' However, 
beyond those obligations, where the potential employer exerts control 
to set rates or prices for services, the worker is more likely to be 
``receiving the compensation the organization dictates,'' and thus less 
likely to be in business for themself.\428\
---------------------------------------------------------------------------

    \428\ Whitaker House, 366 U.S. at 32.
---------------------------------------------------------------------------

    In addition, the Department disagrees with commenters such as CWI 
and N/MA contending that the discussion of price in both the nature and 
degree of control and opportunity for profit and loss factors is not 
warranted. In the former, the analysis is focused on the employer's 
actions that would control the economic aspects of the working 
relationship, while the discussion of the latter focuses on ways in 
which the individual has opportunities for profit or loss based on 
managerial skill (including initiative or business acumen or judgment) 
that affect the worker's economic success or failure in performing the 
work. Each discusses prices from different analytical points of view, 
an effort that is consistent with this final rule's approach, which is 
to analyze the working relationship in all its facets.
    Finally, the Department declines commenter suggestions to omit any 
discussion of price setting under the control factor. The Department 
continues to believe, consistent with case law, that a potential 
employer's general control over the prices or rates for services--paid 
to the workers or set by the employer--is indicative of employee 
status. When an entity other than the worker sets a price or rate for 
the goods or services offered by the worker, or where the worker simply 
accepts a predetermined price or rate without meaningfully being able 
to negotiate it, this is relevant under the control factor. As such, 
the Department declines to create a carve-out for certain business 
models or industries, as requested by some commenters, although the 
Department emphasizes that this position is intended to be consistent 
with the case law on this issue and is not creating a novel 
interpretation. Importantly, however, as with all considerations 
discussed under all the factors, the Department does not intend for 
this fact to presuppose the outcome of employment classification 
decisions in any particular industry, occupation, or profession.
    The Department is finalizing the price setting portion of the 
control factor at Sec.  795.105(b)(4) as proposed.
e. Ability To Work for Others
    Another consideration that the Department proposed under the 
control factor was whether the employer ``explicitly limits the 
worker's ability to work for others'' or ``places demands on workers' 
time that do not allow them to work for others.'' \429\ This 
consideration was consistent with the 2021 IC rule, which also 
recognized that directly or indirectly requiring an individual to work 
exclusively for an employer was indicative of an employer-employee 
relationship.\430\
---------------------------------------------------------------------------

    \429\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
    \430\ See 86 FR 1247 (Sec.  795.105(d)(1)(i)).
---------------------------------------------------------------------------

    As explained in the NPRM, where an employer exercises control over 
a worker's ability to work for others, this is indicative of the type 
of control over economic aspects of the work that is associated with an 
employment relationship rather than an independent contractor 
relationship.\431\ Control over a worker's ability to work for others 
may be exercised by directly prohibiting other work--for example, 
through a contractual provision.\432\ It may also be exercised 
indirectly by, for example, making demands on workers' time such that 
they are not able to work for other employers,\433\ or by imposing 
other restrictions that make it not feasible for a worker to work for 
others.\434\ For

[[Page 1704]]

example, in Scantland, the Eleventh Circuit determined that cable 
technicians could not work for other companies, either because they 
were told they could not do so or because the workers essentially had 
an exclusive work relationship with the employer because they were 
required to work 5 to 7 days a week and could not decline work without 
risking termination or being refused subsequent work.\435\ Thus, the 
employer controlled whether they could work for others, which suggested 
that they were economically dependent on the employer.\436\
---------------------------------------------------------------------------

    \431\ 87 FR 62251-52.
    \432\ See Parrish, 917 F.3d at 382 (noting that the non-
disclosure agreement did not require exclusive employment, and was 
therefore not an element of control that indicated employee status); 
Off Duty Police, 915 F.3d at 1060-61 (non-compete clause preventing 
workers from working for employer's customers for two years after 
leaving employment was among evidence supporting finding that 
control factor indicated employee status); Express Sixty-Minutes, 
161 F.3d at 303 (``Independent Contractor Agreement'' did not 
contain a ``covenant-not-to-compete'' and drivers could work for 
other courier delivery providers, which indicated independent 
contractor status); see also WHD Op. Ltr., 2000 WL 34444342, at *1, 
4 (Dec. 7, 2000) (workers were required to sign an agreement that 
prohibited them from working for other companies while driving for 
the employer, which suggested employee status); but cf. Faludi v. 
U.S. Shale Sols., LLC, 950 F.3d 269, 276-77 (5th Cir. 2020) (a non-
compete clause ``does not automatically negate independent 
contractor status''); Franze, 826 F. App'x at 76-77 (although a non-
compete provision prohibited drivers from driving routes and 
carrying products for competing companies, facts showed that the 
drivers ``controlled the overall scope of their delivery 
operations'' because of their control over distribution territories, 
ability to hire others, schedule flexibility, and lack of 
oversight).
    \433\ See, e.g., Keller, 781 F.3d at 813-14 (although worker was 
not prohibited from working for other companies, ``a reasonable jury 
could find that the way that [the employer] scheduled [the worker's] 
installation appointments made it impossible for [the worker] to 
provide installation services for other companies''); Scantland, 721 
F.3d at 1313-15 (finding even if workers were not prohibited from 
working for other installation contractors their long hours and 
inability to turn down work suggested that the employer controlled 
whether they could work for others, which was in part why the 
control factor favored employee status); Cromwell, 348 F. App'x at 
61 (``Although it does not appear that [the workers] were actually 
prohibited from taking other jobs while working for [the employers], 
as a practical matter the work schedule established by [the 
employers] precluded significant extra work.''); Flint Eng'g, 137 
F.3d at 1441 (finding the hours the company required of the workers, 
coupled with driving time between home and remote work sites every 
day, made it ``practically impossible for them to offer services to 
other employers'').
    \434\ See Brant, 43 F.4th at 669-70 (despite having the 
contractual ability to haul freight for other carriers, a driver 
alleged that the company maintained a ``system for approving and 
monitoring trips made for other carriers'' that was ``so complex and 
onerous that Drivers could not, as a practical matter, carry loads 
for anyone other than'' the company, which the court determined 
weighed in favor of employee status).
    \435\ 721 F.3d at 1313-15.
    \436\ Id. at 1315.
---------------------------------------------------------------------------

    The NPRM also recognized that some courts find that less control is 
exercised by a potential employer where the worker is not prohibited 
from working for others, particularly competitors, and that this may be 
indicative of an independent contractor relationship.\437\ However, the 
Department declined to include in the regulatory text for the control 
factor a blanket statement that the ability to work for others is a 
form of control exercised by the worker that indicates independent 
contractor status. The Department was concerned that this framing, 
which was in the 2021 IC Rule, fails to distinguish between work 
relationships where a worker has multiple jobs in which they are 
economically dependent on each potential employer and do not exercise 
the control associated with being in business for oneself, and 
relationships where the worker has sought out multiple clients in 
furtherance of their business.\438\ As the Department noted, if one 
worker holds multiple lower-paying jobs for which they are dependent on 
each employer for work in order to earn a living, and a different 
worker provides services to multiple clients due to their business 
acumen and entrepreneurial skills, there are qualitative and legally 
significant differences in how these two scenarios should be evaluated 
under the economic reality test.
---------------------------------------------------------------------------

    \437\ See, e.g., Razak, 951 F.3d at 145-46 (discussing disputed 
facts regarding whether drivers could drive for other services--Uber 
contended drivers could drive for other services but drivers 
contended that they could not accept rides from other platforms 
while online for Uber; drivers also noted that Uber's Driver 
Deactivation Policy stated that soliciting rides outside the Uber 
system leads to deactivation and that activities conducted outside 
the Uber system, like ``anonymous pickups,'' were prohibited); 
Paragon, 884 F.3d at 1235 (finding control factor favored 
independent contractor status in part because worker could and did 
work for other employers); Saleem, 854 F.3d at 141-43 (drivers' 
ability to work for business rivals and transport personal clients 
showed less control by and economic dependence on the employer); 
Express Sixty-Minutes, 161 F.3d at 303 (control factor ``point[ed] 
toward independent contractor status'' in part because the 
``Independent Contractor Agreement'' did not contain a covenant-not-
to-compete and drivers could work for other courier delivery 
providers).
    \438\ 87 FR 62252.
---------------------------------------------------------------------------

    Ultimately, as stated in the NPRM, the question is ``whether a 
[worker's] freedom to work when she wants and for whomever she wants 
reflects economic independence, or whether those freedoms merely mask 
the economic reality of dependence.'' \439\ Dating back to Silk, the 
``unloaders'' who came to the coal yard ``when and as they please[d] . 
. . work[ing] when they wish and work[ing] for others at will'' were 
deemed to be employees rather than independent contractors.\440\ And as 
the Fifth Circuit has explained, ``[the] purposes [of the FLSA] are not 
defeated merely because essentially fungible piece workers work from 
time to time for neighboring competitors.'' \441\ For example, in 
Seafood, Inc., the Fifth Circuit examined whether piece-rate workers 
who peeled and picked crabmeat and crawfish for a seafood processor, 
and who were allowed ``to come and go as they please . . . and even to 
work for competitors on a regular basis'' were, as a matter of economic 
reality, dependent on their employers and therefore employees under the 
Act.\442\ The court determined that the workers' ability to work for 
others was not dispositive, and that ``[l]aborers who work for two 
different employers on alternate days are no less economically 
dependent on their employers than laborers who work for a single 
employer'' because ``that freedom is hardly the same as true economic 
independence.'' \443\ The Sixth Circuit has further observed that 
``[m]any workers in the modern economy, including employees and 
independent contractors alike, must routinely seek out more than one 
source of income to make ends meet.'' \444\
---------------------------------------------------------------------------

    \439\ Reich v. Priba Corp., 890 F. Supp. 586, 592 (N.D. Tex. 
1995) (citing Mednick, 508 F.2d at 300, 301-02).
    \440\ 331 U.S. at 706, 718.
    \441\ Seafood, Inc., 867 F.2d at 877.
    \442\ 861 F.2d at 451-53.
    \443\ Seafood, Inc., 867 F.2d at 877.
    \444\ Off Duty Police, 915 F.3d at 1058.
---------------------------------------------------------------------------

    Several commenters supported the way the Department's proposal 
framed consideration of the ability to work for others within the 
control factor, including both direct and indirect means of limiting 
individuals' ability to work for others. See, e.g., LA Fed & Teamsters 
Locals; NWLC; Real Women in Trucking; UFCW. For example, the LA Fed 
contended that the 2021 IC Rule ``misapplies the law'' by stating that 
workers could be found to exercise ``substantial control'' by having 
the ability to work for others, because ``[f]or decades, employees have 
been able to have multiple jobs . . . without losing the protections 
the law bestows on employees.'' The LA Fed supported the Department's 
proposal, explaining that it ``rightly recognizes that workers' ability 
to . . . work for others does not support independent contractor status 
unless . . . facts actually demonstrate the worker's economic 
independence.'' Similarly, the NWLC stated that the 2021 IC Rule 
``impermissibly narrow[ed] the concept of control itself by focusing on 
control over work exercised by the individual worker, as opposed to the 
right to control by an employer'' and by using as an example a worker's 
``substantial control'' through the ability to work for others despite 
many decisions finding workers to be employees even though they worked 
for others.
    Some commenters requested that the Department provide a description 
of this aspect of the control factor that would address the workers' 
ability to work for others, not just the employer's actions, and state 
that where an individual has the ability to work for others, including 
competitors, this weighs in favor of independent contractor status. 
See, e.g., CPIE; DoorDash; N/MA. For example, DoorDash commented that 
the proposed rule ``adopts a one-sided approach: if a hiring entity 
limits a worker's ability to work for others, that counts toward 
employee status, but if a worker has the freedom to work for others, 
that doesn't count toward independent contractor status.'' However, 
Outten & Golden observed that employer limitations on the ability to 
work for others cannot be viewed simply as the converse of a worker's 
ability to work for others: ``The fact that an employer entity does not 
prohibit outside work does not suggest independent contractor status 
because having multiple jobs is compatible with an employment 
relationship. However, being prohibited from working for others clearly 
indicates the control of an employer, rather than an independent 
contractor relationship.''
    CWI also contended that the ``employer-centric focus'' of the 
proposed regulatory text addressing a worker's ability to work for 
others was ``misguided'' because, as the Department noted in the NPRM, 
there is appellate authority acknowledging ``a worker's ability to work 
for others--and thus develop multiple sources of business--as evidence 
of independent contractor status.'' CWI did not feel it

[[Page 1705]]

was sufficient to address this factor by stating that a business 
placing a limitation on the ability to work for others was evidence of 
employee status because this failed to take into account ``the fact 
that a worker may be simultaneously (and in a multi-app situation, 
potentially at the exact same time) working for others.'' Moreover, 
referencing Saleem, CWI contended that the fact that a worker could 
earn income through work for others meant that the worker was ``less 
economically dependent on his putative employer.''
    The Department notes that the mere fact that a worker earns income 
from more than one employer does not mean that the worker is not 
economically dependent on one or all of those employers, as a matter of 
economic reality. Economic dependence is based on an analysis of the 
multifactor economic reality test, not whether a worker is less 
financially dependent on the income they earn from any one 
employer.\445\ As discussed under this factor and the permanence factor 
(section V.C.3), it is well established that having multiple jobs is 
not inconsistent with employee status under the FLSA, and in fact, 
workers are often required to take on more than one job just to make 
ends meet. Moreover, in Saleem, the case referenced in CWI's comment, 
the Second Circuit recognized that: ``a company relinquishes control 
over its workers when it permits them to work for its competitors.'' 
\446\ This case supports the importance of looking to whether a 
potential employer restricts a worker's ability to work for others.
---------------------------------------------------------------------------

    \445\ See supra, section V.B.
    \446\ Saleem, 854 F.3d at 141.
---------------------------------------------------------------------------

    Similarly, N/MA argued that the focus should be on the worker's 
right to control and not the employer's control, because ``a freelancer 
may perform multiple projects among multiple separate (and sometimes 
competing) entities,'' and N/MA felt that the right to control factor 
should consider ``the totality of the worker's business . . . including 
control over whether the worker subcontracts any part of the work 
necessary to complete a project, whether and how the worker may 
advertise their services, and whether the worker determines to 
prioritize, stagger, or overlap projects from multiple entities.'' The 
Department views N/MA's comment to be advocating for a totality-of-the-
circumstances test that is congruent with the economic reality test, 
including consideration not just of control, but also factors like 
opportunity for profit or loss, investment, and use of specialized 
skills in connection with business-like initiative. Whether a potential 
employer restricts a worker's ability to work for others would 
certainly not be the only consideration under control, nor would it 
preclude consideration of the other factors listed in N/MA's comment. 
Further, the Department notes that even within the control factor, the 
regulatory text acknowledges that ``more indicia of control by the 
worker favors independent contractor status.'' \447\
---------------------------------------------------------------------------

    \447\ 29 CFR 795.110(b)(4).
---------------------------------------------------------------------------

    Several commenters pointed out the increased fluidity in terms of 
working for others that can be associated with using applications or 
platforms to access work. DoorDash explained with respect to its 
business that workers ``are free to work with anyone they want, 
including our competitors. Most importantly . . . they can do it in 
real time--even while they're logged into our app. If [they] find a 
better work opportunity (or work that's simply more appealing to them), 
they can switch back and forth.'' CEI noted that ``rideshare drivers 
often work for different app-based companies simultaneously. Anyone who 
calls for a ride using [Uber] has noticed the driver's car also bearing 
a Lyft sticker. . . This situation is common in gig work, where the 
companies are, in effect, bidding for the same workers.'' CEI further 
noted the Department's concern that the framing in the 2021 IC Rule, 
which indicated independent contractor status if a worker had the 
ability to work for others, fails to distinguish between work 
relationships where a worker has multiple jobs in which they are 
dependent on each employer and do not exercise the control associated 
with being in business for oneself, and relationships where the worker 
has sought out multiple clients in furtherance of their business. CEI 
stated: ``The framing does not distinguish between the two scenarios 
because there is no significant distinction. A worker who has `sought 
out multiple clients in furtherance of their business' is no less 
dependent on those clients than the hypothetical worker with multiple 
jobs.'' CEI suggested that the only solution to this problem was beyond 
the scope of this rulemaking and would require Congress to amend the 
FLSA to ``carve out specific professions.'' UFCW, however, did not view 
``multi-apping'' as a unique concept that could not be addressed within 
the economic reality test, arguing that a ``worker who attempts to 
leverage earnings between two app-based platforms (`multi-apping') [is] 
now simply dependent on two platform companies for which the employee 
is waiting around for work to perform. This is not indicative of the 
worker exercising initiative to develop a business for themselves 
independent of these platform companies.''
    The Department does not believe that the ability to use 
applications or platforms to access work necessitates changing how the 
ability to work for others is weighed when determining employee or 
independent contractor status. The Department reiterates that as 
always, the overall test is economic dependence. Even if a worker has 
the ability to more fluidly move among potential employers while 
performing work by using multiple applications, this does not 
necessarily mean that the entire control factor weighs in favor of 
independent contractor status. Nor is it dispositive of whether the 
worker is in business for themself rather than being subject to the 
control of the entity for whom they are performing work at any given 
time.\448\
---------------------------------------------------------------------------

    \448\ See, e.g., Razak, 951 F.3d at 145-46 (discussing disputed 
facts regarding whether drivers could drive for other services 
simultaneously--Uber contended drivers could drive for other 
services, but drivers contended that they could not accept rides 
from other platforms while online for Uber).
---------------------------------------------------------------------------

    While SHRM posited that the Department's proposal ``adopts an 
antiquated view of economic independence in its consideration of a 
worker's ability to work for others under the control factor'' because 
``low-wage earners may, in fact, gain independence by maintaining the 
flexibility to work with multiple hiring entities,'' NELP observed that 
in ``low-wage industries, particularly in services such as 
transportation, delivery, or home care, many workers juggle multiple 
jobs with multiple entities not as an exercise of their own business 
judgment but as a necessity to cobble together a living wage in an 
underpaying economy.'' For example, the LCCRUL & WLC described a 
current client who ``often has to work for a variety of gig economy 
jobs simultaneously, such as Uber Eats, GoPuff, Instacart, and Caviar, 
to keep her finances afloat.'' Further supporting the notion that the 
ability to work for multiple employers simultaneously does not 
necessarily indicate independent contractor status, the NDWA explained 
that home care workers may work for more than one third-party agency at 
the same time, ``given the scheduling irregularities and occasional 
disruptions in assignments that are an unavoidable part of the in-home 
personal care industry.'' However, it noted that ``[w]hile home care 
workers may choose to have multiple employers at the same time, it does 
not defeat the

[[Page 1706]]

conclusion that they are employees rather than independent 
contractors.''
    After considering these comments, the Department declines to add a 
statement to the regulatory text stating that a worker's ability to 
work for others indicates independent contractor status. The Department 
believes that having multiple jobs can too often be necessary for 
financial survival in the modern economy, as many commenters and courts 
have noted.\449\ For example, an employee may have two jobs, several 
part-time jobs, or a regularly-recurring seasonal job in addition to a 
full-time employment situation, and an independent contractor may also 
have multiple customers based on their exercise of business initiative. 
Thus, the mere ability to work for others is not necessarily an 
indicator of employee or independent contractor status.
---------------------------------------------------------------------------

    \449\ See supra, section V.C.3.
---------------------------------------------------------------------------

    Some commenters urged the Department to create an exception for 
industries like trucking where legal requirements make it more 
complicated for drivers to use the same equipment to work for another 
motor carrier. See e.g., NHDA, Scopelitis, Garvin, Light, Hanson & 
Feary. However, Real Women in Trucking observed that ``the ability to 
work for others is key to whether a driver is economically dependent or 
not,'' noting that ``the Department's emphasis that both direct 
prohibitions on working for others and indirect barriers are relevant 
to this factor'' was ``[e]specially important'' because their members 
experienced working arrangements where they were nominally permitted to 
carry loads for other carriers, but ``this flexibility is not available 
in practice.''
    This situation was addressed by the Seventh Circuit in a recent 
decision where the company retained sole discretion to deny the 
driver's request to haul freight for another carrier, and it also 
reserved the right to arrange for third-party monitoring of compliance 
with federal safety regulations at the driver's expense if he drove for 
other carriers.\450\ Further, even if the driver received approval to 
haul for another carrier and could have afforded to pay for third-party 
compliance monitoring, he would have been required to remove or cover 
the company's identification on his truck and to display his own or the 
other company's information.\451\ The court determined that these 
facts, showing that the company's ``system for approving and monitoring 
trips made for other carriers was so complex and onerous that Drivers 
could not, as a practical matter,'' haul loads for other carriers, 
weighed in favor of employee status.\452\
---------------------------------------------------------------------------

    \450\ Brant, 43 F.4th at 669-70.
    \451\ Id.
    \452\ Id. (analyzing the driver's ability to haul freight for 
other carriers under the opportunity for profit or loss factor 
because it was relevant to whether the driver could exercise his 
managerial skill to increase profits by selecting more favorable 
loads or by driving for other carriers) (internal quotation marks 
omitted).
---------------------------------------------------------------------------

    Although the Department is recognizing in this final rule that 
actions taken by a potential employer for ``the sole purpose of 
complying with a specific, applicable Federal, State, Tribal, or local 
law or regulation'' are not indicative of control, the Department 
continues to believe that where a business goes beyond compliance with 
the law or regulation in a way that serves the business's own 
compliance methods--for example, the system described in Brant that 
imposed several restrictions on the driver's ability to haul freight 
for others, including requiring the driver to pay for a third-party 
monitor--this may be indicative of control. Therefore, the Department 
declines to adopt a more blanket, imprecise provision pertaining to 
industry-specific limitations on the ability to work for others.
    Moreover, commenters and the Brant decision have prompted the 
Department to conclude that the regulatory proposal addressed indirect 
means of limiting workers' ability to work for others too narrowly, as 
it only would have recognized situations in which the potential 
employer ``places demands on workers' time'' that do not allow them to 
work for others.\453\ As NELP noted, ``whether a worker is truly free 
to work for others requires an examination of the facts on the ground; 
businesses may place demands on time or monetary penalties that 
effectively preclude a worker from seeking other work.'' Because 
businesses may impose financial demands or other restrictions on 
workers' ability to work for others such as the ``complex and onerous'' 
system in Brant--in addition to demands on time that do not allow them 
to work for others--the Department is revising the regulatory language 
in the final rule to encompass such situations. The revised text 
removes the word ``time'' and adds the words ``or restrictions'' after 
``or places demands'' to more accurately capture indirect means of 
limiting workers' ability to work for others.
---------------------------------------------------------------------------

    \453\ 87 FR 62275 (proposed Sec.  795.110(b)(4)).
---------------------------------------------------------------------------

    UFCW urged the Department to add additional considerations that are 
related to a potential employer limiting a worker's ability to work for 
others. First, it contended that platform companies essentially coerce 
workers to continuously accept work (which would preclude them from 
working for others) by threatening to terminate workers from the 
platform or reduce the availability of work shifts unless the worker 
continuously accepts jobs. Additionally, it noted that an employer may 
prohibit workers from developing their own business or customer base, 
for example, by prohibiting a platform worker from doing any 
independent work for customers they connect with through the app. The 
LCCRUL & WLC also described clients--a tow truck driver and a cannabis 
dispensary delivery driver--who similarly were not able to work for 
others because they were expected to be on call all day waiting for 
assignments. The Department agrees that these types of facts could be 
relevant to whether a potential employer has either explicitly limited 
the worker's ability to work for others or has placed demands or other 
restrictions on workers that do not allow them to work for others. 
However, the Department views these as encompassed within the final 
regulatory text, such that there is no need to add additional language.
    Finally, OOIDA encouraged the Department to view the ability to 
work for others within a working arrangement as ``relevant, but not 
determinative of the relationship'' and as ``one of several 
considerations within the `control' factor.'' The Department reaffirms 
that the ability to work for others is just one consideration within 
the control factor and agrees with the commenter that it is relevant, 
but not determinative, of whether the worker is an employee or 
independent contractor. Moreover, the control factor itself is not 
determinative of a worker's status--the economic reality test is a 
totality-of-the-circumstances test where no one factor is 
dispositive.\454\
---------------------------------------------------------------------------

    \454\ See, e.g., Flint Eng'g, 137 F.3d at 1441 (``None of the 
factors alone is dispositive; instead, the court must employ a 
totality-of-the-circumstances approach.'').
---------------------------------------------------------------------------

    The Department is finalizing the ability to work for others portion 
of control factor at Sec.  795.105(b)(4) with the revisions discussed 
herein.
Example: Nature and Degree of Control
    A registered nurse provides nursing care for Alpha House, a nursing 
home. The nursing home sets the work schedule with input from staff 
regarding their preferences and determines where in the nursing home 
each nurse will work. Alpha House's internal policies prohibit nurses 
from working for other nursing homes while employed with

[[Page 1707]]

Alpha House in order to protect its residents. In addition, the nursing 
staff are supervised by regular check-ins with managers, but nurses 
generally perform their work without direct supervision. While nurses 
at Alpha House work without close supervision and can express 
preferences for their schedule, Alpha House maintains control over when 
and where a nurse can work and whether a nurse can work for another 
nursing home. These facts indicate employee status under the control 
factor.
    Another registered nurse provides specialty movement therapy to 
residents at Beta House. The nurse maintains a website and was 
contacted by Beta House to assist its residents. The nurse provides the 
movement therapy for residents on a schedule agreed upon between the 
nurse and the resident, without direction or supervision from Beta 
House, and sets the price for services on the website. In addition, the 
nurse simultaneously provides therapy sessions to residents at Beta 
House as well as other nursing homes in the community. The facts--that 
the nurse markets their specialized services to obtain work for 
multiple clients, is not supervised by Beta House, sets their own 
prices, and has the flexibility to select a work schedule-indicate 
independent contractor status under the control factor.
5. Extent to Which the Work Performed Is an Integral Part of the 
Potential Employer's Business (Sec.  795.110(b)(5))
    In Sec.  795.110(b)(5), the Department proposed to return to 
framing this factor as ``whether the work performed is an integral part 
of the employer's business.'' \455\ The Department emphasized its 
belief that its proposed articulation of the integral factor--which 
considers whether the work is ``critical, necessary, or central to the 
employer's principal business''--better reflects the economic reality 
case law and is more consistent with the totality-of-the-circumstances 
approach to determining whether a worker is an employee or an 
independent contractor than the 2021 IC Rule's ``integrated unit of 
production'' framing.\456\
---------------------------------------------------------------------------

    \455\ 87 FR 62275 (proposed Sec.  795.110(b)(5)).
    \456\ Id. at 62253.
---------------------------------------------------------------------------

    The Department explained that the 2021 IC Rule's integral 
formulation relied on a rigid reading of Rutherford (which noted that 
the work was ``part of an integrated unit of production'' of the 
employer).\457\ Having further considered the case law, the Department 
concluded in the NPRM that the 2021 IC Rule's approach did not reflect 
Supreme Court or federal appellate court precedent.\458\ As the 2021 IC 
Rule acknowledged, the Supreme Court's decision in Silk determined that 
coal ``unloaders'' were employees of a retail coal company as a matter 
of economic reality in part because they were ``an integral part of the 
business[ ] of retailing coal.'' \459\ The 2021 IC Rule interpreted 
this language as merely articulating a part of the overall inquiry 
rather than a specific factor useful for deciding the question of 
economic dependence or independence. But as the Department explained in 
the NPRM, the Court in Silk explicitly considered the fact that the 
workers were an ``integral part'' of the business to be relevant to the 
inquiry, and later courts likewise found this framing to be useful to 
the economic reality analysis--so much so that most federal courts of 
appeals routinely list ``integral'' as an enumerated factor, but no 
court of appeals uses ``integrated unit'' for this factor.\460\ 
Additionally, the NPRM explained that the Department has also used this 
proposed approach to the integral factor for decades and has 
consistently found it to be a useful factor in the economic reality 
analysis.\461\ For these reasons, the Department proposed to eliminate 
the ``integrated unit'' factor as an enumerated factor and instead to 
restore the integral factor, understood by courts as being focused on 
whether the work is critical, necessary, or central to the potential 
employer's business.\462\
---------------------------------------------------------------------------

    \457\ Id. at 62254; Rutherford, 331 U.S. at 729.
    \458\ 87 FR 62254; see Silk, 331 U.S. at 716 (unloaders were 
``an integral part of the business[] of retailing coal''); see also 
Off Duty Police, 915 F.3d at 1055; McFeeley, 825 F.3d at 244; 
Scantland, 721 F.3d at 1319; Flint Eng'g, 137 F.3d at 1443; Superior 
Care, 840 F.2d at 1060-61; Lauritzen, 835 F.2d at 1537-38; 
DialAmerica, 757 F.2d at 1385; Driscoll, 603 F.2d at 755.
    \459\ 331 U.S. at 716.
    \460\ Id.; see supra section II.B.2.
    \461\ See, e.g., WHD Fact Sheet #13 (July 2008) (listing ``[t]he 
extent to which the services rendered are an integral part of the 
principal's business'' as a factor).
    \462\ 87 FR 62254.
---------------------------------------------------------------------------

    The Department explained that most courts adopt a common-sense 
approach to determining whether the work or service performed by a 
worker is an integral part of a potential employer's business.\463\ For 
example, if the potential employer could not function without the 
service performed by the workers, then the service they provide is 
integral.\464\ The Department noted that ``[s]uch workers are more 
likely to be economically dependent on the potential employer because 
their work depends on the existence of the employer's principal 
business, rather than their having an independent business that would 
exist with or without the employer.'' \465\ Additionally, courts also 
look at whether the work is important, critical, primary, or necessary 
to the potential employer's business.\466\ In most cases, if a 
potential employer's primary business is to make a product or provide a 
service, then the workers who are involved in making the product or 
providing the service are performing work that is integral to the 
potential employer's business.\467\
---------------------------------------------------------------------------

    \463\ Id. at 62253.
    \464\ See, e.g., Off Duty Police, 915 F.3d at 1055 (rejecting 
employer's argument that it was merely an agent between its 
customers and the officers because the company ``could not function 
without the services its workers provide''); McFeeley, 825 F.3d at 
244 (``[E]ven the clubs had to concede the point that an `exotic 
dance club could [not] function, much less be profitable, without 
exotic dancers.' '') (quoting Secretary of Labor's Amicus Br. in 
Supp. of Appellees at 24); Capital Int'l, 466 F.3d at 309 (finding 
security guards were integral to a business where company ``was 
formed specifically for the purpose of supplying'' private 
security); cf. Johnson, 371 F.3d at 730 (upholding jury verdict 
finding independent contractor status for security guards working 
for government housing authority and noting, with regard to integral 
factor, that the housing authority ``had functioned for years before 
and after the program'' under which security guards were hired).
    \465\ 87 FR 62253. See, e.g., Brock v. Lauritzen, 624 F. Supp. 
966, 969 (E.D. Wis. 1985), aff'd, 835 F.2d 1529 (7th Cir. 1987) 
(finding that cucumber harvesters were integral to cucumber farmer's 
business and were ``economically dependent upon Lauritzen's business 
for their work during the cucumber harvest season'').
    \466\ See, e.g., Alpha & Omega, 39 F.4th at 1085 (noting that 
this factor ``turns `on whether workers' services are a necessary 
component of the business' '') (quoting Paragon, 884 F.3d at 1237); 
Flint Eng'g, 137 F.3d at 1443 (finding rig welders' work to be ``an 
important, and indeed integral, component of oil and gas pipeline 
construction work'' because their work is a critical step on every 
transmission system construction project); Lauritzen, 835 F.2d at 
1537-38 (``It does not take much of a record to demonstrate that 
picking the pickles is a necessary and integral part of the pickle 
business[.]''); cf. Paragon, 884 F.3d at 1237 (``Because [the 
worker]'s management of the pecan grove was not integral to the bulk 
of Paragon's [construction] business, this factor supports 
consideration of [the worker] as an independent contractor.'').
    \467\ See, e.g., Superior Care, 840 F.2d at 1059 (for business 
that provided on-demand health care personnel, the nurses provided 
were themselves integral to the business).
---------------------------------------------------------------------------

    The Department emphasized that the judicial treatment of the 
integral factor reflects the understanding that a worker who performs 
work that is integral to an employer's business is more likely to be 
employed by the business, whereas a worker who performs work that is 
more peripheral to the employer's business is more likely to be 
independent from the employer.\468\ Finally, the Department

[[Page 1708]]

noted that while it is only one part of the overall inquiry, courts 
continue to find the integral factor useful for evaluating economic 
dependence.
---------------------------------------------------------------------------

    \468\ See, e.g., Keller, 781 F.3d 799 at 815 (``The more 
integral the worker's services are to the business, then the more 
likely it is that the parties have an employer-employee 
relationship.''); DialAmerica, 757 F.2d at 1385 (``workers are more 
likely to be `employees' under the FLSA if they perform the primary 
work of the alleged employer'').
---------------------------------------------------------------------------

    Many commenters expressed agreement with the Department's decision 
to return to the framing of this factor as the extent to which the work 
performed is an integral part of the potential employer's business. 
See, e.g., AFL-CIO; Century Foundation; IBT; NDWA; NELP; NWLC; ROC 
United; State AGs; Transport Workers Union of America. For example, 
NELP commented that it agreed with the statement in the NPRM that ``if 
the [employer] could not function without the service performed by the 
workers, then the service they provide is integral,'' explaining that 
this factor ``recognizes a simple truth: workers are more likely 
employees under the FLSA if `they perform the primary work of the 
alleged employer.' '' AFL-CIO similarly commented that it ``strongly 
supports the return of this factor to its `longstanding Departmental 
and judicial interpretation, rather than the `integrated unit of 
production' approach that was included in the 2021 IC Rule.' '' The 
Century Foundation commented that ``[t]his factor helpfully looks at 
whether the work performed is an essential or critical aspect of the 
business,--i.e., whether the work is critical to the main service or 
product that the business provides.'' NWLC agreed with the NPRM's 
rejection of the 2021 IC Rule's ``integrated unit'' framing of this 
factor, stating that the Department's proposal ``appropriately 
considers whether the work performed is an essential or critical aspect 
of the business--i.e., whether the work is critical to the main service 
or product that the business provides.'' NWLC explained that the NPRM's 
``framing is consistent with the long line of court decisions finding a 
worker's performance of work that is integral to the employer's 
business to be an indicator of employee status, reflecting the 
commonsense understanding that employers are more likely to hire 
employees to perform the tasks involved in providing the core products 
and/or services that their business offers.''
    IBT expressed support for the Department's proposed articulation of 
the integral factor and recommended ``that guidance for this factor 
make explicitly clear the focus of the factor is on the work performed, 
not the individual worker.'' Outten & Golden also stated that the final 
regulatory text should incorporate the text from the NPRM stating that 
``the focus of the integral factor is on the work performed, not the 
individual worker.'' As the Department explained in the NPRM, this 
approach evaluates whether the worker performs work that is central to 
the employer's business, not whether the worker possesses some unique 
qualities that render them indispensable as an individual.\469\ An 
individual worker who performs the work that an employer is in business 
to provide but is just one of hundreds or thousands who perform the 
work is nonetheless an integral part of the employer's business even if 
that one worker makes a minimal contribution to the business when 
considered among the workers as a whole.\470\ The Department believes 
that the proposed regulatory text, which states that ``[t]his factor 
considers whether the work performed is an integral part of the 
employer's business'' rather than ``whether any individual worker in 
particular is an integral part of the business'' sufficiently captures 
this understanding of the integral factor.
---------------------------------------------------------------------------

    \469\ 87 FR 62254. See, e.g., Montoya v. S.C.C.P. Painting 
Contractors, Inc., 589 F. Supp. 2d 569, 581 (D. Md. 2008) 
(explaining that ``this factor does not turn on whether the 
individual worker was integral to the business; rather, it depends 
on whether the service the worker performed was integral to the 
business'').
    \470\ 87 FR 62254 (giving the example of one operator among many 
in a call center).
---------------------------------------------------------------------------

    Some commenters urged the Department to maintain the 2021 IC Rule's 
framing of this factor as ``integrated unit of production,'' expressing 
the view that the 2021 IC Rule's approach is more consistent with Silk 
and Rutherford. See e.g., Freedom Foundation; Scalia Law Clinic; U.S. 
Chamber; see also NELA; Outten & Golden. For example, Scalia Law Clinic 
commented that Rutherford and Silk ``make clear that the `integral' 
factor concerns whether a worker is part of an integrated unit of 
production, not whether she is economically important to a business 
operation.'' The U.S. Chamber commented that ``focusing the integral 
prong on an integrated unit of production is fully supported by the 
extant decisional law'' stating that ``[t]he Supreme Court has 
described this prong as considering whether the worker is part of an 
`integrated economic unit' in the putative employer's business.'' The 
Freedom Foundation similarly commented that the Supreme Court in 
Rutherford espoused the proper articulation of the factor as 
``integrated unit of production'' explaining that `` `[i]ntegral' and 
`integrated' could be described as near homonyms . . . they are 
etymologically related words that sound similar but have different 
meanings.'' The Freedom Foundation further explained that `` 
`[i]ntegral,' in the sense described by the Department . . . means 
`necessary to make a whole complete; essential, fundamental;' whereas 
`integrated' in the sense used by the Supreme Court in Rutherford means 
`with various parts linked or coordinated.' '' The Freedom Foundation 
commented that it believes the Department misrelies on Silk to support 
its proposed framing of the integral factor, noting that ``Silk did not 
include integrality in its list of factors, nor did it apply it as a 
factor of decision.'' See also I4AW (factor was originally articulated 
as ``integrated unit of production'' but ``[o]ver the years . . . 
morphed, without explanation, into whether a role was `integral' to the 
business hiring the putative contractor. . . . [T]his scrivener's error 
has created greater confusion for businesses that want to be or work 
with ICs and has made it more difficult for courts to permit 
independent contract work'').
    NELP agreed with the Department's framing of the integral factor 
but stated that ``[t]o provide further clarity on this factor, the DOL 
should recognize that the question of integration is not an either/or 
proposition'' noting that ``[w]hether the work is integral such that 
the business could not offer its goods or services without it . . . is 
important to consider'' but ``it does not define the outer limits of 
this factor.'' NELP explained that ``[a]s the Supreme Court has 
recognized[,] whether the work is part of an `integrated unit of 
production' also informs whether the worker is more likely to be an 
employee or independent contractor.''
    After considering these comments, the Department is retaining the 
approach proposed in the NPRM, which considers whether the work 
performed by the worker is an integral part of the employer's business. 
As discussed below, the Department believes that its proposed approach 
to the integral factor is more consistent with longstanding judicial 
precedent and decades of Department guidance than the 2021 IC Rule's 
articulation of this factor, which focused on whether the worker is 
part of a ``integrated unit of production.'' The Department notes, 
however, that it does not intend to preclude consideration of the 
potential relevance of the Supreme Court's discussion of the 
``integrated unit of production'' in Rutherford. Consistent with the 
totality-of-the-circumstances approach, under which all relevant facts 
should be considered, the Department recognizes that the extent to 
which a worker is

[[Page 1709]]

integrated into a business's production processes may be relevant to 
the question of economic dependence or independence and may be 
considered under any relevant enumerated factor, or as an additional 
factor. For example, as the Department expressed in the NPRM, 
indicators that a worker is integrated into an employer's main 
production processes, such as whether the worker is required to work at 
the employer's main workplace or wear the employer's uniform, may 
illustrate an employer's control over the work being performed.\471\
---------------------------------------------------------------------------

    \471\ 87 FR 62254.
---------------------------------------------------------------------------

    Commenters' claims that the 2021 IC Rule's emphasis on the 
``integrated unit of production'' is more consistent with applicable 
judicial precedent than the approach proposed in the NPRM stands in 
sharp contrast to decades of judicial precedent and Departmental 
guidance. The Supreme Court's decision in Silk determined that coal 
``unloaders'' were employees of a retail coal company as a matter of 
economic reality in part because they were ``an integral part of the 
business [ ] of retailing coal.'' \472\ Some commenters took the 
position that the Court in Silk merely mentioned the integral nature of 
the work performed but did not intend for it to be a factor considered 
in the overall inquiry. However, the Supreme Court in Silk emphasized 
that its list of factors was not intended to be exhaustive, but instead 
consisted of factors the Court believed would be useful to courts and 
agencies applying the economic reality test in the future. Moreover, 
the Court explicitly considered it relevant to the determination of 
employment status that the coal unloaders in Silk were an ``integral 
part'' of the retail coal business, and the majority of federal courts 
of appeals have likewise adopted this consideration as a relevant 
factor for the inquiry into economic dependence or independence.\473\
---------------------------------------------------------------------------

    \472\ 331 U.S. at 716.
    \473\ See supra section II.B.2.
---------------------------------------------------------------------------

    Commenters attempted to cast aside decades of judicial precedent by 
employing an overly rigid understanding of Rutherford, an understanding 
that no federal court of appeals has adopted as the standard for this 
factor in the decades since Silk and Rutherford. As the Department has 
emphasized, the approach in this final rule is underpinned by a desire 
to bring consistency and clarity to the economic reality inquiry by 
aligning this rule with the approach taken by the majority of federal 
appellate case law. Nearly all the federal courts of appeals expressly 
consider whether the work performed is an integral part of the 
potential employer's business as a sixth enumerated factor in the 
economic dependence or independence inquiry.\474\ The Fifth Circuit has 
not expressly enumerated the integral factor but has at times assessed 
integrality as an additional relevant factor.\475\ The Department has 
also long considered whether the work performed is an integral part of 
the employer's business as a factor in the economic realities' 
inquiry.\476\ For example, in one of the Department's earliest 
pronouncements of the economic reality factors--a 1949 WHD opinion 
letter distilling the six ``primary factors which the Court considered 
significant'' in Rutherford and Silk--the first factor enumerated was 
``the extent to which the services in question are an integral part of 
the `employer[']s' business.'' \477\
---------------------------------------------------------------------------

    \474\ See e.g., Superior Care, 840 F.2d at 1058-59; DialAmerica, 
757 F.2d at 1382-83; McFeeley, 825 F.3d at 241; Off Duty Police, 915 
F.3d at 1055; Lauritzen, 835 F.2d at 1537-38; Alpha & Omega, 39 
F.4th at 1082; Driscoll, 603 F.2d at 754; Sureway, 656 F.2d at 1368; 
Paragon, 884 F.3d at 1235; Scantland, 721 F.3d at 1311-12; Morrison, 
253 F.3d at 11.
    \475\ See, e.g., Hobbs, 946 F.3d at 836.
    \476\ See WHD Op. Ltr. (June 23, 1949); 27 FR 8033; WHD Fact 
Sheet #13 (1997); WHD Fact Sheet #13 (July 2008); AI 2015-1, 
available at 2015 WL 4449086.
    \477\ WHD Op. Ltr. (June 23, 1949).
---------------------------------------------------------------------------

    The Department disagrees with the commenters' contention that the 
approach proposed by the Department and taken by nearly every federal 
court of appeals is a result of a misunderstanding of Rutherford, Silk, 
the FLSA, and the economic reality inquiry. The historical approach to 
this factor by the Department and the courts stands in stark contrast 
to the fact that not a single federal court of appeals identifies 
``integrated unit of production'' as the standard for this enumerated 
factor of the economic reality test. Commenters identified one federal 
appellate decision that they contend applied Rutherford's ``integrated 
unit of production'' as the standard for this factor in an independent 
contractor inquiry under the FLSA, Tobin v. Anthony-Williams Mfg. 
Co.\478\ See e.g., CPIE; CWI; DSA; IBA; N/MA. The decision in Tobin 
does not, however, stand for the proposition that the relevant standard 
for this factor under the enumerated factors of the economic reality 
test is whether workers are part of an ``integrated unit of 
production.'' Instead, Tobin was a factually analogous case to 
Rutherford where the Eighth Circuit found it relevant to the overall 
economic reality inquiry that the timber haulers and wood workers were 
part of one integrated unit of production.\479\ Consistent with the 
Department's discussion above, Tobin illustrates how Rutherford's 
``integrated unit of production'' framing may be considered when 
relevant to the question of economic dependence. Moreover, the Eighth 
Circuit has elsewhere recognized that the extent to which the work 
performed is integral to the employer's business is one of the 
enumerated factors under the economic reality test.\480\
---------------------------------------------------------------------------

    \478\ 196 F.2d 547, 550 (8th Cir. 1952) (analyzing whether 
timber haulers and wood workers were ``an integrated part of 
defendant's production set-up'').
    \479\ Id.
    \480\ Alpha & Omega, 39 F.4th at 1082 (stating ``[w]e assume 
without deciding that the economic realities test is appropriate in 
determining whether a worker is an employee or independent 
contractor under the FLSA'' and articulating the sixth relevant 
factor as ``the degree to which the alleged employee's tasks are 
integral to the employer's business.'').
---------------------------------------------------------------------------

    A number of commenters expressed concerns that the Department's 
proposed articulation of the integral factor was an attempt to adopt 
one of the prongs of the ABC test. See, e.g., 4A's; Club for Growth; 
Fight for Freelancers; NRF & NCCR; U.S. Chamber; WSTA. For example, the 
U.S. Chamber commented that ``it appears that the Proposed Rule's shift 
away from the Supreme Court's focus on an `integrated unit' to whether 
the work is `critical, necessary, or central' is a thinly veiled 
attempt to inject Prong B of the ABC test--whether the work takes place 
outside the usual course of the putative employer's business--into the 
analysis.'' The Club for Growth, NRF & NCCR, and the U.S. Chamber 
contended that the Department's proposal for the integral factor was at 
odds with the Department's explanation elsewhere in the NPRM that the 
Department believes the ABC test to be inconsistent with Supreme Court 
precedent interpreting the FLSA, and as such, cannot be adopted without 
Supreme Court or congressional alteration of the applicable analysis 
under the FLSA. Fight for Freelancers also commented that ``[the 
integral factor] is the most likely to misclassify legitimate 
independent contractors as employees, because it is so similar to the 
B-prong of the ABC Test.''
    Although there may be conceptual overlap between the Department's 
proposed integral factor and Prong B of the ABC test, as discussed 
above, the Department is not adopting an ABC test. The assertion that 
the Department's proposal regarding the integral factor is an attempt 
to insert Prong B of an ABC test in this rule is baseless. First, the 
integral factor is but one factor in a

[[Page 1710]]

multifactor inquiry, where no one factor is dispositive, and where the 
totality of the circumstances is considered to determine the ultimate 
question of whether a worker is economically dependent on the potential 
employer for work or is in business for themself. The totality-of-the-
circumstances test thus stands in stark contrast to an ABC test, in 
which each element of the test is dispositive. As the Department 
expressly recognized in the NPRM, and reaffirms here, not all workers 
who perform integral work are employees, and there may be times when 
this factor misaligns with the ultimate result. This is entirely 
consistent with the totality-of-the-circumstances approach.\481\ Prong 
B of the ABC test, on the other hand, is dispositive of employment 
status. If the hiring entity cannot show that the work being performed 
by the worker is outside the usual course of the hiring entity's 
business, employment status is found regardless of the other factors of 
the ABC test.\482\ Thus, while a worker can perform work that is 
integral to the potential employer's business and still be considered 
an independent contractor under this final rule, a worker performing 
work in the usual course of their potential employer's business will 
always be an employee under the ABC test. In this final rule, the 
Department is returning to the longstanding understanding of the 
integral factor consistent with decades of court precedent and 
Department guidance applying the economic reality test under the FLSA. 
Again, the Department is not adopting an ABC test.
---------------------------------------------------------------------------

    \481\ See, e.g., Meyer, 607 F. App'x at 123 (``Although tennis 
umpires are an integral part of the U.S. Open,'' other factors 
supported determination that umpires were independent contractors.); 
Perdomo v. Ask 4 Realty & Mgmt., Inc., No. 07-20089, 2007 WL 
9706364, at *4 (S.D. Fla. Dec. 19, 2007) (construction worker's work 
was integral to remodeling business, but economic reality factors as 
a whole indicated independent contractor status).
    \482\ 87 FR 62231.
---------------------------------------------------------------------------

    Several commenters expressed concerns that the integral factor 
would lead to virtually every worker being classified as an employee 
since most, if not all, work performed for a business could 
theoretically be considered critical or necessary to an employer's 
business. See, e.g., Alabama Forestry Association; FMI; Goldwater 
Institute; MEP; NAFO; Scalia Law Clinic; U.S. Chamber. For example, 
Scalia Law Clinic commented that ``[a]ll work for a business is in some 
sense `critical, necessary, or central to . . . [a] business,' because 
businesses only hire workers that add economic value.'' The U.S. 
Chamber similarly commented that ``[t]he Department has mistakenly 
equated `integral' with `critical, necessary, or central to the 
employer's business'. . . . Taken literally, this could include every 
independent contractor, because a business would not hire an 
independent contractor unless it was `necessary' to do so.'' NAFO 
similarly commented ``[t]his new interpretation makes it impossible to 
understand or apply the `integral' factor'' noting that the 
Department's rule ``would effectively subsume virtually every 
contracting or subcontracting relationship because all subcontractors 
perform a function that the entity deems `integral' to a product or a 
service--otherwise, it would not contract with them.'' MEP further 
explained that ``[t]his is particularly the case with small businesses 
that need to rely on outside expertise.'' As an example, MEP noted that 
IT, security, services, marketing, or legal consulting services, may 
not be the main intent of the business, but they may be critical or 
necessary to the business.
    As a threshold matter, the Department reiterates that, as with the 
other enumerated factors of the economic reality test, the integral 
factor is just one area of inquiry that is considered along with the 
other factors to reach the ultimate determination of economic 
dependence or independence. The Department again emphasizes that it is 
``not always true that workers whose work is integral are employees.'' 
\483\ Additionally, commenters' assertions that this factor would 
subsume every contracting relationship and would always weigh in favor 
of employee status are misguided. The commenters misapply the 
Department's articulation of this factor by suggesting that virtually 
every type of work commissioned by a business would be considered 
integral, since businesses do not contract for work that isn't 
necessary or critical to their functioning. The key limiting word that 
commenters appear to overlook is ``principal.'' As illustrated by the 
example the Department provided for this factor in the NPRM, which is 
also part of this final rule, while it might in some sense be critical 
or necessary for a business to hire an accountant to manage their tax 
obligations, for example, this accounting work may nonetheless not be 
critical, necessary, or central to the potential employer's principal 
business. To further illustrate, a coffee shop's ``principal'' business 
is making, selling, and serving coffee. A coffee shop might need window 
washers to ensure clear views and a clean appearance for customers, but 
the window washers are not generally integral to the principal business 
of the coffee shop. Commenters maintaining that any work contracted by 
a business is central, necessary, or critical to its functioning 
overlook this important limitation of the integral factor--only work 
that is critical, necessary, or central to the potential employer's 
principal business is integral.
---------------------------------------------------------------------------

    \483\ 87 FR 62253.
---------------------------------------------------------------------------

    Some commenters requested clarification for their specific 
industries, expressing concerns that in certain industries laws and 
regulations mandate relationships such that the work performed would be 
considered an integral part of the potential employer's business. For 
example, NAR commented ``that the extent to which the work is performed 
as an integral part of the employer's business within the real estate 
industry context, is mandated by state laws and regulations.'' NAR 
suggested the Department's rule ``should recognize such industry 
nuances, understanding that compliance with state statutory and 
regulatory provisions does not conflict with the ability to work as an 
independent contractor under the test.'' ACLI similarly commented that 
``if insurance and/or securities industry laws and regulations 
compelling agents and registered representatives to affiliate with 
licensed insurers and broker dealers were sufficient to negate 
independent contractor status, this factor would perpetually weigh 
against independent contractor status for insurance industry 
relationships.'' ACLI requested the Department ``categorically affirm 
that where laws or regulations dictate that an insurance worker must be 
affiliated with a company in the same business . . . the integral part 
of the business factor be viewed as at most a neutral factor.''
    As the Department repeatedly states throughout this final rule, no 
one factor is dispositive, and the ultimate question is whether as 
matter of economic reality the worker is in business for themself or is 
economically dependent on the potential employer for work. If the work 
being performed is necessarily integral to the business of the 
potential employer, the integral factor may weigh in favor of employee 
status, but it is only one part of the inquiry. It is not dispositive. 
Where the other factors weigh in favor of independent contractor 
status, and the economic reality as a whole indicates the worker is in 
business for themself, the overall conclusion may likely be that the 
worker is an independent contractor; notably, compliance with specific, 
applicable legal obligations is addressed in the discussion of the 
control factor, section V.C.4.a of this preamble. This inquiry, 
however, is specific to the

[[Page 1711]]

factual circumstances of a particular relationship, and the Department 
cannot broadly make a determination about the status of an entire 
sector of workers whose economic relationships are varied. Therefore, 
the Department declines to provide exemptions from a particular factor 
for certain industries.
    After consideration of the comments received, the Department 
reiterates its belief that the extent to which the work performed is an 
integral part of the potential employer's business sheds light on the 
ultimate inquiry of whether a worker is economically dependent on the 
potential employer for work or is in business for themself. The 
Department is returning to this framing of the integral factor in this 
final rule because this approach is more consistent with Supreme Court 
precedent, decades of judicial precedent in the federal courts of 
appeals, and the totality-of-the-circumstances approach than the 2021 
IC Rule's ``integrated unit of production'' framing of this factor. The 
Department is adopting the integral factor as proposed in the NPRM with 
minor wording changes to provide additional clarity (adding ``of the 
business'' to the end of the second sentence of the regulatory text to 
state ``whether the function they perform is an integral part of the 
business'').
    The Department is finalizing the integral factor (Sec.  
795.110(b)(5)) as discussed herein.
Example: Extent to Which the Work Performed Is an Integral Part of the 
Employer's Business
    A large farm grows tomatoes that it sells to distributors. The farm 
pays workers to pick the tomatoes during the harvest season. Because 
picking tomatoes is an integral part of farming tomatoes, and the 
company is in the business of farming tomatoes, the tomato pickers are 
integral to the company's business. These facts indicate employee 
status under the integral factor.
    Alternatively, the same farm pays an accountant to provide non-
payroll accounting support, including filing its annual tax return. 
This accounting support is not critical, necessary, or central to the 
principal business of the farm (farming tomatoes), thus the 
accountant's work is not integral to the business. Therefore, these 
facts indicate independent contractor status under the integral factor.
6. Skill and Initiative (Sec.  795.110(b)(6))
    The Department proposed that the skill and initiative factor 
consider ``whether the worker uses specialized skills to perform the 
work and whether those skills contribute to business-like initiative.'' 
The Department stated that ``[t]his factor indicates employee status 
where the worker does not use specialized skills in performing the work 
or where the worker is dependent on training from the employer to 
perform the work.'' The Department further stated that, ``[w]here the 
worker brings specialized skills to the work relationship, it is the 
worker's use of those specialized skills in connection with business-
like initiative that indicates that the worker is an independent 
contractor.'' \484\
---------------------------------------------------------------------------

    \484\ See generally 87 FR 62275 (proposed Sec.  795.110(b)(6)).
---------------------------------------------------------------------------

    The Department explained that the proposed regulatory text for this 
factor would reaffirm the longstanding principle that this factor 
indicates employee status where the worker lacks specialized skills. 
The Department further explained that it believed that the application 
of initiative in connection with specialized skills is useful in 
answering the overarching inquiry of whether the worker is economically 
dependent on the employer for work or is in business for themselves, 
and that, as a result, it was ``proposing to reintegrate initiative 
into this factor and no longer exclude consideration of initiative when 
applying this factor, as provided in the 2021 IC Rule.'' The Department 
then discussed the case law supporting its position that a worker's 
lack of specialized skills when performing the work generally indicates 
employee status, but also reiterated that no one factor is dispositive, 
consistent with the overarching economic realities analysis. Because 
both employees and independent contractors can be highly skilled and/or 
bring specialized skills to the work relationship, the Department 
discussed how focusing on whether the worker uses ``the specialized 
skills in connection with business-like initiative'' is helpful in 
distinguishing between the two classifications and further discussed 
the case law and its prior guidance supporting such an approach. 
Finally, the Department acknowledged that some facts showing an 
exercise of initiative can be relevant under the skill factor and 
another factor, and explained that considering facts showing an 
exercise of initiative under more than one factor to the extent 
appropriate depending on the facts of a case is consistent with and 
furthers the totality-of-the-circumstances approach to assessing the 
economic realities of the work relationship.\485\
---------------------------------------------------------------------------

    \485\ See generally id. at 62254-57.
---------------------------------------------------------------------------

    In addition to the numerous comments generally supporting the 
Department's six-factor analysis, a number of commenters expressed 
support for the NPRM's discussion of the skill and initiative factor. 
For example, NDWA stated that the NPRM's analysis ``is helpful because 
requiring initiative as well as skill better answers the questions of 
whether a worker is in business for themselves.'' The Shriver Center 
agreed. The Leadership Conference similarly stated that the NPRM's 
analysis ``is helpful because we believe that all work is skilled work 
in the colloquial sense of the term, and elevating the question of 
whether a worker can exercise initiative as well as skill better 
answers the question of whether a worker is in business for 
themselves.'' Gale Healthcare Solutions advised that for nurses, 
``adding business initiative to skill is an appropriate measure for 
distinguishing workers who should be classified as independent 
contractors . . . from those who, while they employ nursing skills in 
the performance of their work, do not do so in combination with the 
business-like initiative needed to grow a nursing practice.'' The LA 
Fed & Teamsters Locals commented that the NPRM ``appropriately 
recognizes that while a lack of specialized skills indicates employee 
status, the exercise of such specialized skills does not indicate 
independent contractor status absent the worker's using business-like 
initiative in relation to those skills.'' And ROC United stated that 
the NPRM's ``decision to include skill and initiative as a stand-alone 
factor is another improvement over the 2021 Rule,'' and that the NPRM 
``correctly recognizes that most work that does not require specialized 
skills is not performed by independent contractors (e.g., security 
guards, janitors, drivers, landscape workers, and call center 
workers).'' See also NELP (expressing agreement with also including in 
this factor ``an analysis of whether the worker uses those skills in 
connection with `business-like initiative' ''); NWLC (commenting that 
the NPRM would correctly restore consideration of initiative to this 
factor and affirm that ``a true independent contractor is likely to 
have specialized skills'' and use those skills to exercise ``business-
like initiative'').
    Some other commenters that generally supported the Department's 
proposal requested changes to or clarifications of the skill and 
initiative factor. For example, SMACNA stated that ``[t]his is correct 
as far as skills'' but added that, ``for workers who are highly 
skilled, the `skill and initiative' factor should not be

[[Page 1712]]

used to weigh against employee status.'' The case law, however, does 
not support the position that, for highly skilled workers, this factor 
should not weigh against employee status.\486\ Real Women in Trucking 
stated that it would appreciate clarification that, ``although truck 
driving typically is not classified as `skilled' labor in other 
contexts, it requires sufficient skill that, when combined with 
business-like initiative, drivers are appropriately considered 
independent contractors.'' The Department agrees that, consistent with 
the analysis for this factor and its discussion of commercial drivers' 
licenses (CDLs) below, this factor would indicate independent 
contractor status for a worker who uses truck-driving skills in 
connection with business-like initiative.
---------------------------------------------------------------------------

    \486\ See id. (citing cases).
---------------------------------------------------------------------------

    Farmworker Justice stated that ``courts have made clear that `most 
farm labor jobs require little specialized skill' '' and ``encourage[d] 
the DOL to include reference to such cases in the Final Rule, as it has 
for workers in numerous other industries, such as janitors, security 
guards, landscape workers, and call center workers.'' The Department 
agrees with this characterization of the case law regarding ``most farm 
labor jobs'' and notes that it has taken that position in its own 
enforcement actions.\487\ IBT ``supports the Department's proposal for 
this factor,'' ``applauds the Department's recognition that several 
courts have already determined that certain workers including, drivers, 
security guards, janitors, landscape workers, and call center workers 
do not require specialized skills,'' and ``recommends that guidance for 
this factor include specific instruction that asks courts to rely on 
the previous decisions finding certain occupations do not require prior 
experience; the workers are dependent on training from the employer to 
perform the work; or that the work requires no training, and thus are 
indicators that the relevant worker(s) lack(s) specialized skills.'' 
The Department declines to include that type of instruction as it is 
unnecessary in light of these court decisions. Moreover, the Department 
is not intending to identify any particular occupation as lacking 
specialized skills in all cases.
---------------------------------------------------------------------------

    \487\ See, e.g., Perez v. Howes, 7 F. Supp.3d 715, 724-25 (W.D. 
Mich. 2014), aff'd, 790 F.3d 681 (6th Cir. 2015).
---------------------------------------------------------------------------

    NELA stated that, ``[a]lthough the Proposed Rule correctly 
reestablishes the link between skill and business-like initiative as 
the raison d'etre of the factor, it does not make clear enough that the 
factor only points to independent contractor status when such a link is 
found.'' NELA suggested accordingly that the final rule ``would be 
strengthened by incorporating a few key principles from the commentary 
into the rule itself.'' NELA requested that sentences from the NPRM 
stating that the ``fact that workers are skilled is not itself 
indicative of independent contractor status'' and that ``[b]oth 
employees and independent contractors may be skilled workers'' be added 
to the regulatory text.\488\ The Department agrees that including 
versions of these sentences in the regulatory text will help sharpen 
the point that use of skills in connection with business-like 
initiative is what distinguishes between independent contractors and 
employees under this factor. Accordingly, the Department is revising 
the last sentence of the proposed regulatory text for this factor to be 
two sentences and to read (the italicized language is new as compared 
to the NPRM): ``Where the worker brings specialized skills to the work 
relationship, this fact is not itself indicative of independent 
contractor status because both employees and independent contractors 
may be skilled workers. It is the worker's use of those specialized 
skills in connection with business-like initiative that indicates that 
the worker is an independent contractor.''
---------------------------------------------------------------------------

    \488\ The first sentence was at 87 FR 62255 (quoting Superior 
Care, 840 F.2d at 1060); the second sentence was at 87 FR 62256.
---------------------------------------------------------------------------

    The Department, however, believes that it is unnecessary to add the 
following sentence that NELA suggested incorporating into the 
regulatory text: ``To indicate possible independent contractor status, 
the worker's skills should demonstrate that they exercise independent 
business judgment.'' This sentence would be duplicative of the existing 
regulatory text language that it ``is the worker's use of those 
specialized skills in connection with business-like initiative that 
indicates that the worker is an independent contractor.'' The 
Department further believes that adding ``only'' to this existing 
regulatory text language (as NELA requested) so that it would read that 
it ``is only the worker's use . . .'' would not provide clarification, 
especially considering the changes that the Department is making to the 
regulatory text.
    Numerous commenters opposed, disagreed with, and/or requested 
changes to, or clarifications of, the proposed skill and initiative 
factor. For example, CWI stated that, although it agrees that ``both 
skill and initiative may play a role in the independent contractor 
calculus,'' it ``fundamentally disagrees, however, that those 
considerations should be treated as a standalone factor in the economic 
realities calculus.'' And N/MA stated that ``[c]onsideration of skill 
and initiative as a stand-alone factor creates confusion and ambiguity, 
and results in the considerations under that factor being provided 
outsized weight in the totality of the circumstances analysis.'' See 
also Scalia Law Clinic (``The NPRM creates a new definition of the 
`skill' factor that gives it greater weight, despite precedent to the 
contrary.''). However, courts and the Department have invariably 
included some version of skill and initiative as a separate and 
distinct factor in their analyses for decades. Consistent with the 
Department's repeated statements in this final rule, this factor should 
not be given, as a predetermined matter, any different weight than any 
of the other factors.\489\
---------------------------------------------------------------------------

    \489\ See 29 CFR 795.110(a)(2) (``Consistent with a totality-of-
the-circumstances analysis, no one factor or subset of factors is 
necessarily dispositive, and the weight to give each factor may 
depend on the facts and circumstances of the particular case.''). 
Scalia Law Clinic further commented that, ``[w]hile the 2021 [IC] 
Rule did not prohibit considering a worker's skill, [it] rightly 
excluded skill from its `core factors.' '' As explained in this 
final rule and as the regulatory text provides, however, the 
Department is rejecting the concept of ``core'' factors in favor of 
not giving a predetermined weight to any factor. See id. The 2021 IC 
Rule stated (and Scalia Law Clinic reiterated in its comment) that 
skill should be given lesser weight because highly-skilled workers 
can be employees and comparatively lesser-skilled workers can be 
independent contractors. The Department believes, however, that this 
is better addressed by reintegrating initiative into the skill 
factor for the reasons explained in the NPRM and herein and by 
reinforcing that all factors determine a worker's status.
---------------------------------------------------------------------------

    SHRM commented that the NPRM ``purports to convert a standard 
consideration utilized by myriad independent contractor classification 
tests--the degree of skill required by the work--into an assessment of 
a worker's business acumen.'' See also TheDream.US (describing a focus 
on business-like initiative as an ``amorphous qualification to an 
otherwise straightforward consideration''). SHRM expressed concern that 
``[t]his is not only a drastic departure from a well-settled standard, 
but it also negates the Proposed Rule's decree that a worker's 
opportunity for profit or loss based on their managerial skill is 
relevant to their classification as an employee or an independent 
contractor.'' Many federal courts of appeals consider initiative as 
part of this factor,\490\ and thus, it is by no means a

[[Page 1713]]

``drastic departure.'' Moreover, because both employees and independent 
contractors may be skilled workers, considering whether a worker uses 
specialized skills in connection with business-like initiative--rather 
than considering only whether the worker has specialized skills--helps 
to distinguish the worker's status and is probative of the ultimate 
question of economic dependence.\491\ And there is no basis for 
asserting that the skill and initiative factor ``negates'' the 
relevance of the opportunity for profit or loss factor; both factors 
are relevant to the analysis even if, as explained in the NPRM,\492\ 
some facts showing an exercise of initiative can be considered under 
both factors.
---------------------------------------------------------------------------

    \490\ See, e.g., Hobbs, 946 F.3d at 834; Parrish, 917 F.3d at 
385; Cornerstone Am., 545 F.3d at 345; Express Sixty-Minutes, 161 
F.3d at 305 (``The district court did not discuss initiative during 
its evaluation of this factor. We agree with the Secretary that the 
skill and initiative factor points toward employee status.''); Flint 
Eng'g, 137 F.3d at 1443 (quoting Selker Bros., 949 F.2d at 1295); 
Circle C. Invs., 998 F.2d at 328; Superior Care, 840 F.2d at 1060; 
DialAmerica, 757 F.2d at 1387.
    \491\ See, e.g., Scantland, 721 F.3d at 1318; Flint Eng'g, 137 
F.3d at 1443; Selker Bros., 949 F.2d at 1295; Superior Care, 840 
F.2d at 1060; DialAmerica, 757 F.2d at 1387.
    \492\ See 87 FR 62256-57.
---------------------------------------------------------------------------

    FSI, Coalition of Business Stakeholders, and NRF & NCCR similarly 
objected to the inclusion of initiative in this factor. FSI stated that 
including initiative in the skill factor contravenes Silk and that 
``this alteration represents yet another way in which the Proposed Rule 
repeatedly and improperly emphasizes `entrepreneurial drive' as an 
overarching consideration across many factors.'' The Coalition of 
Business Stakeholders and NRF & NCCR disagreed with the inclusion of 
initiative in this factor and described it as ``inconsistent'' with 
Silk. This factor, however, is consistent with Silk. The unloaders in 
Silk performed ``simple tasks'' \493\ and were employees, in part, for 
that reason; the Department's skill and initiative factor would 
likewise point to employee status for such unloaders. The ``driver-
owners'' in Silk, on the other hand, seemed to use their truck-driving 
skills in a business-like way, drove for multiple clients, and were 
described by the Court as ``small businessmen.'' \494\ The Department's 
skill and initiative factor would likewise point to independent 
contractor status for such driver-owners.
---------------------------------------------------------------------------

    \493\ 334 U.S. at 718.
    \494\ Id. at 719.
---------------------------------------------------------------------------

    FSI further stated that emphasizing ``entrepreneurial drive'' may 
``lead to erroneous classification decisions because, among other 
considerations, some workers may strongly prefer to work as independent 
contractors, not for the flexibility to grow their businesses, but for 
the flexibility to control their workloads and to work when they want 
to.'' It added that, ``while initiative is an appropriate consideration 
in favor of independent contractor status, its absence does not 
indicate that a worker is not pursuing independence.'' 4A's similarly 
stated that the ``the proposed rule could create uncertainty for 
agencies that utilize legitimate independent contractor relationships 
to carry out important business functions, but their freelance talent 
does not have entrepreneurial drive or take personal initiative to 
expand their business to working with other agencies or in house 
marketing shops.'' The Department continues to believe that whether 
workers with specialized skills use those skills in connection with 
business-like initiative is probative of their status as employees or 
independent contractors. Using such skills to ``grow'' or ``expand'' 
their work is a prime example of business-like initiative as the 
commenters recognize, but there may be other ways in which workers can 
use such skills in connection with business-like initiative. Of course, 
the determination of a worker's status ultimately requires 
consideration of the totality of the circumstances--not just the skill 
and initiative factor.
    DSA stated that ``[a]n individual could not have a specialized 
skill, but still take the initiative of an independent business or vice 
versa. If the rule were to go forward as proposed, and each factor 
pointed in different directions, there could be confusion as to where a 
ruling may come down on this one factor.'' The Department does not 
believe this to be the case when applying the skill and initiative 
factor. As explained in the NPRM, courts have often recognized that a 
worker's lack of specialized skills to perform the work indicates that 
the worker is an employee. As the Tenth Circuit, for example, has 
explained, ``the lack of the requirement of specialized skills is 
indicative of employee status.'' Flint Eng'g, 137 F.3d at 1443 (quoting 
Snell, 875 F.2d at 811) (alteration omitted).\495\ When a worker lacks 
specialized skills, this factor will indicate employee status even if 
the worker exercises ``the initiative of an independent business.'' 
That initiative, of course, is very relevant to the overall analysis, 
and the worker who lacks the specialized skills but exercises ``the 
initiative of an independent business'' may very well be an independent 
contractor after considering all of the factors. For those reasons, 
there should be no confusion. The landscaper example in the NPRM's 
discussion of the skill and initiative factor provides additional 
explanation; the landscaper's landscaping work does not require 
specialized skills, but the landscaper's use of initiative and other 
facts may demonstrate that the landscaper is an independent 
contractor.\496\
---------------------------------------------------------------------------

    \495\ See also, e.g., Razak, 951 F.3d at 147; Off Duty Police, 
915 F.3d at 1055-56; Iontchev, 685 F. App'x at 550; Walsh v. EM 
Protective Servs. LLC, No. 3:19-cv-00700, 2021 WL 3490040, at *7 
(M.D. Tenn. Aug. 9, 2021); Acosta v. New Image Landscaping, LLC, No. 
1:18-cv-429, 2019 WL 6463512, at *6 (W.D. Mich. Dec. 2, 2019); 
Acosta v. Wellfleet Commc'ns, LLC, No. 2:16-cv-02353-GMN-GWF, 2018 
WL 4682316, at *7 (D. Nev. Sept. 29, 2018), aff'd sub nom. Walsh v. 
Wellfleet Commc'ns, No. 20-16385, 2021 WL 4796537 (9th Cir. Oct. 14, 
2021); Perez v. Super Maid, LLC, 55 F. Supp. 3d 1065, 1077-78 (N.D. 
Ill. 2014); Harris v. Skokie Maid & Cleaning Serv., Ltd., No. 11 C 
8688, 2013 WL 3506149, at *8 (N.D. Ill. July 11, 2013); Campos v. 
Zopounidis, No. 3:09-cv-1138 (VLB), 2011 WL 2971298, at *7 (D. Conn. 
July 20, 2011); Solis v. Int'l Detective & Protective Serv., Ltd., 
819 F. Supp. 2d 740, 752 (N.D. Ill. 2011).
    \496\ 87 FR 62255 (``A landscaper, for example, may perform work 
that does not require specialized skills, but application of the 
other factors may demonstrate that the landscaper is an independent 
contractor (for example, the landscaper may have a meaningful role 
in determining the price charged for the work, make decisions 
affecting opportunity for profit or loss, determine the extent of 
capital investment, work for many clients, and/or perform work for 
clients for which landscaping is not integral).''). DSA's statement 
that the examples of welders in the NPRM's discussion of the skill 
and initiative factor do not include the scenario where ``there is 
no specialized skill, but the ability to independently market a 
business'' overlooked the landscaper example that addresses that 
scenario.
---------------------------------------------------------------------------

    The U.S. Chamber similarly commented that the NPRM was ``wrong to 
focus on `specialized skills' as probative in determining independent 
contractor status.'' The U.S. Chamber further commented that ``a focus 
on `the amount of skill required' separate from a worker's initiative 
that impacts the worker's profits is an unnecessarily restrictive view 
of independent work currently being performed in the U.S. economy.'' In 
making these arguments, however, the U.S. Chamber did not rebut the 
substantial case law relied on by the Department explaining that the 
use of specialized skills in an independent or business-like way is 
what makes this factor probative of employee or independent contractor 
status. The Department grounds this factor in that case law. Citing 
drivers among other occupations, the U.S. Chamber added that ``[e]ven 
low-skilled workers can work as independent contractors if they have a 
skill that they can market to customers.'' See also Scalia Law Clinic. 
The Department agrees, as stated above, that workers lacking 
specialized skills can be independent contractors when all of the

[[Page 1714]]

factors are considered. In addition, the Department continues to 
believe that the landscaper example in the NPRM's discussion of this 
factor, an example which the Department reaffirms, addresses that 
scenario.\497\ Moreover, no one fact or factor determines whether a 
worker of any skill level is an employee or independent contractor.
---------------------------------------------------------------------------

    \497\ See also Iontchev, 685 F. App'x at 550-51 (finding that 
the ``service rendered by the Drivers did not require a special 
skill,'' but concluding that, ``[u]nder the totality of the 
circumstances, the Drivers were not economically dependent upon [the 
employer]'' and thus independent contractors).
---------------------------------------------------------------------------

    MEP described the Department's articulation of this factor as 
``unreasonably narrow'' and stated that the Department ``should 
recognize a wide variety of skills that demonstrate an individual's 
business-like initiative.'' It added that the Department ``should not 
be in the business of judging which skills are considered specialized 
or nonspecialized or place high or low value on the skills independent 
contractors provide.'' As noted in the NPRM, courts have identified 
some occupations where workers were found to lack specialized skills 
(for example, security guards, traffic control officers, drivers, 
janitorial work, landscaping, and call center workers).\498\ The 
Department is seeking to ground this factor in that case law. Certain 
occupations may often lack specialized skills, but the Department 
cannot say that a particular occupation always lacks specialized 
skills. For example, a explained below, drivers may often lack 
specialized skills, but drivers with CDLs may have a specialized skill. 
Moreover, determining whether a worker has specialized skills is just 
one part of the inquiry, and workers who lack specialized skills may 
still be independent contractors. The landscaper example referenced 
above is one example of a worker who can be an independent contractor 
even if the work is unskilled, and this outcome is possible in other 
industries because a worker's classification is ultimately determined 
by application of all of the factors.
---------------------------------------------------------------------------

    \498\ See, e.g., Razak, 951 F.3d at 147 (noting that it ``is 
generally accepted that `driving' is not itself a `special skill' '' 
in determining that the skill factor weighs in favor of employee 
status); Off Duty Police, 915 F.3d at 1055-56 (noting that ``[t]he 
skills required to work for ODPS are far more limited than those of 
a typical independent contractor'' in finding that the skill factor 
weighed in favor of employee status for security guards and traffic 
control workers); Iontchev, 685 F. App'x at 550 (``The service 
rendered by the [taxi drivers] did not require a special skill.''); 
EM Protective Servs., 2021 WL 3490040, at *7 (traffic control 
officers require ``relatively little skill'' and security guards 
require ``minimal skill,'' indicating employee status); New Image 
Landscaping, 2019 WL 6463512, at *6 (facts that ``little or no skill 
was required'' and ``prior landscaping experience'' was not required 
meant that skill factor favored employee status for landscapers); 
Wellfleet Commc'ns, 2018 WL 4682316, at *7 (explaining that skill 
factor favored employee status for call center workers because ``all 
that Defendants required was the ability to communicate well and 
read a script''); Super Maid, 55 F. Supp. 3d at 1077-78 (noting, in 
finding that skill factor favored employee status, that 
``[m]aintenance work, such as cleaning, sweeping floors, mowing 
grass, unclogging toilets, changing light fixtures, and cleaning 
gutters, does not necessarily involve such specialized skills as 
would support independent contractor status,'' and that ``cleaning 
services, although difficult and demanding, were even less complex 
than those maintenance services'') (internal quotation marks 
omitted); Skokie Maid, 2013 WL 3506149, at *8 (``The maids' work may 
be difficult and demanding, but it does not require special skill,'' 
indicating employee status.); Campos, 2011 WL 2971298, at *7 
(``There is no evidence that Campos's job as a delivery person 
required him to possess any particular degree of skill. Campos did 
not need education or experience to perform his job. Although he 
needed a driver's license in order to legally drive his vehicle for 
deliveries, the possession of a driver's license and the ability to 
drive an automobile is properly characterized as a `routine life 
skill' that other courts have found to be indicative of employment 
status rather than independent contractor status.''); Int'l 
Detective & Protective Serv., 819 F. Supp. 2d at 752 (finding that 
the ``vast majority of the Guards' work . . . did not require any 
special skills'').
---------------------------------------------------------------------------

    NRF & NCCR recommended that ``specialized skills'' be changed to 
``skill, talent or creativity,'' referencing singers at restaurants 
among other examples. Again, the Department is not seeking to limit the 
types of work that involve skills or taking the position that any 
particular occupation lacks specialized skills. Instead, consistent 
with the bulk of case law, the Department is focusing this factor on 
whether the worker uses their specialized skills in connection with 
business-like initiative--rather than only considering whether the 
worker has specialized skills--because that focus is probative of the 
ultimate question of economic dependence.
    Regarding the NPRM's statement that ``[n]umerous courts have found 
that driving is not a specialized skill,'' NHDA commented that ``a 
number of courts have found professional driving, including driving 
that requires a commercial driver's license (CDL), involves specialized 
skills'' (footnote omitted). See also Scopelitis. These commenters 
added that ``[a] driver with a CDL is a clear indicator of an 
individual pursuing a specialized skill to engage in a business.'' 
OOIDA commented similarly, stating that the cases relied on by the 
Department in the NPRM ``were focused on automobile driving, not the 
driving of a commercial motor vehicle,'' and that it was ``unclear 
whether the Department believes the driving skills required for a Class 
A Commercial Drivers License (CDL) are not specialized.'' Considering 
these comments and the requests for clarification, the Department 
clarifies that it recognizes the distinctive nature of CDLs and further 
recognizes that drivers performing work requiring such licenses are 
likely using specialized skills as compared to drivers generally.\499\ 
As with any worker, consideration of whether a driver with a CDL uses 
that specialized skill in connection with business-like initiative 
determines whether this factor indicates employee or independent 
contractor status.
---------------------------------------------------------------------------

    \499\ NRF & NCCR commented that ``[t]he fact that many people 
have regular driver's licenses should not be viewed as in any way 
negating or reducing the likelihood that a contractor who meets the 
other factors will be properly treated as an independent 
contractor.'' As the Department has clearly and repeatedly stated, 
no one fact will determine a worker's status as an employee or 
independent contractor.
---------------------------------------------------------------------------

    CPIE stated that ``the NPRM's interpretation would ignore any 
initiative that is not attributable to an individual's specialized 
skill,'' expressed concern that this factor may not always align with 
the ultimate outcome, and ``respectfully urges DOL to interpret this 
factor to consider any business initiative that demonstrates an 
individual's economic independence, regardless of whether the 
initiative is attributable to any skills.'' As an initial matter, the 
Department notes that it is not unusual when applying a multifactor 
economic realities analysis for one factor to not align with the 
ultimate outcome when the analysis is applied and the totality of the 
circumstances is considered. Regardless, any business initiative by a 
worker is plainly relevant to the analysis and may be considered under 
the opportunity for profit or loss depending on managerial skill factor 
and other factors, as the landscaper example in the NPRM's discussion 
of the skill and initiative factor demonstrates. Accordingly, this 
rulemaking accounts for IBA's comment that ``[a] true measure of 
economic independence would not restrict the analysis of skill and 
initiative to considering only specialized skills and only initiative 
attributable to those skills but instead would consider `all major 
components open to initiative,' such as `business management skills.' 
'' If not under the skill and initiative factor, the factors comprising 
the economic realities analysis certainly consider all types of 
initiative and business management skills by the worker.
    Fight for Freelancers asserted that, in the case of a highly 
skilled worker who is asked by ``one of her regular clients'' to do ``a 
task that requires far less skill''

[[Page 1715]]

than usual, the worker ``would now have to tell her client--with whom 
she likes to work--that she cannot provide what the client needs for 
this particular project, because it does not make use of her more 
specialized skills.'' The Department recognizes that using specialized 
skills in connection with business-like initiative does not preclude 
(and, in fact, may often also include) performance of lower-skilled 
tasks. Whether the worker uses specialized skills to perform the work 
is not determined by isolating any one task performed by the worker; 
instead, consistent with a totality-of-the-circumstances approach, the 
worker's work on the whole should be considered to determine if the 
worker uses specialized skills in connection with business-like 
initiative.
    Coalition of Business Stakeholders stated that the Department's 
articulation of this factor ``dispenses with all independent 
consideration of a worker's specialized skills obtained or developed 
separate and apart from the hiring entity'' and ``all but ensures 
consideration of this factor will preclude an independent contractor 
finding.'' This comment overlooks the totality-of-the-circumstances 
nature of the analysis; no one factor can preclude an independent 
contractor or employee finding. Contrary to this commenter's assertion, 
the Department believes that the worker's skills developed separate and 
apart from the hiring entity are relevant. The regulatory text 
providing that this factor indicates ``employee status . . . where the 
work is dependent on training from the employer to perform the work'' 
reflects that bringing skills to the work relationship (i.e., skills 
developed separate and apart from the employer) may indicate 
independent contractor status if the skills contribute to business-like 
initiative.
    Regarding training, America Outdoors Association stated that it 
``may benefit an outfitter to train an independent contractor, or pay 
for a first aid certification class, in order for the contractor to 
better serve out the terms of the contract.'' Referencing a labor 
shortage in its industry, WFCA stated that ``the mere fact that a 
contractor or dealer is willing to pay to train independent contractor 
should not make the worker an employee'' and asked that the regulatory 
text be revised to reflect that. See also ABC. As an initial matter, 
some basic training in a workplace, such as paying for a first-aid 
certification class, does not prevent a finding that a worker uses 
specialized skills to perform the work. Instead, the analysis is more 
general and, as the regulatory text states, should focus on whether the 
worker is dependent on training from the employer to perform the work. 
Finally, the revision requested by WFCA is unnecessary given that the 
regulatory text already provides generally that ``the outcome of the 
analysis does not depend on isolated factors but rather upon the 
circumstances of the whole activity'' and, ``[c]onsistent with a 
totality-of-the-circumstances analysis, no one factor or subset of 
factors is necessarily dispositive.'' \500\
---------------------------------------------------------------------------

    \500\ 29 CFR 795.110(a)(1) and (a)(2), respectively.
---------------------------------------------------------------------------

    The Department is finalizing the skill and initiative factor (Sec.  
795.110(b)(6)) as discussed herein.
Example: Skill and Initiative
    A highly skilled welder provides welding services for a 
construction firm. The welder does not make any independent judgments 
at the job site beyond the decisions necessary to do the work assigned. 
The welder does not determine the sequence of work, order additional 
materials, think about bidding the next job, or use those skills to 
obtain additional jobs, and is told what work to perform and where to 
do it. In this scenario, the welder, although highly skilled 
technically, is not using those skills in a manner that evidences 
business-like initiative. These facts indicate employee status under 
the skill and initiative factor.
    A highly skilled welder provides a specialty welding service, such 
as custom aluminum welding, for a variety of area construction 
companies. The welder uses these skills for marketing purposes, to 
generate new business, and to obtain work from multiple companies. The 
welder is not only technically skilled, but also uses and markets those 
skills in a manner that evidences business-like initiative. These facts 
indicate independent contractor status under the skill and initiative 
factor.
7. Additional Factors (Sec.  795.110(b)(7))
    Section 795.105(d)(2)(iv) of the 2021 IC Rule stated that 
additional factors may be considered if they are relevant to the 
ultimate question of whether the workers are economically dependent on 
the employer for work or in business for themselves.\501\ The 
Department proposed to retain this provision with only minor editorial 
changes, moving it to Sec.  795.110(b)(7). Specifically, the 
Department's proposed regulatory text provided that ``[a]dditional 
factors may be relevant in determining whether the worker is an 
employee or independent contractor for purposes of the FLSA, if the 
factors in some way indicate whether the worker is in business for 
themself, as opposed to being economically dependent on the employer 
for work.'' \502\
---------------------------------------------------------------------------

    \501\ 86 FR 1247.
    \502\ 87 FR 62275 (proposed Sec.  795.110(b)(7)).
---------------------------------------------------------------------------

    The Department explained in the NPRM that retaining this provision 
would ``reiterate[ ] that the enumerated factors are not to be applied 
mechanically but should be viewed along with any other relevant facts 
in light of whether they indicate economic dependence or 
independence.'' \503\ Additionally, it reemphasized that ``only factors 
that are relevant to the overall question of economic dependence or 
independence should be considered.'' \504\ The Department explained 
that this approach reflects the necessity of considering all facts that 
are relevant to the question of economic dependence or independence, 
regardless of whether those facts fit within one of the enumerated 
factors. The Department reasoned that this approach is consistent with 
the Supreme Court's guidance in Silk, where the Court cautioned that 
its suggested factors are not intended to be exhaustive.\505\ 
Additionally, this approach is also consistent with the approach that 
courts and the Department have used in the decades since Silk to 
determine whether workers are employees or independent contractors 
under the FLSA.\506\
---------------------------------------------------------------------------

    \503\ Id. at 62257.
    \504\ Id.
    \505\ 331 U.S. at 716 (``No one [factor] is controlling nor is 
the list complete.'').
    \506\ See generally 87 FR 62257; infra n.512.
---------------------------------------------------------------------------

    Like in the 2021 IC Rule, the Department proposed not to identify 
any specific additional factors, and specifically declined to identify 
the ``degree of independent business organization and operation,'' a 
factor considered in prior departmental guidance, as a seventh factor 
in the analysis. The Department explained that given the ``focus in 
this proposed rulemaking on reflecting the economic reality factors 
commonly used by the circuit courts of appeals, the Department chose 
not to include the worker's `degree of independent business 
organization and operation' as a seventh factor.'' \507\ The Department 
noted that it was not aware of any court that has used this as a 
standalone factor and expressed concerns that ``facts that may relate 
to whether a worker has an independent business organization--such as 
whether the worker has incorporated or receives an Internal

[[Page 1716]]

Revenue Service (IRS) Form 1099 from an potential employer--reflect 
mere labels rather than the economic realities and are thus not 
relevant.'' \508\
---------------------------------------------------------------------------

    \507\ 87 FR 62257.
    \508\ Id.
---------------------------------------------------------------------------

    A few commenters expressed support for the Department's proposed 
section on additional factors. See e.g., NWLC; AFL-CIO; DSA; and State 
AGs. DSA commented that it ``agrees with the Department's retention of 
the 2021 IC Rule that additional factors may be considered if they are 
relevant to the ultimate question of economic dependence.'' The AFL-CIO 
expressed support for the Department's additional factors provision, 
noting that the Department correctly recognized that additional factors 
should be considered when relevant to the economic reality.
    Several commenters expressed concerns with a perceived vagueness 
and lack of clarity arising from inclusion of additional factors, and 
some requested that the Department delete the additional factors 
section from the final rule entirely. For example, IEC commented that 
``[t]he proposed rule does little to further define `additional 
factors' which will only lead to employers, employees, and independent 
contractors'' speculating about ``how to apply this in their 
analysis.'' SBA expressed concerns with what it described as an ``open-
ended factor'' and recommended the Department delete it. Inline 
Translation Services similarly commented that ``[t]he catch all phrase 
`additional factors' should be removed entirely,'' stating that ``this 
open ended clause could introduce innumerable other factors during 
labor audits with very uncertain and unpredictable outcomes.'' AFPF 
expressed concerns that ``[s]takeholders will have no clarity as to 
what additional factors may be considered in any particular case.''
    Goldwater Institute commented that ``[t]o the extent an employer 
has concluded its economic dependence analysis and finds that the 
worker is indeed an independent contractor, this final consideration 
could ostensibly swallow the rule.'' The National Restaurant 
Association also expressed concerns with the Department's decision not 
to define specific additional factors, commenting that the undefined 
additional factors section could create confusion as it offers ``little 
guidance to the regulated community.'' \509\
---------------------------------------------------------------------------

    \509\ The Department notes that it included the additional 
factors provision in the 2021 IC Rule in response to the National 
Restaurant Association's comment in that rulemaking expressing 
concern about the lack of a specific regulatory provision 
acknowledging that additional factors could be relevant. 
Specifically, as explained in the 2021 IC Rule, the Restaurant 
Association contended that ``facts and factors'' that were not 
listed in the Department's 2020 proposal, which included two core 
factors and three additional factors, ``may be relevant to the 
question of economic dependence even if they would not be as 
probative as the two core factors.'' They 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.'' 86 FR 1196.
---------------------------------------------------------------------------

    NAFO commented that ``this catch-all factor provides [the 
Department] a vague and highly discretionary means by which it can 
determine whether there is something that `indicates' whether a worker 
is economically dependent on an employer for work without historical 
precedent or guidance.'' The Coalition of Business Stakeholders 
similarly expressed that ``the [Department] inserts into the Proposed 
Rule a mechanism whereby it can hinge its classification decision on 
anything it deems to `indicate' that a worker is either in business for 
themselves or economically dependent on an employer, regardless of 
whether such consideration has historically, or ever, been considered 
as part of the classification analysis.'' See also, e.g., MEP, 
Promotional Products Association International.
    Contrary to some of the commenters' assertions, the Department 
reiterates that the proposed regulatory language on additional factors 
is consistent with and reflects decades of Supreme Court and federal 
appellate court precedent--as well as guidance from the Department 
including the 2021 IC Rule--emphasizing that the enumerated economic 
realities factors are not exhaustive. For example, the Supreme Court 
explained in Silk that ``[n]o one [factor] is controlling nor is the 
list complete.'' \510\ Many federal courts of appeals have also 
emphasized that the enumerated factors are not exhaustive.\511\ Courts 
have reiterated that ``[t]he determination of whether an employer-
employee relationship exists for purposes of the FLSA should be 
grounded in `economic reality rather than technical concepts,' . . . 
determined by reference not to `isolated factors but rather upon the 
circumstances of the whole activity.' '' \512\ The Department's 
guidance has emphasized a similar approach. For example, WHD Fact Sheet 
#13 has indicated that its factors are not exhaustive and stated that 
``the Supreme Court has held that it is the total activity or situation 
which controls'' the inquiry and that ``[t]he employer-employee 
relationship under the FLSA is tested by `economic reality' rather than 
`technical concepts.' '' \513\ AI 2015-1 explained that courts 
``routinely note that they may consider additional factors depending on 
the circumstances.'' \514\
---------------------------------------------------------------------------

    \510\ 331 U.S. at 716.
    \511\ See Sureway, 656 F.2d at 1370 (stating that ``the courts 
have identified a number of factors that should be considered'' when 
determining if an individual is an employee under the FLSA but 
noting that ``the list is not exhaustive''); Razak, 951 F.3d at 143 
(noting that the Third Circuit agreed with Sureway ``that `neither 
the presence nor absence of any particular factor is dispositive' '' 
and explaining that `` `courts should examine the circumstances of 
the whole activity,' determining whether, `as a matter of economic 
reality, the individuals are dependent upon the business to which 
they render service' '') (internal citation omitted); Hobbs, 946 
F.3d at 836 (stating that ``[b]ecause the Silk factors are non-
exhaustive, we will also look to other factors to help gauge the 
economic dependence of the pipe welders''); Parrish, 917 F.3d at 387 
(stating that the ``Silk factors being `non-exhaustive', other 
relevant factors may be in play in an employee vel non analysis''); 
Karlson, 860 F.3d at 1092 (``No one [factor] is controlling nor is 
the list complete.'') (quoting Silk, 331 U.S. at 716) (internal 
quotations omitted); Scantland, 721 F.3d at 1312 (``We note, 
however, that these six factors are not exclusive and no single 
factor is dominant.''); Lauritzen, 835 F.2d at 1534 (``Certain 
criteria have been developed to assist in determining the true 
nature of the relationship, but no criterion is by itself, or by its 
absence, dispositive or controlling.''); Superior Care, 814 F.2d at 
1043 (explaining that ``[t]hese factors are not exhaustive'' and 
``must always be aimed at an assessment of the `economic dependence' 
of the putative employees, the touchstone for this totality of the 
circumstances test'') (internal citation omitted).
    \512\ Saleem, 854 F.3d at 140 (quoting Barfield v. New York City 
Health & Hospitals Corp., 537 F.3d 132, 141 (2008) quoting Goldberg, 
366 U.S. at 33, and Rutherford, 331 U.S. at 730)) (internal 
quotation marks omitted).
    \513\ See WHD Fact Sheet #13 (July 2008).
    \514\ 2015 WL 4449086, at *3 n.4 (withdrawn June 7, 2017).
---------------------------------------------------------------------------

    The Department continues to believe that the additional factors 
section is entirely consistent with how the courts and the Department 
have approached the economic realities inquiry for decades, including 
in the 2021 IC Rule. Commenters expressing concerns that the 
consideration of additional factors will lead to confusion and 
uncertainty overlook several important considerations. First, as 
mentioned, this has been the approach of the courts and the Department 
for decades--the enumerated economic realities factors are not 
exhaustive, all relevant facts should be considered, and the focus of 
the determination should be grounded in the economic realities as 
opposed to any isolated factors. There is no basis for the concern that 
the retention of a regulatory provision stating what courts, the 
Department, and the regulated community have understood to be part of 
the economic reality test under the FLSA for over 75 years will result 
in confusion and uncertainty as opposed to consistency and familiarity. 
Second, the additional factors section is not

[[Page 1717]]

unbounded and includes clear constraining language in the regulatory 
text, emphasizing that only those additional factors which indicate 
that the worker is economically dependent on the potential employer for 
work or in business for themself can be considered. This reflects the 
necessity of considering all facts that are relevant to the question of 
economic dependence or independence, regardless of whether those facts 
fit within one of the six enumerated factors. While the department 
declines to specify any particular additional factors, the language of 
the regulatory text appropriately limits the scope of potentially 
relevant additional facts or factors that might be considered.
    Moreover, the Department recognizes that, in many instances, 
consideration of additional factors will not be necessary because the 
relevant factual considerations can and will be considered under one or 
more of the enumerated factors. The additional factors section is 
simply a recognition by the Department, consistent with decades of case 
law, that a rule applying to varying economic relationships across 
sectors of the economy must be applied in a non-mechanical fashion and 
must focus on the totality of the circumstances.
    The U.S. Chamber expressed concern that the additional factors 
section ``has the potential to swallow the six defined factors,'' and 
that ``[b]usinesses and workers alike are being asked to consider, 
weigh, and make significant business decisions under a test that has 
unlimited undefined possibilities.'' The U.S. Chamber distinguished the 
NPRM's additional factors section from the 2021 IC Rule's section on 
additional factors, asserting that the 2021 IC Rule constrained or 
narrowed the additional factors application by, first, explicitly 
assigning more weight to core factors than any potentially relevant 
additional factors, and second, by identifying relevant additional 
factors.
    Some commenters suggested that the Department assign the category 
of potentially relevant additional factors less weight than the 
enumerated factors. See SHRM; U.S. Chamber. But as the Department 
explained in the NPRM, ``to assign a predetermined and immutable weight 
to certain factors ignores the totality-of-the-circumstances, fact-
specific nature of the inquiry that is intended to reach a multitude of 
employment relationships across occupations and industries and over 
time.'' \515\ This is true both in respect to the elevation of core 
factors above non-core and additional factors in 2021 IC Rule, and with 
respect to the suggested devaluation of potential additional factors 
that some commenters urged here.
---------------------------------------------------------------------------

    \515\ 87 FR 62236.
---------------------------------------------------------------------------

    Other commenters asked the Department to specifically recognize 
certain additional factors. For example, DSA suggested that the 
Department identify as an additional factor ``the recognition of 
independent contractor status for businesses under other statutes, such 
as the Internal Revenue Code and numerous state statutes.'' TechServe 
Alliance urged the Department to ``consider the degree of independent 
business formalization (incorporation, licenses, taxes) in analyzing'' 
independent contractor status. ACRE et al. requested that the 
Department consider the degree of transparency provided to a worker 
about the nature of the work, such as the location, scope, and pay for 
a particular task, as an additional factor. SIFMA commented that the 
Department should recognize employment or independent contractor 
agreements as an additional factor relevant to the economic reality 
inquiry. ABC suggested the Department recognize as an additional factor 
``whether it is a recognized, longstanding practice for a large segment 
of the industry to treat certain types of workers as independent 
contractors.'' A legal blogger urged the Department to clarify some 
additional factors courts have used in determining whether there is an 
employment relationship, stating that, for example, ``the courts have 
considered whether the potential employer has the right to terminate 
the worker for any reason at any time; whether the parties are subject 
to an agreement indicating an intent to establish an independent 
contractor relationship; and whether the worker operates in the form of 
a corporate entity, including as a limited liability company.''
    After further consideration, and consistent with the NPRM, the 
Department declines to identify in this final rule any particular 
additional factors that may be relevant. The Department believes that 
the regulatory text addressing additional factors, which focuses on 
whether the additional factors are indicative of whether the worker is 
in business for themselves or is economically dependent on the 
potential employer for work, is sufficiently constrained to narrow the 
possible relevant considerations and sufficiently flexible to capture 
potentially relevant factual considerations that fall outside the 
enumerated factors. In light of this, the Department believes it is 
unnecessary to specify any additional factors. The Department 
previously identified the ``degree of independent business organization 
and operation'' as a seventh factor that it considered in its 
analysis.\516\ However, as noted in the NPRM, the Department is not 
aware of any court that has used this as a standalone factor, and the 
Department declines to identify this as a standalone factor in this 
final rule. Additionally, as explained in the NPRM, the Department is 
concerned that facts such as whether the worker has incorporated or 
receives an IRS Form 1099 from a potential employer reflect mere labels 
rather than the economic realities and are thus not relevant. The 
Department has similar concerns that contractual provisions indicating 
the intent of the parties to establish an independent contractor 
relationship also may reflect mere labels rather than the economic 
realities and are thus not relevant. To the extent facts such as the 
worker having a business license or being incorporated may suggest that 
the worker is in business for themself, they may be considered either 
as an additional factor or under any enumerated factor to which they 
are relevant. However, consistent with an economic reality analysis, it 
is important to inquire into whether the worker's license or 
incorporation are reflective of the worker being in business for 
themselves as a matter of economic reality. For example, if a potential 
employer requires a worker to obtain a certain license or adopt a 
certain form of business as a condition for performing work, this may 
be evidence of the potential employer's control, rather than a worker 
who is independently operating a business.\517\
---------------------------------------------------------------------------

    \516\ See WHD Fact Sheet #13 (July 2008).
    \517\ See, e.g., Safarian v. American DG Energy Inc., 622 F. 
App'x 149, 151 (3d Cir. 2015) (even where ``the parties structure[ ] 
the relationship as an independent contractor, . . . the caselaw 
counsels that, for purposes of the worker's rights under the FLSA, 
we must look beyond the structure to the economic realities'').
---------------------------------------------------------------------------

    Finally, Flex requested that the Department clarify whether it 
still agrees with guidance as to the lack of relevance of certain 
factors expressed in WHD Fact Sheet #13. Flex urged the Department to 
``add guidance to the proposed rule that mirrors the subregulatory 
guidance in Fact Sheet #13 and make clear that the same factors 
previously deemed not relevant are still deemed not relevant.'' While 
the Department declines to identify specific factors as never relevant 
to the inquiry of whether a worker is economically dependent or in 
business for themselves, the Department agrees that certain factors are 
generally immaterial

[[Page 1718]]

in determining the existence of an employment relationship because they 
reflect mere labels rather than the economic realities, and do not 
indicate whether a worker is in business for themselves or is 
economically dependent on a potential employer for work. As it has 
stated previously, the Department continues to believe that ``such 
facts as the place where work is performed, the absence of a formal 
employment agreement, . . . whether an alleged independent contractor 
is licensed by State/local government,'' and ``the time or mode of 
pay'' do not generally indicate whether a worker is economically 
dependent or in business for themself.\518\
---------------------------------------------------------------------------

    \518\ WHD Fact Sheet #13 (July 2008).
---------------------------------------------------------------------------

    The Department is finalizing the additional factors section (Sec.  
795.110(b)(7)) as proposed with one minor editorial change as 
explained.

D. Primacy of Actual Practice (2021 IC Rule Sec.  795.110)

    The Department proposed to remove Sec.  795.110 of the 2021 IC Rule 
and use that section for the discussion of the economic reality 
factors.\519\ Section 795.110 of the 2021 IC Rule provided that in 
determining economic dependence ``the actual practice of the parties 
involved is more relevant than what may be contractually or 
theoretically possible.'' \520\ In the NPRM, the Department explained 
that this absolute rule ``is overly mechanical and does not allow for 
appropriate weight to be given to contractual provisions in situations 
in which they are crucial to understanding the economic realities of a 
relationship.'' \521\ The Department expressed its belief that a less 
prescriptive approach is more faithful to the totality-of-circumstances 
economic reality analysis, such that contractual or other reserved 
rights should be considered like any other fact under each factor to 
the extent they indicate economic dependence.\522\
---------------------------------------------------------------------------

    \519\ 87 FR 62257.
    \520\ 86 FR 1247 (Sec.  795.110).
    \521\ 87 FR 62258.
    \522\ Id.
---------------------------------------------------------------------------

    In its proposal, the Department acknowledged that contractual 
authority may in some instances be less relevant, but noted that the 
2021 IC Rule's position that actual practice is always more relevant is 
incompatible with an approach that does not apply the factors 
mechanically but looks to the totality of the circumstances in 
evaluating the economic realities. The Department explained that the 
focus is always on the economic realities rather than mere labels, but 
contractual provisions are not always mere labels. Instead, contractual 
provisions sometimes reflect and influence the economic realities of 
the relationship. The Department explained that within each factor of 
the test, there may be actual practices that are relevant, and there 
may also be contractual provisions that are relevant and that this 
examination will be specific to the facts of each economic relationship 
and cannot be predetermined.\523\
---------------------------------------------------------------------------

    \523\ See generally 87 FR 62258.
---------------------------------------------------------------------------

    In the NPRM, the Department also discussed the 2021 IC Rule's 
response to ``comments asserting that prioritizing actual practice 
would make the economic reality test impermissibly narrower than the 
common law control test.'' \524\ The 2021 IC Rule asserted 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.'' \525\ As the Department noted in the NPRM, this view of the 
FLSA's scope of employment is inconsistent with the Supreme Court's 
observations that ``[a] broader or more comprehensive coverage of 
employees'' than under the FLSA ``would be difficult to frame,'' \526\ 
and that the FLSA ``stretches the meaning of `employee' to cover some 
parties who might not qualify as such under a strict application of 
traditional agency law principles.'' \527\ The Department further 
explained that the ``2021 IC Rule's blanket diminishment of the 
relevance of the right to control is inconsistent with the Supreme 
Court's observations that the FLSA's scope of employee coverage is 
exceedingly broad and broader than what exists under the common law.'' 
\528\ Finally, the Department recognized that the fact that the 
employer's right to control is part of the common law test shows that 
it is a useful indicator of employee status.\529\
---------------------------------------------------------------------------

    \524\ 87 FR 62258.
    \525\ 86 FR 1205.
    \526\ Rosenwasser, 323 U.S. at 362-63.
    \527\ Darden, 503 U.S. at 326.
    \528\ 87 FR 62258.
    \529\ Id. In Silk, the Supreme Court described this standard as 
``power of control, whether exercised or not, over the manner of 
performing service to the industry.'' 331 U.S. at 713 (citing 
Restatement of the Law, Agency, sec. 220).
---------------------------------------------------------------------------

    Multiple commenters expressed support for the Department's decision 
to remove the 2021 IC Rule's provision on the primacy of actual 
practice. For example, the State AGs agreed with the NPRM's reasoning, 
noting ``that unexercised contractual powers among the parties may be 
equally as relevant to determining economic dependence as exercised 
powers'' and stating that ``[t]he Department rightly recognizes that 
the parties' actual practice is not more relevant than any other factor 
as to the question of economic dependence.'' The LA Fed & Teamsters 
Locals stated ``a worker cannot be said to be acting independently in 
running their own business if they are unable to make and effectuate 
certain decisions because another entity has reserved power over those 
decisions.'' Similarly, NELP commented that the NPRM rightly recognized 
``that contractual provisions can be powerful silencers; a right that 
is never exercised may be more significant evidence of control than a 
right that is routinely ignored.'' Justice at Work Pennsylvania 
commented that they support the Department's position on the primacy of 
actual practice ``which would restore the broad, holistic test for FLSA 
employment, as intended by Congress.'' Gale Healthcare Solutions 
similarly commented that they ``agree with DOL's proposal to remove 
Section 795.110 of the 2021 IC Rule, as every fact that is relevant to 
economic dependence should be considered in the analysis of economic 
dependence, and contractual possibilities--not just actual practices--
should be considered.''
    A number of commenters, however, expressed disagreement with the 
Department's proposal to remove this provision of the 2021 IC Rule. For 
example, FMI commented that ``control has always been evaluated based 
upon the actual exercise of control, that is, what the actual practice 
of the business and worker is--not the theoretical reservation of 
control.'' Cambridge Investment Research commented that ``[m]erely 
because an independent contractor elects not to take advantage of his 
or her independence or freedom says nothing about whether in fact the 
worker is properly classified.'' The U.S. Chamber expressed concern 
that the NPRM ``contradicts the principle that `[i]t is not significant 
how one ``could have'' acted under the contract terms. The controlling 
economic realities are reflected by the way one actually acts.' '' N/MA 
urged the Department to maintain the 2021 IC Rule's position ``that 
unexercised contractual rights are not irrelevant, they are simply not 
as informative as the actual experience of the parties,'' expressed 
concerns that the NPRM ``turns the economic realities test into a focus 
on economic possibilities,'' and noted that ``[c]ontractual provisions 
that are truly important necessarily manifest in the actual experiences 
of the worker.'' CWI similarly commented: ``To be clear, the 2021 IC 
Rule does not provide that unexercised rights are irrelevant. It merely 
states the obvious:

[[Page 1719]]

that what the control a putative employer actually exercises is more 
informative than the control it could exercise.'' See also CWC; MEP; 
NRF& NCCR.
    Upon considering the comments, the Department is finalizing the 
removal of Sec.  795.110 of the 2021 IC Rule (Primacy of actual 
practice). Consistent with case law and the Department's historical 
position prior to the 2021 IC Rule, the Department declines to create a 
novel bright line rule that assigns a predetermined and immutable 
weight or level of importance to reserved rights. As explained in the 
NPRM, the Department believes a less prescriptive approach is more 
faithful to the totality-of-the-circumstances, economic-reality 
analysis, and contractual or other reserved rights should be considered 
like any other fact under each factor to the extent they indicate 
economic dependence.\530\ The significance of each fact in the analysis 
should be informed by its relevance to the economic realities and this 
analysis will be specific to the facts of each economic relationship 
and cannot be predetermined. Finally, the Department's approach to the 
reserved right to control is more consistent with the historical bounds 
of the control factor than the 2021 IC Rule's blanket diminishment of 
the relevance of the right to control, which was inconsistent with the 
Supreme Court's observations that the FLSA's scope of employee coverage 
is exceedingly broad, even more so than under the common law.\531\ That 
the common law test includes the employer's right to control shows that 
it is a useful indicator of employee status.\532\ As such, the 
Department believes that removal of this provision is appropriate. 
Specific concerns raised in the comments relevant to this issue are 
discussed and addressed in this section below.
---------------------------------------------------------------------------

    \530\ 87 FR 62258.
    \531\ Id.
    \532\ Darden, 503 U.S. at 323 (common-law employment test 
considers ``the hiring party's right to control the manner and means 
by which the product is accomplished'') (quoting Reid, 490 U.S. at 
751-52); Restatement (Third) of Agency, sec. 7.07, Comment (f) 
(2006) (``For purposes of respondeat superior, an agent is an 
employee only when the principal controls or has the right to 
control the manner and means through which the agent performs 
work.'').
---------------------------------------------------------------------------

    Several commenters expressed concerns that the proposed removal of 
the primacy of actual practice provision was inconsistent with 
longstanding case law and previous guidance issued by the Department. 
See, e.g., CWC; DSA; FSI; Scalia Law Clinic; U.S. Chamber. For example, 
FMI expressed concerns that the NPRM was inconsistent with ``the 
articulation of the control factor in Administrator's Interpretation 
(AI) No. 2015-1 (July 15, 2015)'' which FMI contends ``debunked the 
idea that reserved control should be a consideration.'' FMI also 
suggested that the NPRM was inconsistent with case law cited in AI 
2015-1 which expressed that a ``worker's control over meaningful 
aspects of the work must be more than theoretical--the worker must 
actually exercise it.'' See also CWC. DSA commented that the 2021 IC 
Rule's elevation of actual practice as always more relevant than 
contractual or theoretical possibilities was consistent with a 1949 
Opinion Letter that stated ``ordinarily, a definite decision as to 
whether one is an employee or independent contractor under the [FLSA] 
cannot be made in the absence of evidence as to his actual day-to-day 
working relationship with his principal.'' The U.S. Chamber commented 
that the NPRM was inconsistent with decades of court precedent holding 
that ``the focus is on economic reality, not contractual language.'' 
According to the U.S. Chamber, the NPRM ``would effectively elevate 
reserved contractual rights above the actual practice of the parties'' 
and the ``economic realities test would be replaced by a contractual 
reservation test.'' Similarly, MEP expressed its position that the 2021 
IC Rule ``ensures the true nature of the contractual relationship is 
considered above all but leaves room for theoretical possibilities to 
still be considered,'' which it contended is consistent with court 
precedent.
    Contrary to these comments, the Department's approach to this issue 
is consistent with both prior Departmental guidance as well as judicial 
precedent. As the Department explained in the NPRM, AI 2015-1 
recognized six economic realities factors that followed the six factors 
used by most federal courts, including a control factor described as 
``the degree of control exercised or retained by the employer.'' \533\ 
The NPRM also noted ``AI 2015-1 further emphasized that the factors 
should not be applied in a mechanical fashion and that no one factor 
was determinative.'' \534\ Thus, contrary to FMI's contention, the 
NPRM's approach to the primacy of actual practice is consistent with AI 
2015-1's non-mechanical, totality-of-the-circumstances approach to the 
economic dependence inquiry and the potential relevance of the reserved 
right to control as an indicator of economic reality.\535\ 
Additionally, the Department's approach to this issue is certainly not 
in tension with the notion that the economic reality inquiry cannot be 
made without evidence of the day-to-day working relationship between a 
worker and their potential employer.\536\
---------------------------------------------------------------------------

    \533\ 87 FR 62223.
    \534\ Id.
    \535\ AI 2015-1, 2015 WL 4449086, at *11 (withdrawn June 7, 
2017). Additionally, AI 2015-1 cited, among other cases, Superior 
Care, for the proposition that ``[a]n employer does not need to look 
over his workers' shoulders every day in order to exercise 
control.'' In Superior Care, even though the parties stipulated that 
actual practice of the parties was to have infrequent supervisory 
visits, the Second Circuit found more probative of control the fact 
that the employer ``unequivocally expressed the right to supervise 
the nurses' work, and the nurses were well aware that they were 
subject to such checks as well as to regular review of their nursing 
notes.'' Superior Care, 840 F.2d at 1060.
    \536\ See WHD Op. Ltr. (June 23, 1949) (``Ordinarily a definite 
decision as to whether one is an employee or an independent 
contractor under the [FLSA] cannot be made in the absence of 
evidence as to his actual day-to-day working relationship with his 
principal.'').
---------------------------------------------------------------------------

    As the Department emphasizes in this final rule, it in no way 
intends to depart from case law which similarly emphasizes 
consideration of the actual behavior of the parties in deciding the 
economic reality inquiry.\537\ Indeed, the Department's position is 
more consistent with the case law, which does not deem actual practice 
and reserved rights to be mutually exclusive and instead requires a 
nuanced consideration of all relevant facts.\538\ Some commenters 
misconstrued the Department's proposal to remove the primacy of actual 
practice provision from the regulatory text. To be clear, the 
Department does not seek to elevate the weight of theoretical or 
contractual rights above the weight of actual practice. Rather, the 
Department affirms that actual practice is always relevant to the 
economic reality test. Further, the Department agrees that in many--if 
not most--circumstances the actual practices of the parties will be 
more relevant to the economic reality than reserved rights or 
unexercised contractual terms (as, for example, where an employer 
theoretically or contractually permits workers to decline work 
assignments, but in practice disciplines workers who decline 
assignments).\539\ And, as the Department explained in the NPRM, it 
does not intend to in any way minimize or disregard the longstanding 
case law that considers the actual behavior of the parties in order to 
determine the

[[Page 1720]]

economic reality.\540\ These cases reflect a bedrock principle about 
the economic reality test, which looks to the reality of a situation 
rather than assuming that a written label, contractual arrangement, or 
form of business, is dispositive.
---------------------------------------------------------------------------

    \537\ See infra n.541.
    \538\ See discussion regarding the Seventh Circuit's decision in 
Brant v. Schneider Nat'l, infra.
    \539\ See Off Duty Police, 915 F.3d at 1060-61 (finding that, 
among other things, officers' testimony that they were disciplined 
for turning down assignments, despite having the right to do so, 
supported employee status).
    \540\ See, e.g., Parrish, 917 F.3d at 387 (``[T]he analysis is 
focused on economic reality, not economic hypotheticals.''); Saleem, 
854 F.3d at 142 (``[P]ursuant to the economic reality test, it is 
not what [workers] could have done that counts, but as a matter of 
economic reality what they actually do that is dispositive.'') 
(internal quotation marks and citation omitted); Sureway, 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.'').
---------------------------------------------------------------------------

    This case law, however, does not require or even support the 
adoption of a generally applicable rule that in all circumstances 
reserved or unexercised rights, such as the right to control, are in 
every instance less indicative of the economic reality than the actual 
practices of the parties. Such a rule would be inconsistent with 
federal appellate court precedent recognizing that reserved rights may 
be more probative, such as the temporary nurse staffing agency in 
Superior Care that reserved the right to supervise the nurses even 
though in actuality it did so infrequently.\541\ The 2021 IC Rule's 
mandate regarding the primacy of actual practice effectively 
established a bright line rule that has not been adopted by courts and 
is in tension with longstanding instructions from courts that a 
totality-of-the-circumstances analysis be applied in order to analyze a 
worker's economic dependence. As such, rejecting the 2021 IC Rule's 
prescriptive regulation is more consistent with a non-mechanical, fact-
specific approach to the economic dependence or independence inquiry 
that has been adopted by the courts.\542\
---------------------------------------------------------------------------

    \541\ See Superior Care, 840 F.2d at 1060.
    \542\ See, e.g., Flint Eng'g, 137 F.3d at 1441 (``None of the 
factors alone is dispositive; instead, the court must employ a 
totality-of-the-circumstances approach.''); Superior Care, 840 F.2d 
at 1059 (``Since the test concerns the totality of the 
circumstances, any relevant evidence may be considered, and 
mechanical application of the test is to be avoided.'').
---------------------------------------------------------------------------

    Some commenters seemingly conflated the terms ``economic reality'' 
and ``actual practice.'' See, e.g., FSI (defining ``actual practice'' 
as ``the economic reality of the relationship at issue''). Again, the 
Department's position is not departing from or minimizing case law 
holding that the focus of the inquiry is on the ``economic reality, not 
contractual language.'' \543\ Courts routinely consider both reserved 
rights and actual practice in order to evaluate the overall question of 
economic reality. For example, the Seventh Circuit recently addressed 
both in Brant.\544\ In that case, the court examined the operating 
agreement signed by the driver, which purported to grant the driver 
broad authority over how to conduct their work, but also ``retain[ed] 
the right to gather remotely and to monitor huge quantities of data 
about how drivers conducted their work.'' The court rejected the 
company's argument that the broad grant of authority in the agreement 
was dispositive of independent contractor status because it found that 
the company exercised complete control over meaningful aspects of the 
transportation business, including by retaining the right to gather 
data that could be used to terminate the driver for noncompliance, 
which weighed in favor of employee status.\545\
---------------------------------------------------------------------------

    \543\ See, e.g., Parrish, 917 F.3d at 388.
    \544\ 43 F.4th 656 (7th Cir. 2022).
    \545\ Id. at 666.
---------------------------------------------------------------------------

    Moreover, none of the case law cited by commenters--and to the best 
of the Department's knowledge, no existing case law--stands for the 
proposition that reserved or unexercised rights cannot under any 
circumstances be indicative of the economic realities, nor does the 
2021 IC Rule's provision state that reserved rights are never relevant. 
Rather, as discussed, the case law is more consistent with the approach 
the Department is adopting in this final rule, which recognizes that 
while mere contractual language is not generally driving the economic 
reality inquiry, reserved contractual rights, like reserved control, 
may in certain cases be equally as, or more, indicative of the economic 
reality than the actual practice of the parties.
    N/MA expressed their view that the Department ``failed to identify 
any scenarios in which a contractual, but unexercised right would be 
more relevant than the parties' actual practices in assessing a 
worker's day-to-day economic realities.'' The NPRM illustrated how 
reserved rights might be more indicative of the economic reality than 
actual practice where, for example, a potential employer reserves the 
right to supervise workers despite rarely making supervisory 
visits.\546\ The mere existence of such reserved rights to control the 
worker may strongly influence the behavior of the worker in their 
performance of the work even absent the employer actually exercising 
its contractual rights. As a result, this reserved right to supervise 
may be more indicative of the reality of the economic relationship 
between the worker and the potential employer than the potential 
employer's apparent hands-off approach to supervision.
---------------------------------------------------------------------------

    \546\ See Superior Care, 840 F.2d at 1060 (``Though visits to 
the job sites occurred only once or twice a month, Superior Care 
unequivocally expressed the right to supervise the nurses' work, and 
the nurses were well aware that they were subject to such checks as 
well as to regular review of their nursing notes. An employer does 
not need to look over his workers' shoulders every day in order to 
exercise control.'')
---------------------------------------------------------------------------

    Several commentors also expressed concerns that the NPRM's approach 
will lead to an inconsistent application of the economic reality test 
and a lack of certainty and clarity for employers, workers, and 
factfinders. For example, SHRM urged the Department to retain the 
actual practice provision from the 2021 IC Rule, noting the NPRM 
``implies that unexecuted contractual rights may be more important than 
real-world practices'' and ``will require HR professionals to speculate 
on how WHD or a court may interpret each individual criterion'' which 
will ``surely result in inconsistencies in application and the 
resulting confusion will lead to continued uncertainty for employers 
and workers.'' NAHB expressed similar concerns about clarity, noting 
that ``actual practice is more relevant than what may be contractually 
or theoretically possible . . . and it provides a clearer and simpler 
federal test for determining worker status for regulated employers and 
small businesses.'' Because the entirety of the economic reality must 
be considered in the analysis, the Department finds that it cannot 
reduce the inquiry to only actual practice and that the 2021 IC Rule's 
predetermined elevation of actual practice above unexercised or 
reserved rights is not fully consistent with the economic reality 
inquiry that the Department and courts have followed for decades.
    The Coalition of Business Stakeholders expressed concerns that the 
Department failed to ``specify just how important such `reserved 
control' is'' and stated that the NPRM exacerbates ``the uncertainty 
with which the Proposed Rule may be implemented'' and ``apparently 
directs the factfinder to weigh the control factor in favor of employee 
classification if a hiring entity merely possesses the ability to 
exercise control of a worker, regardless of whether the hiring entity 
ever has exercised such control.'' The Coalition of Business 
Stakeholders also commented that by including ``the vague concept of 
`reserved control', which is to be considered in some unstated 
capacity, the Proposed Rule broadens the control factor far beyond its 
historical bounds and creates such uncertainty that the definition of 
`control' under the Proposed Rule is

[[Page 1721]]

unworkable and would all but preclude an independent contractor 
finding.'' The Department notes again that reserved control was 
included in the 2021 IC Rule.\547\ In any event, the Coalition of 
Business Stakeholders misconstrues the Department's discussion of 
reserved control. The Department does not take the position that 
reserved rights are always indicative of economic dependence, and 
certainly does not preclude the existence of factual circumstances 
where this fact could be found to weigh in favor of independent 
contractor status. Moreover, the Department reiterates, consistent with 
decades of case law and guidance from the Department, that ``the 
economic reality test is a multifactor test in which no one factor or 
set of factors automatically carries more weight and that all relevant 
factors must be considered.'' \548\ The notion that the Department's 
position that the reserved right of control can be indicative of the 
economic reality in some circumstances somehow makes the economic 
reality test ``unworkable'' and ``all but precludes an independent 
contractor finding'' is simply inconsistent with a multifactor 
totality-of-the-circumstances approach in which this is but one 
potentially relevant fact under one factor. That a potential employer's 
reserved right to control might indicate an employment relationship 
does not preclude a finding of independent contractor status based on 
other factual indicators of the economic reality of the relationship.
---------------------------------------------------------------------------

    \547\ 86 FR 1204 (``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.'').
    \548\ 87 FR 62222; see, e.g., Scantland, 721 F.3d at 1312 n.2 
(the relative weight of each factor ``depends on the facts of the 
case'') (quoting Santelices, 147 F. Supp. 2d at 1319); Selker Bros., 
949 F.2d at 1293 (``It is a well-established principle that the 
determination of the employment relationship does not depend on 
isolated factors . . . neither the presence nor the absence of any 
particular factor is dispositive.'').
---------------------------------------------------------------------------

    IWF expressed concerns that NPRM's approach to the primacy of 
actual practice was inconsistent, noting that ``even accepting the 
Department's focus on theory, the proper application of this factor is 
far from clear. . . . The Proposed Rule states both that (1) `[i]t is 
often the case that the actual practice of the parties is more relevant 
to the economic dependence inquiry than contractual or theoretical 
possibilities,' and (2) `in other cases the contractual possibilities 
may reveal more about the economic reality than the parties' 
practices.' '' The Department's recognition that actual practice is 
often more relevant to the economic dependence inquiry than contractual 
possibilities is not at all inconsistent with its position that, in 
some factual circumstances, reserved contractual rights can be more or 
equally as indicative of the economic reality as the actual practices 
of the parties. The Department is rejecting the overly broad and 
mechanical approach that in all factual circumstances, for every worker 
in every industry and occupation, actual practice is always more 
indicative of the economic reality than reserved rights or contractual 
possibilities. The Department's position is more consistent with the 
case law, which does not deem these two concepts to be mutually 
exclusive and instead requires a nuanced consideration of all relevant 
facts.\549\
---------------------------------------------------------------------------

    \549\ See discussion regarding the Seventh Circuit's decision in 
Brant v. Schneider Nat'l, supra.
---------------------------------------------------------------------------

    Some commenters felt that the Department was focusing solely on how 
reserved rights might be used to find employee status. For example, IWF 
stated that the Department was interested in reserved rights only to 
the extent they support finding employee status. See also Coalition of 
Business Stakeholders. Minnesota Trucking Association commented that it 
would support the NPRM's logic on the relevance of reserved rights to 
the economic realities test ``so long as the analysis also considers 
the rights the worker possesses but also chooses not to exercise.'' See 
also CLDA. The Department does not agree with the contention that its 
approach to actual practice and reserved rights would always only be 
used to indicate employee status.\550\ The inquiry should take every 
aspect of the relationship into account if relevant to the economic 
reality and the worker's dependence on their potential employer.\551\
---------------------------------------------------------------------------

    \550\ See, e.g., Faludi 950 F.3d at 275-76 (determining that an 
attorney was an independent contractor even though facts ``point[ed] 
in both directions,'' such as the attorney's fairly lengthy tenure, 
even though he had the right to leave whenever he wanted upon giving 
15 days' notice, and a non-compete clause under which the attorney 
worked exclusively for the company, but which the court found ``does 
not automatically negate independent contractor status'').
    \551\ See section V.C.4.a (discussing why the control factor is 
discussed from the employer's perspective).
---------------------------------------------------------------------------

    The Club for Growth Foundation expressed concerns with the 
Department's statement that a reserved right to supervise workers, even 
unexercised, ``may strongly influence the behavior of the worker in 
[his or her] performance of the work,'' and this ``may be more 
indicative of the reality of the economic relationship between the 
worker and the company than the company's apparent hands-off 
practice,'' noting that ``even under this example a company that does 
not intervene is surely exercising less control than one that does.'' 
This comment misunderstands the relevant inquiry. The question is not 
whether a potential employer who reserves the right to control their 
workers can be said to exercise more control than a different potential 
employer who in actual practice exercises control over their workers. 
Rather, the inquiry is whether, as a matter of economic reality, a 
potential employer's reserved right of control is probative of a 
worker's economic dependence. The 2021 IC Rule mechanically provided 
that actual practice is always more relevant than reserved control. By 
removing that provision, this final rule takes the position that all 
relevant aspects of the working relationship, including reserved 
rights, should be considered, without placing a thumb on that scale.
    The U.S. Chamber also raised concerns that having ``contractual 
language eclipse actual practice would flip the economic realities on 
its head'' and ``would also prohibit certain facts from being 
introduced into evidence: namely, the actual practice of the parties, 
which according to the Supreme Court is the touchstone of the 
analysis.'' The Department reiterates firmly that this final rule 
neither tips the scales in favor of contractual language over actual 
practice nor excludes the consideration of any relevant facts 
demonstrating economic dependence. Rather, the Department is merely 
declining to adopt a bright-line rule predetermining how relevant facts 
may be considered, recognizing that in some factual circumstances 
reserved rights may be as indicative of the economic reality as the 
actual practice of the parties. Additionally, the Department's final 
rule does not prohibit any subset of facts from being introduced into 
evidence before a factfinder, and certainly does not prohibit facts 
about the actual practices of the parties from being introduced into 
evidence. To the contrary, the purpose of eliminating the actual 
practice provision from the 2021 IC Rule is to ensure that all facts 
relevant to inquiry of economic dependence or independence may be 
considered.\552\ Within each factor of the test, there may be actual 
practices that are relevant, and there may also be

[[Page 1722]]

contractual provisions that are relevant. The examination is specific 
to the facts of each economic relationship and cannot be predetermined.
---------------------------------------------------------------------------

    \552\ See Superior Care, 840 F.2d at 1059 (``Since the test 
concerns the totality of the circumstances, any relevant evidence 
may be considered, and mechanical application of the test is to be 
avoided.'').
---------------------------------------------------------------------------

    For all of the foregoing reasons, the Department is finalizing the 
removal of Sec.  795.110 of the 2021 IC Rule (Primacy of actual 
practice). As discussed in section V.C, Sec.  795.110 of this rule 
contains a new provision discussing the economic reality test and the 
economic reality factors.

E. Examples of Analyzing Economic Reality Factors (2021 IC Rule Sec.  
795.115)

    Several commenters addressed the examples that the Department 
provided in the proposed rule to illustrate the application of each 
factor of the economic reality test as applied to various factual 
scenarios. The Department provided these examples in the preamble of 
the proposal rather than in the final text of the regulations--as was 
the case with the 2021 IC Rule--to provide readers an application of 
the proposed factor immediately following the detailed description of 
each factor along with the discussion of the case law and 
rationale.\553\ Each example provided two scenarios: one where the 
facts indicated that a factor pointed toward employee status and one 
where the facts indicated that a factor pointed toward independent 
contractor status. As the Department cautioned in the NPRM, additional 
facts or alterations to the examples could change the resulting 
analysis.\554\ Moreover, no example attempted to determine the worker's 
ultimate status, only which way a particular factor would point based 
on the described facts.
---------------------------------------------------------------------------

    \553\ 87 FR 62259.
    \554\ Id.
---------------------------------------------------------------------------

    Several commenters found the examples generally helpful or applied 
them to their industry practices. For instance, the Advisor Group 
applied the Department's skill and initiative example to financial 
advisors. A freelance writer and editor found the examples provided in 
the preamble to be reasonable, though they suggested that sections 
describing each factor were narrower than the examples suggested. The 
AFL-CIO commended the Department's ``decision to provide examples of 
how each of the various factors have been applied in commonly-occurring 
fact patterns.''
    Other commenters had concerns regarding the examples or suggested 
alterations to various examples. For instance, the CA Chamber suggested 
that the investment factor example was confusing since the relative 
investments of a graphic designer would be dwarfed by a design firm, 
leading to different outcomes depending on whether the graphic designer 
worked for a large firm or a sole proprietor. In addition, a comment 
from two fellows at the Heritage Foundation suggested that this example 
was ambiguous because it was unclear if all the facts in the example, 
including the worker's investment in equipment, office space, and 
marketing, were required for the analysis.
    Regarding the investment factor example, the Department discussed 
relative investments in the first scenario, where a worker occasionally 
purchased and used their own drafting tools while working for a 
commercial design firm. These tools were minor investments that do not 
further the worker's independent business beyond completing specific 
jobs for the commercial design firm. Regarding the CA Chamber's concern 
that the size of the business would alter a relative investment 
analysis, the example was not intended to alter the size of the 
hypothetical employer. However, to avoid confusion, the Department is 
aligning the examples to ensure that both feature a ``commercial design 
firm'' as the hypothetical employer. Additionally, the regulatory text 
for the investments factor explains that, in addition to comparing the 
sizes of the worker's and the employer's investments, the focus should 
be on comparing the nature of their investments to determine whether 
the worker is making similar types of investments as the employer that 
suggest that the worker is operating independently.\555\
---------------------------------------------------------------------------

    \555\ The Department notes that it has edited the investment 
example to omit the reference to a ``freelance graphic designer.'' 
While the department recognizes that indendent contractors may go by 
many names, its intent is to ensure that the examples reflect 
consistent terminology. Because the Department used the phrase 
``independent contractor'' throughout the examples.
---------------------------------------------------------------------------

    Further, commenters were concerned that the same facts that point 
toward independent contractor status under the investment prong example 
would point toward employee status under the integral prong. As the 
Department stated in the NPRM, however, the examples are intended to be 
aids to apply the discussion of each proposed factor; the examples are 
not designed to illustrate the application of the full totality-of-the-
circumstances test. For instance, the Department's investment example 
intentionally does not address whether the designer is integral to the 
commercial design firm, which would necessitate a separate analysis.
    Regarding the integral factor, IWF was concerned that the examples 
were unhelpful because they covered two different industries and did 
not illuminate what kinds of activities would be considered central or 
important. The Department's intent regarding this factor was to 
illuminate those tasks that are core to the functioning of the 
business, e.g., jobs which the ``employer could not function without 
the service performed by the workers.'' \556\ Here, a farm selling 
tomatoes could not function without the work of those picking the 
tomatoes. However, while a business is generally required to file their 
tax returns, failure to do so would not immediately halt the operations 
of the farm, suggesting that non-payroll accounting support is ``more 
peripheral to the employer's business.'' \557\ The Department's intent 
was to provide a comparison meant to highlight the ``common-sense 
approach'' many courts have taken when evaluating this factor.\558\
---------------------------------------------------------------------------

    \556\ 87 FR 62253.
    \557\ Id.
    \558\ Id.
---------------------------------------------------------------------------

    Similarly, ABC was concerned that the example for the opportunity 
for profit or loss factor did not differentiate the facts between the 
two workers in a way that would demonstrate which facts were 
determinative of the analysis. As they noted, even if a worker relies 
on word of mouth instead of traditional advertising or only works for 
one client at a time, they can still be found to be independent 
contractors. However, the example of the landscaper includes a scenario 
where the first landscaper does not actively market their services and 
a second where the landscaper does market their services. The inclusion 
of these facts in the example does not indicate that the Department 
believes that traditional marketing is required for a worker to be 
classified as an independent contractor, only that such affirmative 
marketing may be probative of the worker acting in a way consistent 
with being in business for themself. Put another way, the Department 
intentionally drafted the examples to avoid giving the impression that 
certain facts are always less or always more probative to the analysis 
of any given factor.
    SMACNA noted that the Department's second example for skill and 
initiative featuring a welder should omit the fact that the welder has 
specialty skills, since that should not change the general analysis 
under this factor. Instead, it suggested that the example should 
clarify how the welder `` `markets those skills in a manner that 
evidences business-like initiative.' '' Similarly, the DSA's comment 
noted that the skill and

[[Page 1723]]

initiative example (featuring a welder) only drew a distinction between 
the two workers based on their ability to market their services where 
both workers have specialized skill. It proposed including an example 
where a worker has no specialized skill but can still market their 
services to demonstrate initiative. Finally, ABC objected to the same 
example, noting that the skills of the workers ``should not have to be 
paired with independent business marketing skills'' to find that a 
worker is an independent contractor.
    The Department chose to display both workers as having high 
technical skills to illuminate the discussion regarding skill in the 
NPRM. Specialized skills are required for this factor to point to 
independent contractor status, but specialized skills alone are not 
sufficient; it is the use of those specialized skills to ``contribute 
to business-like initiative that is consistent with the worker being in 
business for themself instead of being economically dependent on the 
employer.'' \559\ As the Department noted in the NPRM, ``workers who 
lack specialized skills may be independent contractors even if this 
factor is very unlikely to point in that direction in their 
circumstances.'' \560\ Thus the existence of specialized skills or the 
marketing of services, while relevant to the analysis under this 
factor, would not necessarily resolve the ultimate inquiry of the 
worker's classification.
---------------------------------------------------------------------------

    \559\ 87 FR 62254.
    \560\ Id. at 62255.
---------------------------------------------------------------------------

    Several comments suggested that the Department include new 
industry-specific examples for various factors. For instance, Gale 
Healthcare Solutions requested that the Department provide an example 
that would apply to on-demand nursing staffing scenarios. 4A's 
requested that specific industries, such as ``video production 
professionals, web designers, freelance writers, [and] fashion 
workers'' be included as examples. And NAFO requested that a forestry 
example be included in the section of the rule discussing the integral 
factor.
    The Department recognizes that examples specific to an industry can 
provide helpful guidance for that segment of the regulated community. 
As the Department explained, however, its intent is for the examples to 
provide general guidance to regulated parties in this rulemaking. 
Adding examples specific to commenter industries would reduce their 
general applicability to other parties and would require more facts and 
detail than can be included to create succinct, yet helpful, examples. 
The Department mentions various industries or occupations in the 
examples to provide recognizable context for the reader; the examples 
do not provide the Department's definitive view on the ultimate outcome 
of the totality-of-the-circumstances analysis.
    Some commenters suggested that the Department add examples to 
capture newer facets of the economic reality factors. For instance, one 
commenter suggested that the Department should include an example to 
show how an employer's collection of data related to how a worker 
performs and use of that data to enhance their operations could be part 
of the economic reality analysis. The AFL-CIO similarly suggested that 
the Department should include an example where an employer implements 
control using algorithms.
    In addition, commenters suggested that the Department should 
provide more examples of how current facets of the economic reality 
test would be applied. For instance, LeadingAge requested more examples 
of how the Department views reserved control and more examples 
regarding situations in which a worker's ability to work for others is 
constrained by the number of hours or days they need to work. Flex 
suggested that if the Department were to retain language under the 
control factor related to regulatory or contractual control, then the 
Department should provide ``a comprehensive set of examples to 
illustrate that such cases would be rarities.'' And CPIE requested 
additional examples of where the Department would find a worker to be 
properly classified as an independent contractor, particularly under 
the control, investment, and skill and initiative factors.
    The Department agrees with commenters like the AFL-CIO that topics 
like control over data or algorithmic supervision are highly relevant 
to some workers and could have an impact on the economic reality test. 
However, as noted above, the purpose of the examples is to provide aids 
to applying the information just discussed in the preamble as to each 
factor. The Department intends for the examples to provide general 
guidance to regulated parties and not to be tied to the specifics of 
certain businesses or jobs. The examples reflect the Department's 
enforcement experience in some of the most commonly occurring 
scenarios.
    In addition, the Department understands that commenters such as 
LeadingAge would prefer more context regarding reserved control. 
However, the Department declines to add that additional context to the 
current examples, which were drafted to address common themes regarding 
each factor to illuminate the preamble discussion, not present every 
fact or issue presented in the proposed rule. The Department is also 
concerned that additional results-oriented examples--such as those 
requested by NAHB specifically addressing when a worker would be 
classified as an independent contractor under certain factors--would 
not be helpful to the broader public. Such examples could leave the 
impression that the proper classification of workers rests on one or a 
handful of factors. To the contrary, the Department believes the 
current examples' focus on illustrating the basic analysis under a 
single factor and noting that the results indicate potential 
classification under each factor, but not the ultimate result, provides 
more useful guidance for this rule. Moreover, industry- or profession-
specific examples relaying how a worker's ultimate classification would 
be resolved are best addressed in subregulatory guidance after the 
issuance of this final rule as necessary.
    Commenters suggested that the Department provide examples that mix 
and compare the factors together. For instance, Grantmakers in the Arts 
suggested that the Department include examples that demonstrate the 
resolution of a worker's status after applying multiple factors and 
ArcBest Corporation provided an example applying the full economic 
reality test to an owner operator in the trucking industry. The 
Department declines to offer such examples in this rulemaking. While a 
multifactor example might appear helpful, the Department is also 
concerned that such an example could potentially prejudge a specific 
case in a specific industry or occupation not yet before the Department 
or a court, without adequate factual predicates. Moreover, such an 
example would undermine the Department's efforts to align the economic 
reality analysis with current precedent, which requires a consideration 
of all the factors. Finally, any multifactor analysis would require a 
larger number of facts to be useful, which may be less generally useful 
to workers and businesses who may not be able to analogize the given 
example to their current working relationships.
    IBA commented that some examples were too similar to prior 
withdrawn subregulatory guidance. The Department notes that it 
assembled these examples, in part, by reviewing case law, opinion 
letters, the 2021 IC Rule, and other subregulatory guidance. Each 
source was consulted and helped the Department arrive at the examples 
provided.

[[Page 1724]]

    Other commenters requested that the Department keep examples that 
were provided in the 2021 IC Rule. For instance, the Arizona Trucking 
Association suggested that the Department keep the trucking example 
from the 2021 IC Rule. Similarly, NAWBO noted how helpful the trucker 
and home repair examples were in the 2021 IC Rule. As explained above, 
some facets of the 2021 IC Rule's examples no longer align with the 
approach in this final rule. For instance, the 2021 IC Rule's app-based 
home repair example discusses investment as a component of the 
opportunity for profit or loss factor. As proposed in the NPRM and 
finalized here, however, the two factors are separate and evaluated 
independently.
    Finally, some commenters suggested that the Department include 
examples in the final rule's regulatory text, as was done with the 2021 
IC Rule. For instance, the author of an independent contractor legal 
blog requested that more examples be provided in the regulatory text, 
including those related to the integral factor. 4A's similarly requests 
that examples be included in the regulatory text and that they better 
correlate with modern trends in employment.
    The Department recognizes that examples are helpful to workers and 
businesses alike. The Department continues to believe, however, that 
the examples provided in the NPRM currently provide the greatest value 
by residing in the preamble to the final rule following the detailed 
discussion of the relevant factor. In this way, the examples can 
provide a capstone for each section's discussion of the relevant 
economic reality factor, rather than being disconnected from that 
discussion and appearing only in regulatory text. The Department is 
confident that the examples initially provided in the NPRM preamble, as 
modified in the preamble to this final rule in response to comments 
received, serve this explanatory purpose. Over time, the Department 
will continue providing guidance where necessary through subregulatory 
guidance.
    As it did in the NPRM, the Department is including examples of each 
factor in the preamble to this final rule. As discussed above, the 
example of the investment factor has been clarified. In addition, non-
substantive changes have been made to the final sentence of each 
paragraph in each example to clearly indicate which factor is under 
discussion and that the facts of each example indicate employee or 
independent contractor status under that factor.

F. Severability (Sec.  795.115)

    The Department proposed that the regulatory text include a 
severability provision.\561\ Specifically, the Department proposed 
that, if any provision of its regulation ``is held to be invalid or 
unenforceable by its terms, or as applied to any person or 
circumstance, or stayed pending further agency action, the provision 
shall be construed so as to continue to give the maximum effect to the 
provision permitted by law, unless such holding shall be one of utter 
invalidity or unenforceability, in which event the provision shall be 
severable from [the regulation] and shall not affect the remainder 
thereof.'' \562\ The Department noted that the 2021 IC Rule contained a 
severability provision and that it was not proposing any edits to that 
provision.\563\
---------------------------------------------------------------------------

    \561\ 87 FR 62275 (proposed Sec.  795.115).
    \562\ Id.
    \563\ Id. at 62259.
---------------------------------------------------------------------------

    In addition, the Department explained in the NPRM that rescission 
of the 2021 IC Rule would be separate from the new regulations 
regarding employee and independent contractor status promulgated to 
replace the 2021 IC Rule: ``That rescission would operate independently 
of the new content in any new final rule, as the Department intends it 
to be severable from the substantive proposal for adding a new part 
795.'' The Department further explained that, even if the ``substantive 
provisions'' (i.e., the new regulations) of a final rule were 
invalidated, enjoined, or otherwise not put into effect, the Department 
would not intend that the 2021 IC Rule become operative. Instead, in 
such case, for all of the separate reasons for rescinding the 2021 IC 
Rule set forth by the Department, the rescission would still take 
effect, and ``the Department would rely on circuit case law and provide 
subregulatory guidance for stakeholders through existing documents 
(such as Fact Sheet #13) and new documents (for example, a Field 
Assistance Bulletin).'' As the Department noted, relying on federal 
appellate case law and subregulatory guidance consistent with that case 
law for determining whether a worker is an employee or independent 
contractor would accurately reflect the FLSA's text and purpose as 
interpreted by the courts and offer a standard familiar to most 
stakeholders.\564\
---------------------------------------------------------------------------

    \564\ See generally id. at 62233.
---------------------------------------------------------------------------

    Few commenters addressed severability, and the focus of their 
comments was more on the severability of the rescission of the 2021 IC 
Rule from the proposed regulations to replace it than the proposed 
severability provision at 29 CFR 795.115. Several commenters supported 
the Department's position that the rescission of the 2021 IC Rule is 
severable from the proposed regulations to replace it. For example, 
Farmworker Justice stated that ``[b]oth the rescission of the 2021 IC 
Rule and the newly proposed portion of the [NPRM] are critical to 
reinstating stability and clarity in the Department's approach to 
defining an employee.'' It advocated that the ``Department should 
expressly state that it intends for the rescission of the 2021 IC Rule 
to be severable from the new portion of the [NPRM].'' The AFL-CIO 
agreed that ``the severability clause and DOL's explanation of that 
clause in the preamble to the NPRM make clear that, in the unlikely 
event a court were to decide to enjoin some portion of the Final Rule 
addressing the economic reality test, DOL intends that the rescission 
of the 2021 IC Rule should still take effect.'' It described this 
approach as ``cautious'' and ``prudent'' and added that ``the severance 
clause makes clear that DOL intended that the rescission of the 2021 IC 
Rule stands on its own.'' LIUNA also supported ``the Department's 
decision to render rescission of the 2021 IC Rule severable from the 
substantive proposal for adding further regulatory guidance.'' It added 
that the Department was ``correct to conclude that, in the unlikely 
event its substantive proposals are `invalidated, enjoined, or 
otherwise not put into effect,' the 2021 IC Rule should still not 
become operative.''
    Several other commenters criticized the Department's position that 
the rescission of the 2021 IC Rule is severable from the proposed 
regulations to replace it. For example, Freedom Foundation stated that 
``[t]he rescission of the [2021 IC Rule] and the adoption of the 
proposed rule should not be severable'' and added that the Department's 
``promise that in the absence of a regulation it would provide 
subregulatory guidance has a hollow ring.'' Raymond James described the 
Department's position as ``present[ing] workers and business with a 
Hobson's Choice: either accept the new regulations, or there will be no 
regulations at all.'' It stated that, ``[c]onsidering that the 
Department will not even consider making discrete changes, it does not 
seem appropriate to require businesses and workers to accept a 
wholesale re-write or face the risks of having no rule at all.'' And 
CWI asserted that the reference to `` `substantive' provisions'' in the 
NPRM's severability discussion were

[[Page 1725]]

inconsistent with how, ``[e]lsewhere'' in the NPRM, ``the Department 
present[ed] the Proposed Rule as only `interpretive guidance.' ''
    Having considered the comments, the Department is finalizing the 
severability provision in 29 CFR 795.115 as proposed and finalizing its 
proposal that the rescission of the 2021 IC Rule set forth in this 
final rule is separate and severable from the new part 795 regulations 
for determining employee or independent contractor status under the 
FLSA set forth in this final rule. No commenter questioned the well-
settled legal principle that one portion of a rule may remain operative 
if another portion is deemed impermissible as long as the agency would 
independently adopt the remaining portion and the remaining portion can 
operate sensibly without the impermissible portion.\565\ The Department 
continues to believe that rescission of the 2021 IC Rule is proper for 
all of the reasons stated in this final rule, and its intent 
accordingly is for the rescission to remain operative even if this 
final rule's regulations replacing the 2021 IC Rule are invalidated for 
any reason. In addition, the Department continues to believe that if 
any particular provision or application of this final rule is 
invalidated, the rest should continue in effect and can operate 
sensibly. In such case, case law and the Department's subregulatory 
guidance, as appropriate, would provide a familiar and longstanding 
standard for businesses and workers. Freedom Foundation's assertion 
that this ``has a hollow ring'' neglects the multiple forms of 
subregulatory guidance, including fact sheets and field assistance 
bulletins, that the Department may issue. And there was no ``Hobson's 
Choice'' between the proposed rule and ``having no rule at all''; the 
Department has carefully considered the many comments to the proposed 
rule and, as reflected in this final rule, has made numerous changes as 
a result of those comments. Finally, CWI took the Department's 
reference to ``substantive provisions'' out of context. The 
Department's reference to the proposed regulatory provisions as 
``substantive'' was not a characterization of this rulemaking, but an 
effort to distinguish promulgating the new part 795 regulations from 
rescinding the 2021 IC Rule.
---------------------------------------------------------------------------

    \565\ See, e.g., Carlson v. Postal Regulatory Comm'n, 938 F.3d 
337, 351 (D.C. Cir. 2019).
---------------------------------------------------------------------------

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

    Finally, in addition to the proposed regulations at part 795, the 
Department proposed to amend existing regulatory provisions addressing 
employee or independent contractor status under the FLSA in particular 
contexts at 29 CFR 780.330(b) (tenants and sharecroppers) and 29 CFR 
788.16(a) (certain forestry and logging workers).\566\ Specifically, 
the Department proposed to replace these provisions with cross-
references to the guidance provided in part 795. The Department did not 
receive commenter feedback regarding the proposed amendments of these 
provisions. Accordingly, the Department finalizes the amendments to 
these provisions as proposed.
---------------------------------------------------------------------------

    \566\ 87 FR 62274.
---------------------------------------------------------------------------

VI. 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. This final rule does not contain a collection of information 
subject to OMB approval under the PRA.

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

    Under Executive Order 12866, as amended by Executive Order 14094, 
the Office of Management and Budget's (OMB) Office of Information and 
Regulatory Affairs (OIRA) determines whether a regulatory action is 
significant and, therefore, subject to the requirements of the 
Executive Order and OMB review.\567\ 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 $200 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; (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 legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order. OIRA has determined that this rule is a 
``significant regulatory action'' under section 3(f)(1) of Executive 
Order 12866.
---------------------------------------------------------------------------

    \567\ See 88 FR 21879 (Apr. 11, 2023); 58 FR 51735, 51741 (Oct. 
4, 1993).
---------------------------------------------------------------------------

    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.\568\ 
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. The analysis below outlines the 
impacts that the Department anticipates may result from this rule and 
was prepared pursuant to the above-mentioned executive orders.
---------------------------------------------------------------------------

    \568\ See 76 FR 3821 (Jan. 21, 2011).
---------------------------------------------------------------------------

A. Introduction

    In this rule, the Department is rescinding and replacing 
regulations addressing the classification of workers as employees or 
independent contractors under the Fair Labor Standards Act (FLSA or 
Act) to be more consistent with judicial precedent and the Act's text 
and purpose as interpreted by the courts. For decades, the Department 
and courts have applied an economic reality test to determine 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 economically dependent on the employer for work (and is thus 
an employee) or is in business for themself (and is thus an independent 
contractor). To answer this ultimate inquiry of economic dependence, 
the courts and the Department have historically conducted a multifactor 
totality-of-the-circumstances analysis, considering multiple factors 
with no factor or factors being dispositive to determine whether a 
worker is an employee or an independent contractor under the FLSA.
    In January 2021, the Department published a rule titled 
``Independent Contractor Status Under the Fair Labor Standards Act'' 
(2021 IC Rule) that

[[Page 1726]]

provided guidance on the classification of independent contractors 
under the FLSA.\569\ As explained in sections III, IV, and V above, the 
Department believes that the 2021 IC Rule did not fully comport with 
the FLSA's text and purpose as interpreted by the courts and, had it 
been left in place, would have had a confusing and disruptive effect on 
workers and businesses alike due to its departure from decades of case 
law describing and applying the multifactor economic reality test as a 
totality-of-the-circumstances test. The 2021 IC Rule included 
provisions that were in tension with this longstanding case law--such 
as designating two factors as most probative and predetermining that 
they carry greater weight in the analysis, considering investment and 
initiative only in the opportunity for profit or loss factor, and 
excluding consideration of whether the work performed is central or 
important to the employer's business. These and other provisions in the 
2021 IC Rule narrowed the application of the economic reality test by 
limiting the facts that may be considered as part of the test, facts 
which the Department believes are relevant in determining whether a 
worker is economically dependent on the employer for work or in 
business for themself. The Department believes that retaining the 2021 
IC Rule would have had a confusing and disruptive effect on workers and 
businesses alike due to its departure from case law describing and 
applying the multifactor economic reality test as a totality-of-the-
circumstances test. Departing from the longstanding test applied by the 
courts also increases the risk of misapplication of the economic 
reality test, which the Department believes could result in the 
increased misclassification of workers as independent contractors.
---------------------------------------------------------------------------

    \569\ See 86 FR 1168.
---------------------------------------------------------------------------

    Therefore, the Department is rescinding the 2021 IC Rule and 
replacing it with an analysis for determining employee or independent 
contractor status under the Act that is more consistent with existing 
judicial precedent and the Department's longstanding guidance prior to 
the 2021 IC Rule. Of particular note, the regulations set forth in this 
final rule do not use ``core factors'' and instead return to a 
totality-of-the-circumstances analysis of the economic reality test in 
which the factors do not have a predetermined weight and are considered 
in view of the economic reality of the whole activity. Regarding the 
economic reality factors, this final rule returns to the longstanding 
framing of investment as its own separate factor, and integral as an 
integral part of the potential employer's business rather than an 
integrated unit of production. The final rule also provides broader 
discussion of how scheduling, remote supervision, price setting, and 
the ability to work for others should be considered under the control 
factor, and it allows for consideration of reserved rights to control 
while removing the provision in the 2021 IC Rule that minimized the 
relevance of retained rights. Further, the final rule discusses 
exclusivity in the context of the permanency factor, and initiative in 
the context of the skill factor. The Department also made several 
adjustments to the proposed regulations after consideration of the 
comments received, including revisions to the regulations regarding the 
investment factor and the control factor (specifically addressing 
compliance with legal obligations).
    The Department believes this rule is more grounded in the ultimate 
inquiry of whether a worker is in business for themself or is 
economically dependent on the employer for work. Workers, employers, 
and independent businesses should benefit from affirmative regulatory 
guidance from the Department further developing the concept of economic 
dependence and how each economic reality factor is probative of whether 
the worker is economically dependent on the employer for work or is in 
business for themself.
    When evaluating the economic impact of this rule, the Department 
has considered the appropriate baseline with which to compare changes. 
As discussed in section II.C.3., on March 14, 2022, in a lawsuit 
challenging the Department's delay and withdrawal of the 2021 IC Rule, 
a federal district court in the Eastern District of Texas issued a 
decision vacating the delay and withdrawal of the 2021 IC Rule and 
concluded that the 2021 IC Rule became effective on March 8, 2021.\570\ 
Because the 2021 IC Rule is in effect according to the district court 
until this final rule takes effect and would continue to be in effect 
in the absence of this rule, the Department believes that the 2021 IC 
Rule is the proper baseline to compare against when estimating the 
economic impact of this rule.\571\ Compared to the 2021 IC Rule, the 
Department anticipates that this rule may reduce misclassification of 
employees as independent contractors, because this rule is more 
consistent with existing judicial precedent and the Department's 
longstanding guidance. The 2021 IC Rule's elevation of certain factors, 
devaluation of other factors, and its preclusion of consideration of 
relevant facts under several factors could result in misapplication of 
the economic reality test and may have conveyed to employers that it 
might be easier than it was prior to the 2021 IC Rule to classify 
workers as independent contractors rather than FLSA-covered employees. 
As discussed in section III.B., the Department received comments 
indicating confusion about how to apply the analysis in the 2021 IC 
Rule, which could lead to misclassification of workers as independent 
contractors. The issuance of this rule could reduce or prevent this 
type of misclassification from occurring.
---------------------------------------------------------------------------

    \570\ See CWI v. Walsh, 2022 WL 1073346.
    \571\ OMB Circular A-4 notes that when agencies are developing a 
baseline, ``[it] should be the best assessment of the way the world 
would look absent the proposed action.''
---------------------------------------------------------------------------

    Because the Department does not have data on the number of 
misclassified workers and because there are inherent challenges in 
determining the extent to which the rule would reduce this 
misclassification, much of the analysis is presented qualitatively, 
aside from rule familiarization costs, which are quantified.\572\ The 
Department has therefore provided a qualitative analysis of the effects 
(transfers and benefits) that could occur because of this reduced 
misclassification.
---------------------------------------------------------------------------

    \572\ The Department uses the term ``misclassification'' 
throughout this analysis to refer to workers who have been 
classified as independent contractors but who, as a matter of 
economic reality, are economically dependent on their employer for 
work. These workers' legal status would not change under the 2021 IC 
Rule or this rule--they would properly be classified as employees 
under both rules. The Department notes that sources cited in this 
analysis may use other misclassification standards which may not 
align fully with the Department's use of the term.
---------------------------------------------------------------------------

    As discussed above, the 2021 IC Rule is the appropriate baseline to 
represent what the world could look like going forward in the absence 
of this rule. However, this baseline may not fully reflect what the 
world would look like absent this rule. Until March 2022, the 
Department had not been using the framework for analysis from the 2021 
IC Rule when assessing independent contractor status in its enforcement 
and compliance assistance activities because the Department had 
published final rules delaying the effective date of, and subsequently 
withdrawing, the 2021 IC Rule. (As described in section II.C., a 
federal district court in March 2022 vacated the Department's Delay and 
Withdrawal Rules and ruled that the 2021 IC Rule had taken effect in 
March

[[Page 1727]]

2021.) Further, as explained earlier in section III.B., the Department 
is not aware of any federal district or appellate court that has 
endorsed the 2021 IC Rule's analysis in the course of resolving a 
dispute regarding the proper classification of a worker as an employee 
or independent contractor. Therefore, if the Department were to instead 
compare this final rule to the current economic and legal landscape 
that continues to reflect the courts' longstanding multifactor economic 
reality test, the economic impact would be much smaller, because this 
rule is consistent with that landscape (i.e., the longstanding judicial 
precedent and guidance that the Department was relying on prior to 
March of 2022).
    The Coalition to Promote Independent Entrepreneurs agreed that the 
2021 IC Rule is the correct baseline to analyze the recission of the 
rule, but not the separate issue of issuing new regulations 
``containing a new interpretation of the multifactor economic reality 
test.'' This commenter appeared to disagree with the Department's 
explanation that ``under the current economic and legal landscape 
baseline, the economic impact of DOL's proposed new iteration of the 
test might, or might not, be `much smaller.' '' It asserted that the 
direction of this economic impact would be negative, because the rule 
would lead to increased uncertainty and confusion and would create an 
adverse economic impact by ``denying individuals their right to be 
recognized as independent contractors under the FLSA.'' The Department 
addresses claims from this commenter and others on the potential costs 
and benefits of this rule throughout this economic analysis.
    The Department does not believe, as reflected in this analysis, 
that this rule will result in widespread reclassification of workers. 
That is, for workers who are properly classified as independent 
contractors, the Department does not, for the most part, anticipate 
that the guidance provided in this rule will result in these workers 
being reclassified as employees. Especially compared to the guidance 
that was in effect before the 2021 IC Rule, the test put forth in this 
rule would not make independent contractor status significantly less 
likely. Rather, impacts resulting from this rule will mainly be due to 
a reduction in misclassification. If the 2021 IC Rule had been 
retained, the risk of misclassification could have increased. As noted 
previously in section III, the 2021 IC Rule's elevation of certain 
factors and its preclusion of consideration of relevant facts under 
several factors, which is a departure from judicial precedent applying 
the economic reality test, could result in misapplication of the 
economic reality test and may have conveyed to employers that it might 
be easier than it was prior to the 2021 IC Rule to classify certain 
workers as independent contractors rather than FLSA-covered employees. 
This rule could therefore help prevent this misclassification by 
providing employers with guidance that is more consistent with 
longstanding precedent.
    Many commenters who wrote in opposition to the proposed rule were 
concerned that, because of this rule, many independent contractors 
would be reclassified as employees, and that there would be a large 
negative impact associated with this reclassification. For example, a 
senior research fellow at the Mercatus Center said ``DOL implicitly 
assumes that 100 percent of potential contracting jobs will be turned 
into employment jobs; this assumption is extremely optimistic and 
downplays very significant consequences in connection with the rule in 
question.'' Cambridge Investment Research Inc. stated that the 
practical result of the Proposed Rule would be that many workers will 
be reclassified as employees, including those who want to be 
independent contractors. However, the proposed rule explicitly noted 
that the Department does not expect any widespread reclassification of 
independent contractors as employees, and at no point assumed that 100 
percent of contracting jobs would be turned into employment jobs. The 
Department believes that concerns about widespread reclassification are 
not realistic because the Department is adopting guidance in this rule 
that is essentially identical to the standard it applied for decades 
prior to the 2021 IC Rule, derived from the same analysis that courts 
have applied for decades and have been continuing to apply since the 
2021 IC Rule took effect.
    The Department received multiple comments discussing the negative 
impacts of widespread reclassification and citing research about 
potential job losses and loss of earnings. For example, Littler's 
Workplace Policy Institute says, ``[A] study published last April 
concluded that widespread reclassification would destroy as many as 
769,000 work opportunities and wipe out $9.1 billion in earnings.\573\ 
The proposed rule fails to take these effects into account.'' The 
Chamber of Progress cites this same study, noting that, ``A national 
rule reclassifying independent contractors as employees could result in 
approximately 4.4 million people being involuntarily reclassified[.]'' 
However, the study that these data points come from is an analysis of 
the potential impacts of a nationwide ABC test. The Chamber of Progress 
release about the report states, ``Specifically, the study examines the 
`ABC Test,' which is used in a variety of state and federal proposals 
to determine whether a worker is an employee or an independent 
contractor.'' The Department believes that the reclassification effects 
raised by these commenters cannot be applied to this rule, because the 
Department's economic reality test is not the ABC test.
---------------------------------------------------------------------------

    \573\ ``New Study Finds Millions Could Lose Work if U.S. 
Reclassifies Contractors,'' April 6, 2022. https://progresschamber.org/new-study-finds-millions-could-lose-work-if-u-s-reclassifies-contractors/.
---------------------------------------------------------------------------

    While the Department responds throughout this economic analysis to 
comments about the potential negative impacts of the rule from those 
who are in opposition, it is important to note that any 
reclassification or job loss estimates associated with a nationwide ABC 
test are not appropriate to apply to this rule because this rule does 
not adopt an ABC test and are therefore not included in the 
Department's estimated impacts.

B. Estimated Number of Independent Contractors

    To provide some context on the prevalence of independent 
contracting, the Department first 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.\574\ There is no data 
source on independent contractors that perfectly mirrors the definition 
of independent contractor in the Department's regulations. There is 
also no regularly published data source on the number of independent 
contractors and data from the current year does not exist, making it 
difficult to examine trends in independent contracting or to measure 
how regulatory changes impact the number of independent contractors.
---------------------------------------------------------------------------

    \574\ The Department uses the term ``independent contractor'' 
throughout this analysis to refer to workers who, as a matter of 
economic reality, are not economically dependent on their employer 
for work and are in business for themselves. The Department notes 
that sources cited in this analysis may use other definitions of 
independent contractors that may not align fully with the 
Department's use of the term.
---------------------------------------------------------------------------

    The Department believes that the Current Population Survey (CPS) 
Contingent Worker Supplement (CWS) offers an appropriate lower bound 
for

[[Page 1728]]

the number of independent contractors; however, there are potential 
biases in these data that will be noted. This was the estimation method 
used in the 2021 IC Rule and the proposed rule, and the Department has 
not found any new data or analyses to indicate a need for any changes. 
Some recent data sources provide an indication of how COVID-19 may have 
impacted the number of independent contractors, but this is 
inconclusive. 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 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.\575\ 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.
---------------------------------------------------------------------------

    \575\ 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: \576\
---------------------------------------------------------------------------

    \576\ The variables used are PES8IC=1 for self-employed and 
PES7=1 for other workers.
---------------------------------------------------------------------------

     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 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).\577\ Therefore, the estimate of independent 
contractors does not include those who may be an employee for their 
primary job, but may also work as an independent contractor.\578\ For 
example, Lim et al. (2019) estimate that independent contracting work 
is the primary source of income for 48 percent of independent 
contractors.\579\ 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.\580\ However, because this survey only includes 
independent contractors in one state, the Department has not used this 
data to adjust its estimate of independent contractors.
---------------------------------------------------------------------------

    \577\ 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 about the 
respondent's main job.
    \578\ 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).
    \579\ 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. From table 5, the 
total number of independent contractors across all categories is 
13.81 million. The number of independent contractors in the 
categories where these workers earn the majority of their labor 
income from independent contractor earnings is 6.63 million. 6.63 
million / 13.81 million = 0.48.
    \580\ Washington Department of Commerce, ``Independent 
Contractor Study,'' p. 21 (Jul. 2019), https://deptofcommerce.app.box.com/v/independent-contractor-study.
---------------------------------------------------------------------------

    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.\581\ For example, Farrell and Greig (2016) used a 
randomized sample of 1 million Chase customers to estimate prevalence 
of the Online Platform Economy.\582\ 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.\583\
---------------------------------------------------------------------------

    \581\ 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 1-week period as 
independent contractors.
    \582\ 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. The authors 
define the Online Platform Economy as ``economic activities 
involving online intermediaries.'' This includes ``labor platforms'' 
that ``connect customers with freelance or contingent workers'' and 
``capital platforms'' that ``connect customers with individuals who 
rent assets or sell goods peer-to-peer.'' As such, this study 
encompasses data on income sources that the Department acknowledges 
might not be a one-to-one match with independent contracting and 
could also include work that is part of an employment relationship. 
However, the Department believes that including data on income 
earned through online platforms is useful when discussing the 
potential magnitude of independent contracting.
    \583\ 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.
---------------------------------------------------------------------------

    The CWS also uses proxy responses, which may underestimate the 
number of independent contractors. The RAND

[[Page 1729]]

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).\584\ This 
survey found that independent contractors comprise 7.2 percent of 
workers.\585\ 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.\586\ 
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).587 588
---------------------------------------------------------------------------

    \584\ See L. Katz and A. Krueger, ``The Rise and Nature of 
Alternative Work Arrangements in the United States, 1995-2015,'' 
(2018).
    \585\ Id. at 49. The estimate is 9.6 percent without correcting 
for overrepresentation of self-employed workers or multiple job 
holders. Id. at 31.
    \586\ Id. at Addendum (``Reconciling the 2017 BLS Contingent 
Worker Survey'').
    \587\ 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.
    \588\ 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, 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.
---------------------------------------------------------------------------

    Another potential source of bias in the CWS is that some 
respondents may not self-identify as independent contractors. For 
example, Abraham et al. (2020) estimated that 6.6 percent of workers in 
their study initially responded that they are employees but were then 
determined (by the researcher) to be independent contractors based on 
their answers to follow-up questions.\589\ Additionally, individuals 
who do what some researchers refer to as ``informal work'' may in fact 
be independent contractors though they may not characterize themselves 
as such.\590\ 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.\591\
---------------------------------------------------------------------------

    \589\ K. Abraham, B. Hershbein, and S. Houseman, ``Contract Work 
at Older Ages,'' NBER Working Paper 26612 (2020), https://www.nber.org/papers/w26612.
    \590\ The Department believes that including data on what is 
referred to in some studies as ``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 and could also include work that is part of 
an employment relationship, but it nonetheless provides some useful 
data for this purpose.
    \591\ 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.jstor.org/stable/10.7758/rsf.2019.5.5.06.
---------------------------------------------------------------------------

    Conversely, another source of bias in the CWS is that some workers 
who self-identify as independent contractors may misunderstand their 
status or may be misclassified by their employer. These workers may 
answer the survey in the affirmative, despite not truly being 
independent contractors. While precise and representative estimates of 
nationwide misclassification are unavailable, multiple studies suggest 
its prevalence in numerous sectors in the economy.\592\ See section 
VII.D.2. for a more thorough discussion of the prevalence of 
misclassification.
---------------------------------------------------------------------------

    \592\ 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.'').
---------------------------------------------------------------------------

    Because reliable data on the potential magnitude of the biases 
discussed above 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.
    As noted above, integrating the estimated proportions of workers 
who are independent contractors on secondary or otherwise excluded jobs 
produces an estimate population of 22.1 million, representing the total 
number of workers working as independent contractors in any job at a 
given time. Given the prevalence of independent contractors who work 
sporadically and earn minimal income, adjusting the estimate according 
to these sources captures some of this population. It is likely that 
this figure is still an underestimate of the true independent 
contractor pool. This is because, in part, the CWS estimate represents 
only the number of workers who worked as independent contractors on 
their primary job during the survey reference week, which is why 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.
1. Range of Estimates in the Literature
    To further consider the range of estimates available, the 
Department conducted a literature review, the findings of which are 
presented in Table 1. Other studies were also considered but are 
excluded from this table because the study populations were broader 
than just independent contractors, limited to one state, or include 
workers outside of the United States.\593\ The RAND ALP,\594\ the 
Gallup Survey,\595\ and the General Social Survey's (GSS's) Quality of 
Worklife (QWL) \596\ supplement are

[[Page 1730]]

widely cited alternative estimates. However, the Department chose to 
use sources with significantly larger sample sizes and/or more recent 
data for the primary estimate.
---------------------------------------------------------------------------

    \593\ Including, but not limited to: McKinsey Global Institute, 
``Independent Work: Choice, Necessity, and the Gig Economy'' 
(2016),https://www.mckinsey.com/featured-insights/employment-and-growth/independent-work-choice-necessity-and-the-gig-economy; Kelly 
Services, ``Agents of Change'' (2015), https://www.kellyservices.com/global/siteassets/3-kelly-global-services/uploadedfiles/3-kelly_global_services/content/sectionless_pages/kocg1047720freeagent20whitepaper20210x21020final2.pdf; Robles and 
McGee, ``Exploring Online and Offline Informal Work: Findings from 
the Enterprising and Informal Work Activities (EIWA) Survey'' 
(2016); Upwork, ``Freelancing in America'' (2019); Washington 
Department of Commerce, ``Independent Contractor Study,'' (Jul. 
2019), https://deptofcommerce.app.box.com/v/independent-contractor-study; 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; MBO Partners, 
``State of Independence in America'' (2016); Abraham et al., 
``Measuring the Gig Economy: Current Knowledge and Open Issues'' 
(2018), https://www.nber.org/papers/w24950; 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; Gitis et al., ``The 
Gig Economy: Research and Policy Implications of Regional, Economic, 
and Demographic Trends,'' American Action Forum (2017), https://www.americanactionforum.org/research/gig-economy-research-policy-implications-regional-economic-demographic-trends/#ixzz5IpbJp79a; 
Dourado and Koopman, ``Evaluating the Growth of the 1099 
Workforce,'' Mercatus Center (2015), https://www.mercatus.org/publication/evaluating-growth-1099-workforce.
    \594\ See L. Katz and A. Krueger, ``The Rise and Nature of 
Alternative Work Arrangements in the United States, 1995-2015,'' 
(2018).
    \595\ ``Gallup's Perspective on The Gig Economy and Alternative 
Work Arrangements,'' Gallup (2018), https://www.gallup.com/workplace/240878/gig-economy-paper-2018.aspx.
    \596\ See Abraham et al., ``Measuring the Gig Economy: Current 
Knowledge and Open Issues'' (2018), https://www.nber.org/papers/w24950, Table 4.
---------------------------------------------------------------------------

    Jackson et al. (2017) \597\ and Lim et al. (2019) \598\ use tax 
information to estimate the prevalence of independent contracting. In 
general, studies using tax data tend to show an increase in prevalence 
of independent contracting over time. The use of tax data has some 
advantages and disadvantages over survey data. Advantages include large 
sample sizes, the ability to link information reported on different 
records, the reduction in certain biases such as reporting bias, 
records of all activity throughout the calendar year (the CWS only 
references one week), and inclusion of both primary and secondary 
independent contractors. Disadvantages are that independent contractor 
status needs to be inferred; there is likely an underreporting bias 
(i.e., some workers do not file taxes); researchers are generally 
trying to match the IRS definition of independent contractor, which 
does not mirror the scope of independent contractors under the FLSA; 
and the estimates include misclassified independent contractors.\599\ A 
major disadvantage of using tax data for this analysis is that the 
detailed source data are not publicly available and thus the analyses 
cannot be directly verified or adjusted as necessary (e.g., to describe 
characteristics of independent contractors, etc.).
---------------------------------------------------------------------------

    \597\ E. Jackson, A. Looney, and S. Ramnath, ``The Rise of 
Alternative Work Arrangements: Evidence and Implications for Tax 
Filing and Benefit Coverage,'' OTA Working Paper 114 (2017), https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-114.pdf.
    \598\ 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.
    \599\ In comparison to household survey data, tax data may 
reduce certain types of biases (such as recall bias) while 
increasing other types (such as underreporting bias). Because the 
Department is unable to quantify this tradeoff, it could not 
determine whether, on balance, survey or tax data are more reliable.

                            Table 1--Summary of Estimates of Independent Contracting
----------------------------------------------------------------------------------------------------------------
                                                                          Percent of
             Source                Method \a\        Definition \b\        workers       Sample size       Year
----------------------------------------------------------------------------------------------------------------
CPS CWS........................  Survey........  Independent                     6.9  50,392...........     2017
                                                  contractor,
                                                  consultant or
                                                  freelance worker
                                                  (main only).
ALP............................  Survey........  Independent                     7.2  6,028............     2015
                                                  contractor,
                                                  consultant or
                                                  freelance worker
                                                  (main only).
Gallup.........................  Survey........  Independent contractor         14.7  5,025............     2017
GSS QWL........................  Survey........  Independent                    14.1  2,538............     2014
                                                  contractor,
                                                  consultant or
                                                  freelancer (main
                                                  only).
Jackson et al..................  Tax data......  Independent                 \c\ 6.1  ~5.9 million \d\.     2014
                                                  contractor, household
                                                  worker.
Lim et al......................  Tax data......  Independent contractor          8.1  1% of 1099-MISC       2016
                                                                                       and 5% of 1099-K.
----------------------------------------------------------------------------------------------------------------
\a\ The CPS CWS and the GSS QWL are nationally representative, and the ALP CWS is approximately nationally
  representative. The Gallup poll is demographically representative but does not explicitly claim to be
  nationally representative. Lastly, the two tax data sets are very large random samples and consequently are
  likely to be nationally representative, although the authors do not explicitly claim so.
\b\ The survey data only identify independent contractors on their main job. Jackson et al. include independent
  contractors as long as at least 15 percent of their earnings were from self-employment income; thus, this
  population is broader. If Jackson et al.'s estimate is adjusted to exclude those who are primary wage earners,
  the rate is 4.0 percent. Lim et al. include independent contractors on all jobs. If Lim et al.'s estimate is
  adjusted to only those who receive a majority of their labor income from independent contracting, the rate is
  3.9 percent.
\c\ Summation of (1) 2,132,800 filers with earnings from both wages and sole proprietorships and expenses less
  than $5,000, (2) 4,125,200 primarily sole proprietorships and with less than $5,000 in expenses, and (3)
  3,416,300 primarily wage earners.
\d\ Estimate based on a 10 percent sample of self-employed workers and a 1 percent sample of W-2 recipients.

2. COVID-19 Adjustment to the Estimated Number of Independent 
Contractors
    The Department's estimate of the number of independent contractors, 
22.1 million, is based primarily on 2017 data. Because COVID-19 has had 
a substantial impact on the labor market, it is possible that this 
estimate is not currently appropriate. The Department conducted a 
search for more recent data to indicate any trends in the number of 
independent contractors since 2017. The findings are inconclusive but 
generally do not indicate an increase.
    The Federal Reserve Board's annual Survey of Household Economics 
and Decisionmaking (SHED) provides measures of the economic well-being 
of U.S. households. The Federal Reserve Board publishes a report 
``Economic Well-Being of U.S. Households'' summarizing the findings of 
each survey.\600\ One subsection of the Employment section describes 
the results of the questions related to ``The Gig Economy.'' While the 
survey questions about work in the ``gig economy'' include more types 
of work scenarios than just independent contracting, a decrease from 30 
percent to 20 percent of adults answering ``yes'' from 2017 to 2020 may 
indicate that the number of independent contractors in this industry 
also decreased during that time period.\601\ The report summarizing the 
2021 data is available, but unfortunately the gig economy questions 
were revised substantially, so a comparable value is not available for 
2021. Moreover, trends of potential independent contractors in one 
industry are not necessarily indicative of trends across the economy.
---------------------------------------------------------------------------

    \600\ Consumer and Community Research Section of the Federal 
Reserve Board's Division of Consumer and Community Affairs, 
``Economic Well-Being of U.S. Households in 2021,'' Board of 
Governors of the Federal Reserve System (2022). Reports from all 
years available at https://www.federalreserve.gov/publications/report-economic-well-being-us-households.htm.
    \601\ The report defines gig work as including ``three types of 
non-traditional activities: offline service activities, such as 
child care or house cleaning; offline sales, such as selling items 
at flea markets or thrift stores; and online services or sales, such 
as driving using a ride-sharing app or selling items online.'' 
Consumer and Community Research Section of the Federal Reserve 
Board's Division of Consumer and Community Affairs, ``Economic Well-
Being of U.S. Households in 2017,'' Board of Governors of the 
Federal Reserve System (May 2018).
---------------------------------------------------------------------------

    MBO Partners, a company with the goal of connecting enterprise 
organizations and top independent professionals, also conducts an 
annual survey and prepares a research report of the findings.\602\ In 
all groups of ``independent workers,'' MBO Partners

[[Page 1731]]

similarly found a decrease in the number from 2017 to 2020. Conversely, 
in total, the 2021 report shows a large increase from 2020, enough that 
the number of independent workers in 2021 is larger than the 2017 
number. However, this increase occurs only in the ``occasional 
independent'' workers category, described as those who work part-time 
and regularly, but without set hours. Comparing the number of part-time 
and full-time independent workers yields similar values in 2017 and 
2021, so the Department believes that no adjustments are needed to the 
2017 estimate of 22.1 million independent contractors.
---------------------------------------------------------------------------

    \602\ MBO partners, ``The Great Realization: 11th Annual State 
of Independence,'' (2021). Annual reports are available at https://www.mbopartners.com/state-of-independence/previous-reports/.
---------------------------------------------------------------------------

    A few commenters said that the Department underestimated the number 
of independent contractors in the U.S. because the estimate is based on 
outdated data. Commenters such as the Coalition for Workforce 
Innovation referenced a more recent study from Upwork, which found that 
``59 million workers performed freelance work in the past 12 months, 
representing 36%--or more than one-third--of the entire U.S. 
workforce.'' \603\ As discussed above, the Department acknowledges that 
its estimate of independent contractors could be an underestimate. 
However, the estimates presented in the Upwork study could be an 
overestimate because their definition of ``freelancer'' likely also 
includes some workers who would be classified as employees under the 
FLSA in addition to those who would be classified as independent 
contractors.\604\ Furthermore, the Department was unable to verify 
whether their sample of 6,000 workers was representative of all workers 
in the U.S. While the Department appreciates this additional context on 
the potential scope of independent contracting in the U.S., the 
estimate of independent contractors in this analysis has not been 
revised.
---------------------------------------------------------------------------

    \603\ ``Upwork Study Finds 59 Million Americans Freelancing Amid 
Turbulent Labor Market,'' Upwork, December 8, 2021. https://www.upwork.com/press/releases/upwork-study-finds-59-million-americans-freelancing-amid-turbulent-labor-market. Full study 
available at https://www.upwork.com/research/freelance-forward-2021.
    \604\ Their report defines freelancers as ``[i]ndividuals who 
have engaged in supplemental, temporary, project- or contract-based 
work, within the past 12 months.'' While many of these workers could 
be independent contractors, some workers engaged in supplemental or 
temporary work could likely be considered employees.
---------------------------------------------------------------------------

3. Demographics of Independent Contractors
    The Department reviewed demographic information on independent 
contractors using the CWS, which, as stated above, only 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. According to the CWS, these primary independent 
contractors are most prevalent in the construction and professional and 
business services industries. These two industries comprise 44 percent 
of primary independent contractors. Independent contractors tend to be 
older and predominately male (64 percent). Millennials (defined as 
those born 1981-1996) have a significantly lower prevalence of primary 
independent contracting than older generations: 4.2 percent for 
Millennials compared to 7.2 percent for Generation X (defined as those 
born 1965-1980) and 10.2 percent for Baby Boomers and Matures (defined 
as individuals born before 1965).\605\ However, other surveys that 
capture secondary independent contractors, or those who did informal 
work as independent contractors show that the prevalence of informal 
work is lower among older workers. Abraham and Houseman (2019), find 
that among 18- to 24-year-olds, 41.3 percent did informal work over the 
past month. The rate fell to 25.7 percent for 45- to 54-year-olds, and 
13.4 percent for those 75 years and older.\606\ According to MBO 
partners, the COVID-19 pandemic may have accelerated this trend; when 
accounting for both primary and secondary independent work, 2021 marked 
the first year that Millennials and members of Generation Z (34 percent 
and 17 percent of independent workers respectively) outnumbered members 
of Generation X and Baby Boomers (23 percent and 26 percent 
respectively) as part of the independent workforce.\607\
---------------------------------------------------------------------------

    \605\ The Department used the generational breakdown used in the 
MBO Partners 2017 report, ``The State of Independence in America.'' 
``Millennials'' were defined as individuals born 1981-1996, 
``Generation X'' were defined as individuals born 1965-1980, and 
``Baby Boomers and Matures'' were defined as individuals born before 
1965.
    \606\ 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. Note that this informal work may be broader than what 
would be considered independent contracting and includes activities 
like babysitting/housesitting and selling goods online through sites 
like eBay and Craigslist.
    \607\ This data comes from the 2021 edition of the MBO Partners 
report, ``The State of Independence in America.'' While maintaining 
the generational breakdown used in the 2017 edition, ``Generation 
Z'' was additionally defined as individuals born 1997-2012. https://info.mbopartners.com/rs/mbo/images/MBO_2021_State_of_Independence_Research_Report.pdf.
---------------------------------------------------------------------------

    According to the CWS, 64 percent of primary independent contractors 
are men. Additionally, Garin and Koustas (2021) find that men comprise 
both a larger share of independent contractors who perform work through 
traditional contracting arrangements and those who secure work through 
online platforms.\608\ This study also found that a greater share of 
men than women who earn income in this way are primarily self-employed; 
women who perform online platform work are more likely to use that work 
to supplement other income.\609\
---------------------------------------------------------------------------

    \608\ Garin, A. and Koustas, D., ``The Distribution of 
Independent Contractor Activity in the United States: Evidence from 
Tax Filings,'' (2021). https://www.irs.gov/pub/irs-soi/21-rp-independent-contractor-activity.pdf.
    \609\ Id.
---------------------------------------------------------------------------

    According to the CWS, white workers are somewhat overrepresented 
among primary independent contractors; they comprise 85 percent of this 
population but only 79 percent of the population of workers. 
Conversely, Black workers are somewhat underrepresented (comprising 8 
percent and 13 percent, respectively).\610\ The opposite trends emerge 
when evaluating the broader category of ``informal work'', where racial 
minorities participate at a higher rate than white workers.\611\ 
Primary independent contractors are spread across the educational 
spectrum, with no group especially overrepresented. The same trend in 
education attainment holds for workers who participate in informal 
work.\612\
---------------------------------------------------------------------------

    \610\ These numbers are calculated by the Department and based 
on the CWS respondents who state that their race is ``white only'' 
or ``black only'' as opposed to identifying as multi-racial.
    \611\ 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.
    \612\ Id.

[[Page 1732]]



                  Table 2--Characteristics of Workers, All Workers and Independent Contractors
----------------------------------------------------------------------------------------------------------------
                                                                                    Number of
                                                        Number of                  independent      Percent of
                     Demographic                         workers     Percent of    contractors      independent
                                                        (millions)    workers     (primary job)     contractors
                                                                                    (millions)
----------------------------------------------------------------------------------------------------------------
Total................................................        158.9          100             10.6             100
----------------------------------------------------------------------------------------------------------------
                                                     By Age
----------------------------------------------------------------------------------------------------------------
16-20 (Generation Z).................................          8.2          5.1              0.1             0.7
21-37 (Millennials)..................................         59.2         37.3              2.5            23.4
38-52 (Generation X).................................         49.8         31.3              3.6            33.8
53+ (Baby Boomers and Matures).......................         43.6         27.5              4.5            42.1
----------------------------------------------------------------------------------------------------------------
                                                     By Sex
----------------------------------------------------------------------------------------------------------------
Female...............................................         75.4         47.4              3.8            35.7
Male.................................................         85.4         53.7              6.8            64.3
----------------------------------------------------------------------------------------------------------------
                                                     By Race
----------------------------------------------------------------------------------------------------------------
White only...........................................        125.6         79.1              9.0            84.6
Black only...........................................         20.3         12.8              0.9             8.3
All other races......................................         14.9          9.4              0.8             7.1
----------------------------------------------------------------------------------------------------------------
                                                  By Ethnicity
----------------------------------------------------------------------------------------------------------------
Hispanic.............................................         27.0         17.0              1.6            14.8
Not Hispanic.........................................        133.8         84.2              9.0            85.2
----------------------------------------------------------------------------------------------------------------
                                                   By Industry
----------------------------------------------------------------------------------------------------------------
Agr, forestry, fishing, and hunting..................          2.6          1.6              0.2             2.0
Mining...............................................          0.8          0.5              0.0             0.1
Construction.........................................         11.0          6.9              2.0            19.3
Manufacturing........................................         16.5         10.4              0.2             2.2
Wholesale and retail trade...........................         20.5         12.9              0.8             7.9
Transportation and utilities.........................          8.0          5.1              0.6             5.7
Information..........................................          3.0          1.9              0.2             2.2
Financial activities.................................         10.9          6.9              1.0             9.6
Professional and business services...................         19.3         12.2              2.7            25.1
Educational and health services......................         36.2         22.8              1.0             9.6
Leisure and hospitality..............................         15.1          9.5              0.7             6.2
Other services.......................................          7.8          4.9              1.0             9.7
Public administration................................          7.2          4.6              0.0             0.4
----------------------------------------------------------------------------------------------------------------
                                                  By Education
----------------------------------------------------------------------------------------------------------------
Less than high school diploma........................         14.3          9.0              1.0             9.3
High school diploma or equivalent....................         41.9         26.4              2.6            24.4
Less than Bachelor's degree..........................         45.3         28.5              2.8            26.5
Bachelor's degree....................................         37.3         23.5              2.7            25.5
Master's degree or higher............................         21.9         13.8              1.5            14.5
----------------------------------------------------------------------------------------------------------------
Note: Estimates based on the 2017 CPS Contingent Worker Survey.

    An individual commenter wrote that because the COVID-19 pandemic 
created specific burdens for women and people of color and resulted in 
the increased participation of both groups in self-employment, the use 
of 2017 data reduces the inclusion of these workers. The commenter 
cited a study from the Center for Economic Policy and Research (CEPR), 
which found ``[t]he share of employed women who report being self-
employed rose from 7.5 percent in the pre-pandemic period to 8.2 
percent: an increase of 0.7 percentage points. By contrast, the share 
of employed men who report being self-employed rose by just 0.3 
percentage points (from 12.1 percent to 12.4 percent).'' \613\ The 
study also found ``[t]he share of employed Blacks who reported being 
self-employed rose from 5.8 percent to 6.8 percent: an increase of 1.0 
percentage point. . . . For Hispanics, there was a 1.5 percentage point 
rise in shares from 8.4 percent to 9.9 percent . . . . By contrast, the 
rise in self-employment among whites was just 0.2 percent, from 11.3 to 
11.5 percent.'' While the Department acknowledges that the demographic 
makeup of independent contractors could have shifted following the 
COVID-19 pandemic, the data cited in the CEPR study includes all self-
employed persons, which is a broader population than independent 
contractors. It is possible that this data may also reflect the 
demographic trends of the more specific population of

[[Page 1733]]

independent contractors, but the Department has not made any 
adjustments to its overall estimate of the number of independent 
contractors.
---------------------------------------------------------------------------

    \613\ Annabel Utz, Julie Yixia Cai, & Dean Baker, ``The Pandemic 
Rise in Self-Employment: Who is Working for Themselves Now,'' Center 
for Economic and Policy Research. (August 2022). https://cepr.net/the-pandemic-rise-in-self-employment-who-is-working-for-themselves-now/.
---------------------------------------------------------------------------

C. Costs

1. Rule Familiarization Costs
    Regulatory familiarization costs represent direct costs to 
businesses and current independent contractors associated with 
reviewing the new regulation. To estimate the total regulatory 
familiarization costs, the Department used (1) the number of 
establishments and government entities using independent contractors, 
and the current number of independent contractors; (2) the wage rates 
for the employees and for the independent contractors reviewing the 
rule; and (3) the number of hours that it estimates employers and 
independent contractors will spend reviewing the rule. This section 
presents the calculation for establishments first and then the 
calculation for independent contractors.
    Regulatory familiarization costs may be a function of the number of 
establishments or the number of firms.\614\ Presumably, the 
headquarters of a firm will conduct the regulatory review for 
businesses with multiple locations and may require some locations to 
familiarize themselves with the regulation at the establishment level. 
Other firms may either review the rule to consolidate key takeaways for 
their affiliates or they may rely entirely on outside experts to 
evaluate the rule and relay the relevant information to their 
organization (e.g., a chamber of commerce). The Department used the 
number of establishments to estimate the fundamental pool of regulated 
entities--which is larger than the number of firms. This assumes that 
regulatory familiarization occurs at both the headquarters and 
establishment levels.
---------------------------------------------------------------------------

    \614\ An establishment is commonly understood as a single 
economic unit, such as a farm, a mine, a factory, or a store, that 
produces goods or services. Establishments are typically at one 
physical location and engaged in one, or predominantly one, type of 
economic activity for which a single industrial classification may 
be applied. An establishment contrasts with a firm, or a company, 
which is a business and may consist of one or more establishments. 
See BLS, ``Quarterly Census of Employment and Wages: Concepts,'' 
https://www.bls.gov/opub/hom/cew/concepts.htm.
---------------------------------------------------------------------------

    To estimate the number of establishments incurring regulatory 
familiarization costs, the Department began by using the Statistics of 
U.S. Businesses (SUSB) to define the total pool of establishments in 
the United States.\615\ In 2019, the most recent year available, there 
were 7.96 million establishments. These data were supplemented with the 
2017 Census of Government that reports 90,075 local government 
entities, and 51 state and federal government entities.\616\ The total 
number of establishments and governments in the universe used for this 
analysis is 8,049,229.
---------------------------------------------------------------------------

    \615\ U.S. Census Bureau, 2019 SUSB Annual Datasets by 
Establishment Industry. https://www.census.gov/data/datasets/2019/econ/susb/2019-susb.html.
    \616\ U.S. Census Bureau, 2017 Census of Governments. https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html.
---------------------------------------------------------------------------

    This universe is then restricted to the subset of establishments 
that engage independent contractors. In 2019, Lim et al. used extensive 
IRS data to model the independent contractor market and found that 34.7 
percent of firms hire independent contractors.\617\ These data are 
based on annual tax filings, so the dataset includes firms that may 
contract for only parts of a year. Multiplying the universe of 
establishments and governments by 35 percent results in 2.8 million 
entities.
---------------------------------------------------------------------------

    \617\ Lim et al., supra n.512, Table 10: Firm sample summary 
statistics by year (2001-2015), https://www.irs.gov/pub/irs-soi/19rpindcontractorinus.pdf.
---------------------------------------------------------------------------

    The Department assumes that a Compensation, Benefits, and Job 
Analysis Specialist (SOC 13-1141) (or a staff member in a similar 
position) will review the rule.\618\ According to the Occupational 
Employment and Wage Statistics (OEWS), these workers had a median wage 
of $32.59 per hour in 2022 (most recent data available).\619\ Assuming 
benefits are paid at a rate of 45 percent of the base wage,\620\ and 
overhead costs are 17 percent of the base wage, the reviewer's 
effective hourly rate is $52.80. The Department assumes that it will 
take on average about 1 hour to review the rule. In the proposed rule, 
the Department assumed a review time of 30 minutes, but has increased 
this estimate in response to concerns from commenters that the 
regulatory familiarization costs were understated. The Department has 
provided a discussion of these comments at the end of this section. The 
Department believes that 1 hour, on average, is appropriate, because 
while some establishments will spend longer to review the rule, many 
establishments may rely on third-party summaries of the changes or 
spend little or no time reviewing the rule. Furthermore, the analysis 
outlined in this rule aligns with existing judicial precedent and 
previous guidance released by the Department, with which much of the 
regulated community is already familiar. Total regulatory 
familiarization costs to businesses in Year 1 are estimated to be 
$148,749,744 ($52.80 x 1 hour x 2,817,230) in 2022 dollars.
---------------------------------------------------------------------------

    \618\ A Compensation/Benefits Specialist ensures company 
compliance with federal and state laws, including reporting 
requirements; evaluates job positions, determining classification, 
exempt or non-exempt status, and salary; plans, develops, evaluates, 
improves, and communicates methods and techniques for selecting, 
promoting, compensating, evaluating, and training workers. See BLS, 
``13-1141 Compensation, Benefits, and Job Analysis Specialists,'' 
https://www.bls.gov/oes/current/oes131141.htm.
    \619\ The 2021 IC Rule used the mean wage rate to calculate rule 
familiarization costs, but the Department has used the median wage 
rate here, because it is more consistent with cost analyses in other 
Wage and Hour Division rulemakings. The Department used the median 
wage rate in the Withdrawal Rule. 86 FR 24321. Generally, the 
Department uses median wage rates to calculate costs, because the 
mean wage rate has the potential to be biased upward by high-earning 
outlier wage observations.
    \620\ Calculated using BLS Employer Costs for Employee 
Compensation data. The Department took the average of the most 
recent four quarters of Total Benefits per Hour Worked for Civilian 
Workers (Series ID CMU1030000000000D) divided it by the average of 
the most recent four quarters of Wages and Salaries Cost per Hour 
Worked for Civilian Workers (Series ID CMU1020000000000D). https://www.bls.gov/ncs/data.htm.
---------------------------------------------------------------------------

    For regulatory familiarization costs for independent contractors, 
the Department used its estimate of 22.1 million independent 
contractors and assumed each independent contractor will spend 30 
minutes to review the regulation. In the proposed rule, the Department 
assumed that it would take independent contractors an average of 15 
minutes to review the regulation but has also increased this estimate 
in the final rule in response to commenters' concerns. The average time 
spent by independent contractors is estimated to be shorter than for 
establishments and governments. This difference is in part because the 
Department believes independent contractors are likely to rely on 
summaries of the key elements of the rule change published by the 
Department, worker advocacy groups, media outlets, and accountancy and 
consultancy firms, as has occurred with other rulemakings. This time is 
valued at $23.46, which is the median hourly wage rate for independent 
contractors in the CWS of $19.45 updated to 2022 dollars using the 
gross domestic product (GDP) deflator.621 622 Therefore, 
regulatory familiarization costs to

[[Page 1734]]

independent contractors in Year 1 are estimated to be $259,233,000 
($23.46 x 0.5 hour x 22.1 million).
---------------------------------------------------------------------------

    \621\ Based on Department calculations using the individual 
level data. The Department also calculated the mean hourly wage for 
independent contractors using the CWS data and found that the mean 
wage in 2017 was $27.29, which would be $32.92 updated to 2022 
dollars using the GDP deflator.
    \622\ In the 2021 IC rule the Department included an additional 
45 percent for benefits and 17 percent for overhead. These 
adjustments have been removed here, because independent contractors 
do not usually receive employer-provided benefits and generally have 
overhead costs built into their hourly rate.
---------------------------------------------------------------------------

    The total one-time regulatory familiarization costs for 
establishments, governments, and independent contractors are estimated 
to be $408 million. Regulatory familiarization costs in future years 
are assumed to be de minimis. Employers and independent contractors 
would continue to familiarize themselves with the applicable legal 
framework in the absence of the rule, so this rulemaking is not 
expected to impose costs after the first year. This amounts to a 10-
year annualized cost of $56.4 million at a discount rate of 3 percent 
or $54.3 million at a discount rate of 7 percent.
    Multiple commenters said that they were concerned that the 
Department's rule familiarization cost estimate was too low. Commenters 
asserted that the Department's initial estimate of 30 minutes to review 
the rule was too short, and that it would take firms much longer to 
read and understand the final rule. For example, a comment from two 
fellows at the Heritage Foundation estimated that ``[e]ven individuals 
with very high rates of reading and comprehension'' would need more 
than two hours to read the full proposal. The Coalition for Workforce 
Innovation said that while a person could simply read the rule in 30 
minutes, it wouldn't be enough time to understand the rule and 
translate the understanding into advice to be communicated within the 
organization. The U.S. Chamber of Commerce commented, ``[a]n 
economically appropriate approach for gauging the scale of 
familiarization costs is to assume no less than one hour of 
familiarization time for both affected workers and hiring 
establishments.'' The Modern Economy Project commented that the 
complexity of the rulemaking and of the issue of worker classification 
necessitates more time for review. Other commenters echoed similar 
sentiments. In response to all the comments received on this topic, the 
Department reconsidered the time for rule familiarization and doubled 
its original estimates, increasing them to 1 hour for potentially 
affected firms and 30 minutes for independent contractors. The 
Department believes that a longer time estimate would not be 
appropriate because this estimate represents an average of the firms 
who may spend more time for review, and those who will not spend any 
time reviewing the rule.
    Some commenters also expressed concerns with the Department's 
assumption that the rule would be read by a Compensation, Benefits, and 
Job Analysis Specialist. For example, the Coalition for Workforce 
Innovation stated, ``businesses task their high-level, well-trained 
human resources workers, in-house attorneys, and outside counsel with 
this responsibility at an hourly rate well exceeding $50.'' The U.S. 
Chamber of Commerce wrote that the ``Department's selection of 
`Compensation, Benefits and Job Analysis Specialist' as the model 
reviewer for its calculation of familiarization costs misunderstands 
and misrepresents the seriousness and complexity of the regulation 
being proposed.'' The Department acknowledges that in some cases, 
higher-paid senior workers could be charged with reading this rule, but 
believes that the use of the Compensation, Benefits, and Job Analysis 
Specialist hourly wage is consistent with other rules released by the 
Wage and Hour Division and the Department, including the 2021 IC 
Rule.\623\ The Department notes that it did not receive any comments 
objecting to the use of this occupation in its rule familiarization 
calculation in the 2021 IC Rule.
---------------------------------------------------------------------------

    \623\ 86 FR 1228 (``The Department assumes that a Compensation, 
Benefits, and Job Analysis Specialist (SOC 13-1141) (or a staff 
member in a similar position) will review the rule.'').
---------------------------------------------------------------------------

2. Comments Received on the Department's Cost Analysis
    Some commenters asserted that the Department did not properly 
consider all of the potential costs of the regulation. For example, 
commenters such as the Financial Services Institute said that the 
Department did not consider substantial costs of the rule, such as the 
cost that will arise from businesses being forced to provide health 
insurance and other benefits to their former independent contractors or 
the indirect costs of higher taxes. The Department notes that these 
costs would be considered transfers and are discussed in section VII.E 
of this economic analysis. Other commenters mentioned that the rule 
would lead to significant compliance costs for firms. For example, two 
fellows from the Heritage Foundation commented that in addition to 
familiarizing themselves with the rule, the firm would have to perform 
an individualized assessment of the economic relationship with each of 
their contractors, renegotiate or cancel existing contracts, spend time 
converting independent contractors into employees, engage with labor 
unions and elections, and deal with enforcement actions. The Cetera 
Financial Group said that the ongoing cost of compliance for employers 
is considerable. They stated that applying this rule only to 
independent financial professionals would create an obligation for 
employers to track the earnings and hours worked for more than 140,000 
independent financial professionals in the U.S. As discussed above, the 
Department does not believe that this rule will lead to widespread 
reclassification (and additional tracking of hours and earnings), and 
for the limited cases in which reclassification could occur, many of 
these costs should already be incurred by firms. For example, as a 
matter of good practice, firms should already be assessing the economic 
relationship of contractors when they engage in business with them.
    Other commenters wrote that the rule would actually reduce 
compliance costs. For example, the Laborers' International Union of 
North America (LIUNA) urged the Department to consider reduced 
compliance costs as an important impact of the rule. They stated that 
the rule will improve public understanding of legal obligations because 
it codifies judicial precedent in a comprehensive, accessible, and 
reliable format.

D. Benefits and Transfers

1. Increased Consistency
    This rule presents a detailed analysis for determining employee or 
independent contractor status under the Act that is more consistent 
with existing judicial precedent and the Department's longstanding 
guidance prior to the 2021 IC Rule. This analysis will provide more 
consistent guidance to employers in properly classifying workers as 
employees or independent contractors, as well as useful guidance to 
workers on whether they are correctly classified as employees or 
independent contractors. The analysis will provide a consistent 
approach for those businesses that engage (or wish to engage) 
independent contractors, who the Department recognizes play an 
important role in the economy. The rule's consistency with judicial 
precedent could also help to reduce legal disputes.
2. Reduced Misclassification
    This rule will provide consistent guidance to employers in properly 
classifying workers as employees or independent contractors, as well as 
useful guidance to workers on whether they are correctly classified as 
employees or independent contractors. This clear guidance could help 
reduce the occurrence of misclassification.

[[Page 1735]]

    The prevalence of misclassification of employees as independent 
contractors is unclear, but the literature indicates it is substantial. 
A 2020 National Employment Law Project (NELP) report, for example, 
reviewed state audits and concluded that ``these state reports show 
that 10 to 30 percent of employers (or more) misclassify their 
employees as independent contractors.'' \624\ Similarly, a 2000 
Department of Labor study also found that among audits from nine 
states, ``employers with misclassified workers ranged from 
approximately 10% to 30%.'' \625\ This same report found that depending 
on the state, between 1 percent and 9 percent of workers are 
misclassified as independent contractors.
---------------------------------------------------------------------------

    \624\ NELP, ``Independent Contractor Misclassification Imposes 
Huge Costs on Workers and Federal and State Treasuries,'' (Oct. 
2020), https://www.nelp.org/publication/independent-contractor-misclassification-imposes-huge-costs-workers-federal-state-treasuries-update-october-2020.
    \625\ Lalith de Silva, Adrian Millett, Dominic Rotondi, and 
William F. Sullivan, ``Independent Contractors: Prevalence and 
Implications for Unemployment Insurance Programs'' Report of 
Planmatics, Inc., for U.S. Department of Labor Employment and 
Training Administration (2000), https://wdr.doleta.gov/owsdrr/00-5/00-5.pdf.
---------------------------------------------------------------------------

    Misclassification disproportionately affects Black, indigenous, and 
people of color (BIPOC) because of the disparity in occupations 
affected by misclassification.\626\ Commenters echoed these concerns 
and provided additional supporting information. For example, a joint 
comment from the Lawyers Committee for Civil Rights Under Law (LCCRUL) 
and The Washington Lawyer's Committee for Civil Rights and Urban 
Affairs (WLC) stated, ``[d]ue to occupational segregation, the sectors 
in which misclassification is most prevalent are comprised 
disproportionately [of] BIPOC workers, especially Black and immigrant 
workers.'' \627\ Looking at 2021 BLS data, LCCRUL and WLC noted that 
41% of workers in the construction industry identify as Black, Asian, 
or Hispanic. As discussed in the section below, research has shown that 
misclassification is prevalent in the construction industry. LCCRUL and 
WLC also point out, ``[i]n gig-based jobs, where the classification of 
workers as independent contractors is a defining characteristic of the 
industry, people of color and immigrants are also overrepresented: 30% 
of Latinx adults, 20% of Black adults, and 19% of Asian adults work in 
such jobs, compared to 12% of white adults.'' \628\ NELP also agreed, 
stating, ``[i]ndependent contractor misclassification by companies is 
also strikingly racialized, occurring disproportionately in occupations 
in which people of color, including Black, Latinx, and Asian workers, 
are overrepresented.'' NELP analyzed the March 2022 Current Population 
Survey Annual Social and Economic Supplement (CPS ASEC) data and found 
that workers of color comprise just over a third of workers overall but 
comprise between 47 and 91 percent of workers in industries such as 
construction, trucking, delivery, home care, agricultural, personal 
care, ride-hail, and janitorial and building service.\629\
---------------------------------------------------------------------------

    \626\ NELP, Independent Contractor Misclassification Imposes 
Huge Costs on Workers and Federal and State Treasuries, (Oct. 2020) 
(describing how misclassification rates are higher in certain 
industries such as construction, trucking, janitorial, and home care 
work), https://www.nelp.org/publication/independent-contractor-misclassification-imposes-huge-costs-workers-federal-state-treasuries-update-october-2020.
    \627\ Marina Zhavoronkova et al., Occupational Segregation in 
America, Center for American Progress (Mar. 29, 2022), https://www.americanprogress.org/article/occupational-segregation-in-america/.
    \628\ Risa Gelles-Watnick & Monica Anderson, Racial and Ethnic 
Differences Stand Out in the U.S. Gig Workforce, PEW RSCH. CTR. 
(Dec. 15, 2021), https://www.pewresearch.org/fact-tank/2021/12/15/racial-and-ethnic-differencesstand-out-in-the-u-s-gig-workforce/.
    \629\ NELP analysis of March 2022 Current Population Survey 
Annual Social and Economic Supplement microdata. For underlying 
data, see CPS Annual Social and Economic Supplement, U.S. Census 
Bureau, https://data.census.gov/mdat/#/search?ds=CPSASEC2022.
---------------------------------------------------------------------------

    Misclassification contravenes one of the purposes of the FLSA: 
eliminating ``unfair method[s] of competition in commerce.'' \630\ When 
employers misclassify employees as independent contractors, they 
illegally cut labor costs, undermining law-abiding competitors.\631\ 
While the services offered may be comparable at face value, the 
employer engaging in misclassification is able to offer lower estimates 
and employers following the rules are left at a disadvantage.
---------------------------------------------------------------------------

    \630\ 29 U.S.C. 202(a), (b).
    \631\ Id.
---------------------------------------------------------------------------

    Multiple commenters also provided data on the prevalence and harms 
of misclassification, specifically in the construction industry. For 
example, the Illinois Economic Policy Institute (ILEPI), the National 
Electrical Contractors Association (NECA) and the International 
Brotherhood of Electrical Workers (IBEW), the United Brotherhood of 
Carpenters and Joiners (UBC), and North America's Building Trades 
Unions (NABTU), among others, all cite to a study from Russell Ormiston 
et al., which found that between 12 and 21 percent of the construction 
industry workforce were either misclassified as independent contractors 
or working ``off-the-books.'' \632\ The paper notes that these results 
suggest that ``between 1.30 and 2.16 million workers were misclassified 
or working in cash-only arrangements.'' Although the impacts discussed 
in this study involve broader labor violations than independent 
contractor misclassification, its results are still useful for 
understanding the extent of the problem. Commenters asserted that not 
only is misclassification prevalent in the construction industry, but 
it is also harmful to workers and to employers who do not misclassify 
their workers. For example, SWACCA noted that when construction 
companies misclassify their workers, they avoid costs such as overtime, 
workers' compensation, unemployment insurance, employment taxes, and 
compliance with health and safety requirements. They explained that 
when ``high road'' employers are unable to compete with contractors who 
are misclassifying their workers, it leads to a ``race to the bottom,'' 
which further degrades working conditions in construction. UBC 
discussed a report on the number of construction worker families in the 
U.S. enrolled in safety net programs, such as Medicaid, Temporary 
Assistance for Needy Families (TANF), and the Supplemental Nutrition 
Assistance Program (SNAP). UBC noted that the report found, 
``[s]hockingly, 3 million families, or 39 percent of construction 
worker families, are enrolled in at least one safety net program, 
costing state and federal taxpayers $28 billion a year.'' \633\ They 
further explained that ``[t]he authors of the report attributed the 
high degree of reliance on public assistance to a number of factors. 
Chief among those were low pay, wage theft, misclassification as 
independent contractors, off-the-books payments, and `payroll fraud.' 
'' While the costs discussed in that report reflect a variety of 
factors, if misclassification contributes to just a share of this 
overall cost, the costs of misclassification could still be 
significant, especially for just one industry. If this final rule s 
then able to reduce a fraction of overall misclassification in the 
U.S., the

[[Page 1736]]

Department would anticipate benefits for affected workers and 
businesses in competition.
---------------------------------------------------------------------------

    \632\ Russel Ormiston, Dale Belman, & Mark Erlich, ``An 
Empirical Methodology to Estimate the Incidence and Costs of Payroll 
Fraud in the Construction Industry,'' (Jan. 2020), available at 
https://stoptaxfraud.net/wp-content/uploads/2020/03/National-Carpenters-Study-Methodology-for-Wage-and-Tax-Fraud-Report-FINAL.pdf.
    \633\ Ken Jacobs, Kuichih Huang, Jenifer MacGillvary and Enrique 
Lopezlira, ``The Public Cost of Low-Wage Jobs in the US Construction 
Industry,'' UC Berkeley Labor Center (January 2022), https://laborcenter.berkeley.edu/the-public-cost-of-low-wage-jobs-in-the-us-construction-industry/.
---------------------------------------------------------------------------

E. Additional Discussion of Transfers

1. Employer-Provided Fringe Benefits
    Misclassification of independent contractors culminates in a 
reduced social safety net starting with the individual and cascading 
out through the local, state, and federal programs. Employees who are 
misclassified as independent contractors generally do not receive 
employer-sponsored health and retirement benefits, potentially 
resulting in or contributing to long-term financial insecurity.
    Employees are more likely than independent contractors to have 
health insurance. According to the CWS, 75.4 percent of independent 
contractors have health insurance, compared to 84.0 percent of 
employees. This gap between independent contractors and employees is 
also true for low-income workers. Using CWS data, the Department 
compared health insurance rates for workers earning less than $15 per 
hour and found that 71.0 percent of independent contractors have health 
insurance compared with 78.5 percent of employees. Lastly, the 
Department considered whether this gap could be larger for 
traditionally underserved groups or minorities. Considering the subsets 
of independent contractors who are female, Hispanic, or Black, only the 
Hispanic independent contractors have a statistically significant 
difference in the percentage of workers with health insurance 
(estimated to be about 18 percentage points lower).\634\
---------------------------------------------------------------------------

    \634\ To measure if the difference between these proportions is 
statistically significant, the Department used the replicate weights 
for the CWS. At a 0.05 significance level, the proportion of 
Hispanic independent contractors with any health insurance is lower 
than the proportion for all independent contractors.
---------------------------------------------------------------------------

    Additionally, a major source of retirement savings is employer-
sponsored retirement accounts. According to the CWS, 55.5 percent of 
employees have a retirement account with their current employer; in 
addition, the BLS Employer Costs for Employee Compensation (ECEC) found 
that in 2022, employers paid 5.1 percent of employees' total 
compensation in retirement benefits on average ($2.16/$42.48).\635\ A 
2017 Treasury study found that in 2014, while forty two percent of wage 
earners made contributions to an individual retirement account (IRA) or 
employer plan, only eight percent of self-employed individuals made any 
retirement contribution.\636\ Smaller retirement savings could result 
in a long-term tax burden to all Americans due to increased reliance 
upon social assistance programs.
---------------------------------------------------------------------------

    \635\ BLS Employer Costs for Employee Compensation--December 
2022. https://www.bls.gov/news.release/pdf/ecec.pdf.
    \636\ Jackson, E., Looney, A., & Ramnath, S., Department of 
Treasury, The Rise of Alternative Work Arrangements: Evidence and 
Implications for Tax Filing and Benefit Coverage, Working Paper #114 
(Jan. 2017), https://home.treasury.gov/system/files/131/WP-114.pdf. 
As discussed in the 2021 IC Rule, this study defines retirement 
accounts as ``employer-sponsored plans,'' which may not encompass 
all of the possible long-term saving methods. See 86 FR 1217.
---------------------------------------------------------------------------

    To the extent that this rule would reduce misclassification, it 
could result in transfers to workers in the form of employer-provided 
benefits like health care and retirement benefits. The National Retail 
Federation questioned this assumption, asserting that ``it does not 
take into account the myriad of insurance arrangements that are 
available to individuals and their families.'' While some independent 
contractors do have health insurance, as evidenced in the data 
discussed above, they are insured at a lower rate than employees.
    As shown in Table 3 below, using data from BLS Employer Costs for 
Employee Compensation, the Department has calculated the average cost 
to employers for various benefits as a percentage of the average cost 
to employers for wages and salaries. This share was then applied to the 
median weekly wage of both full-time and part-time independent 
contractors to estimate the value of these benefits to an average 
independent contractor if they were to begin receiving these benefits. 
The Department estimated that the value of these benefits could average 
more than $15,000 annually for full-time independent contractors and 
more than $6,000 annually for part-time independent contractors. This 
example transfer estimate could be reduced if there is a downward 
adjustment in the worker's wage rate to offset a portion of the 
employer's cost associated with these new benefits.

                 Table 3--Potential Transfers Associated With Employer-Provided Fringe Benefits
----------------------------------------------------------------------------------------------------------------
                                                                           Value of benefit    Value of benefit
                                                      Employer cost for     for the median      for the median
                                                      benefit as a share   weekly wage of a    weekly wage of a
             Employer-provided benefit                of employer  cost        full-time           part-time
                                                        for wages  and        independent         independent
                                                       salaries (%) (Q4   contractor ($1017)   contractor ($398)
                                                          2022) \a\               \d\                 \d\
----------------------------------------------------------------------------------------------------------------
Health Insurance...................................                 11.2             $113.90              $44.58
Retirement \b\.....................................                  7.4               75.26               29.45
Paid Leave \c\.....................................                 10.8              109.84               42.98
                                                    ------------------------------------------------------------
    Total Annual Value of Benefits.................  ...................           15,547.90            6,084.62
----------------------------------------------------------------------------------------------------------------
\a\ The share for each benefit is calculated as the cost per hour for civilian workers divided by the wages and
  salaries cost per hour for civilian workers. Series IDs CMU1150000000000D, CMU1180000000000D, and
  CMU1040000000000D divided by Series ID CMU1020000000000D.
\b\ Includes defined benefit and defined contribution retirement plans.
\c\ Includes vacation, holiday, sick and personal leave.
\d\ Earnings data from the 2017 CWS (https://www.bls.gov/news.release/conemp.t13.htm) were inflated to Q3 2022
  using GDP Deflator.

2. Tax Liabilities
    As self-employed workers, independent contractors are legally 
obligated to pay both the employee and employer shares of the Federal 
Insurance Contributions Act (FICA) taxes. Thus, if workers' 
classifications change from independent contractors to employees, there 
could be a transfer in federal tax liabilities from workers to 
employers.\637\ Although this rule only addresses whether a worker is 
an employee or an independent contractor under the FLSA, the Department 
assumes in this analysis that employers are likely to keep the status 
of most workers the same across all benefits and requirements, 
including for tax

[[Page 1737]]

purposes.\638\ These payroll taxes include the 6.2 percent employer 
component of the Social Security tax and the 1.45 percent employer 
component of the Medicare tax.\639\ In sum, independent contractors are 
legally responsible for an additional 7.65 percent of their earnings in 
FICA taxes (less the applicable tax deduction for this additional 
payment). Some of this increased tax liability may be partially or 
wholly paid for by the individuals and companies that engage 
independent contractors, to the extent that the compensation paid to 
independent contractors accounts for this added tax liability. However, 
changes in compensation are discussed separately below. Changes in 
benefits, tax liability, and earnings must be considered in tandem to 
identify how the standard of living may change.
---------------------------------------------------------------------------

    \637\ See 86 FR 1218.
    \638\ Courts have noted that the FLSA has the broadest 
conception of employment under federal law. See, e.g., Darden, 503 
U.S. at 326. To the extent that businesses making employment status 
determinations base their decisions on the most demanding federal 
standard, a rulemaking addressing the standard for determining 
classification of worker as an employee or an independent contractor 
under the FLSA may affect the businesses' classification decisions 
for purposes of benefits and legal requirements under other federal 
laws.
    \639\ Internal Revenue Service, ``Publication 15, (Circular E), 
Employer's Tax Guide'' (2023 https://www.irs.gov/publications/p15. 
The social security tax has a wage base limit of $160,200 in 2023. 
There is no wage base limit for Medicare Tax.
---------------------------------------------------------------------------

    The Coalition to Promote Independent Entrepreneurs contended that 
the Department's analysis of transfers is problematic and that the 
claim that employers are likely to keep the status of most workers the 
same across all benefits and requirements is legally incorrect. In the 
Department's enforcement experience, employers generally classify 
workers as employees or independent contractors for all purposes. The 
Department is not making any statement regarding employers' compliance 
with other laws that use different standards for employee 
classification than the FLSA.
    In addition to affecting tax liabilities for workers, this rule 
could have an impact on state tax revenue and budgets. 
Misclassification results in lost revenue and increased costs for 
states because states receive less tax revenue than they otherwise 
would from payroll taxes, and they have reduced funds to unemployment 
insurance, workers' compensation, and paid leave programs.\640\ 
Although it has not been updated more recently, the IRS conducted a 
comprehensive worker misclassification estimate in 1984 using data 
collected by auditors. At the time, the IRS found misclassification 
resulted in an estimated total tax loss of $1.6 billion in Social 
Security taxes, Medicare taxes, Federal unemployment taxes, and Federal 
income taxes (for Tax Year 1984).641 642 To the extent 
workers were incorrectly classified due to misapplication of the 2021 
IC Rule, that could have led to reduced tax revenues.
---------------------------------------------------------------------------

    \640\ See, e.g., Lisa Xu and Mark Erlich, Economic Consequence 
of Misclassification in the State of Washington, Harvard Labor and 
Worklife Program, 2 (2019), https://lwp.law.harvard.edu/files/lwp/files/wa_study_dec_2019_final.pdf; Karl A. Racine, Issue Brief and 
Economic Report, Illegal Worker Misclassification: Payroll Fraud in 
the District's Construction Industry, 13 (September 2019), https://oag.dc.gov/sites/default/files/2019-09/OAG-Illegal-Worker-Misclassification-Report.pdf.
    \641\ Treasury Inspector General for Tax Inspection 2013, 
Employers Do Not Always Follow Internal Revenue Service Worker 
Determination Rulings, https://www.oversight.gov/sites/default/files/oig-reports/TIGTA/201330058fr_0.pdf.
    \642\ Adjusted for inflation using the CPI-U, the current value 
of this tax loss would be $4.5 billion.
---------------------------------------------------------------------------

    Generally, employer requirements pertaining to unemployment 
insurance, disability insurance, or worker's compensation are on behalf 
of employees, therefore independent contractors do not have access to 
those benefits. Reduced unemployment insurance, disability insurance, 
and worker's compensation contributions result in reduced disbursement 
capabilities. Misclassification of employees as independent contractors 
thus impacts the funds paid into such state programs. Even if the 
misclassified worker is unaffected because they need no assistance, the 
employer has not paid into the programs as required. As a result, the 
state has diminished funds for those who require the benefits. For 
example, in Tennessee, from September 2017 to October 2018, the 
Uninsured Employers Fund unit ``assessed 234 penalties against 
employers for not maintaining workers' compensation insurance, for a 
total assessment amount of $2,730,269.60.'' \643\ This amount 
represents only what was discovered by the taskforce in thirteen months 
and in just one state. By rescinding the 2021 IC Rule, this rule could 
prevent this increased burden on government entities.
---------------------------------------------------------------------------

    \643\ NELP, supra n.553.
---------------------------------------------------------------------------

3. FLSA Protections
    When workers are properly classified as independent contractors, 
the minimum wage, overtime pay, and other requirements of the FLSA no 
longer apply. The 2017 CWS data indicate that independent contractors 
are more likely than employees to report earning less than the FLSA 
minimum wage of $7.25 per hour (8 percent for self-employed independent 
contractors, 5 percent for other independent contractors, and 2 percent 
for employees). Concerning overtime pay, not only do independent 
contractors not receive the overtime pay premium, but the number of 
overtime hours worked (more than 40 hours in a workweek) by independent 
contractors is also higher. Analysis of the CWS data indicated that, 
before conditioning on covariates, primary self-employed independent 
contractors are more likely to work overtime at their main job than 
employees, as 29 percent of self-employed independent contractors 
reported working overtime versus just 17 percent for employees.\644\ 
Additionally, independent contractors who work overtime tend to work 
more hours of overtime than employees. According to the Department's 
analysis of CWS data, among those who usually work overtime, the mean 
usual number of overtime hours for independent contractors is 15.4 and 
the mean for employees is 11.8 hours. Independent contractors are also 
not protected by other provisions in the FLSA that are centered on 
ensuring that women are treated fairly at work, including employer-
provided accommodations for breastfeeding workers and protections 
against pay discrimination.
---------------------------------------------------------------------------

    \644\ The Department based this calculation on the percentage of 
workers in the CWS data who respond to the PEHRUSL1 variable (``How 
many hours per week do you usually work at your main job?'') with 
hours greater than 40. Workers who answer that hours vary were 
excluded from the calculation. The Department also applied the 
exclusion criteria used by Katz and Krueger (exclude workers 
reporting weekly earnings less than $50 and workers whose calculated 
hourly rate (weekly earnings divided by usual hours worked per week) 
is either less than $1 or more than $1,000).
---------------------------------------------------------------------------

    As discussed above, compared to the 2021 IC Rule, this rule could 
result in reduced misclassification of employees as independent 
contractors. Any reduction in misclassification that occurs because of 
this rule would lead to an increase in the applicability of these FLSA 
protections for workers and subsequently may result in transfers 
relating to minimum wage and overtime pay. Specifically, to the extent 
misclassified workers were not earning the minimum wage, reduced 
misclassification would increase hourly wages for these workers to the 
federal minimum wage. Similarly, to the extent misclassified workers 
were not receiving the applicable overtime pay, reduced 
misclassification would increase overtime pay for any overtime hours 
they continued to work. However, compared to the current economic and 
legal landscape where courts and parties outside the Department are not 
necessarily using the 2021 IC Rule's framework for analyzing employee 
or independent contractor classification

[[Page 1738]]

and are instead continuing to use longstanding judicial precedent and 
guidance that the Department was relying on prior to March of 2022, 
these transfers (and the other transfers discussed above) would be less 
likely to occur.
4. Hourly Wages, Bonuses, and Related Compensation
    In addition to increased compliance with minimum wage and overtime 
pay requirements, potential transfers may also result from this 
rulemaking as a consequence of differences in earnings between 
employees and independent contractors.\645\ Independent contractors are 
generally expected to earn a wage premium relative to employees who 
perform similar work to compensate for their reduced access to benefits 
and increased tax liability. However, this may not always be the case 
in practice. The Department compared the average hourly wages of 
current employees and independent contractors to provide some 
indication of the impact on wages of a worker who is reclassified from 
an independent contractor to an employee.
---------------------------------------------------------------------------

    \645\ The discussion of data on the differences in earnings 
between employees and independent contractors in the 2021 IC Rule 
was potentially confusing and included some evidence that was not 
statistically significant, so the findings and methodology are 
discussed again here.
---------------------------------------------------------------------------

    The Department used an approach similar to Katz and Krueger 
(2018).\646\ Both regressed hourly wages on independent contractor 
status \647\ and observable differences between independent contractors 
and employees (e.g., occupation, sex, potential experience, education, 
race, and ethnicity) to help isolate the impact of independent 
contractor status on hourly wages. Katz and Krueger used the 2005 CWS 
and the 2015 RAND American Life Panel (ALP) (the 2017 CWS was not 
available at the time of their analysis). The Department used the 2017 
CWS.\648\
---------------------------------------------------------------------------

    \646\ L. Katz and A. Krueger, ``The Rise and Nature of 
Alternative Work Arrangements in the United States, 1995-2015,'' 
(2018).
    \647\ On-call workers, temporary help agency workers, and 
workers provided by contract firms are excluded from the base group 
of ``traditional'' employees.
    \648\ In both Katz and Krueger's regression results and the 
Department's calculations, the following outlying values were 
removed: workers reporting earning less than $50 per week, less than 
$1 per hour, or more than $1,000 per hour. Choice of exclusionary 
criteria from Katz and Krueger (2018).
---------------------------------------------------------------------------

    Both analyses found similar results. A simple comparison of mean 
hourly wages showed that independent contractors tend to earn more per 
hour than employees (e.g., $27.29 per hour for all independent 
contractors versus $24.07 per hour for employees using the 2017 CWS). 
However, when controlling for observable differences between workers, 
Katz and Krueger found no statistically significant difference between 
independent contractors' and employees' hourly wages in the 2005 CWS 
data. Although their analysis of the 2015 ALP data found that primary 
independent contractors earned more per hour than traditional 
employees, they recommended caution in interpreting these results due 
to the imprecision of the estimates.\649\ The Department found no 
statistically significant difference between independent contractors' 
and employees' hourly wages in the 2017 CWS data.
---------------------------------------------------------------------------

    \649\ See top of page 20, ``Given the imprecision of the 
estimates, we recommend caution in interpreting the estimates from 
the [ALP].'' The standard error on the estimated coefficient on the 
independent contractor variable in Katz and Kreuger's regression 
based on the 2015 ALP is more than 2.5 times larger than the 
standard error of the coefficient using the 2017 CWS.
---------------------------------------------------------------------------

    Based on these results, the Department believes it is inappropriate 
to conclude independent contractors generally earn a higher hourly wage 
than employees. The Department ran another hourly wage rate regression 
including additional variables to determine if independent contractors 
in underserved groups are impacted differently by including interaction 
terms for female independent contractors, Hispanic independent 
contractors, and Black independent contractors. The results indicate 
that in addition to the lower wages earned by Black workers in general, 
Black independent contractors also earn less per hour than independent 
contractors of other races; however, this is not statistically 
significant at the most commonly used significance level.\650\
---------------------------------------------------------------------------

    \650\ The coefficient for Black independent contractors was 
negative and statistically significant at a 0.10 level (with a p-
value of 0.067). However, a significance level of 0.05 is more 
commonly used.
---------------------------------------------------------------------------

    A group of DC economists provided a comment discussing an analysis 
they performed using aggregate data and analysis from individual-level 
IRS tax data from Washington, DC.\651\ In their study, they found that 
taxpayers who switched from employment to self-employment saw a 
decrease in income and vice versa. They found, ``[b]etween 2013-2018 
switching from a typical wage-earning job to self-employment, was 
associated with a 20-50 percent drop in income, while switching away 
from self-employment was associated with an income increase of 65-85 
percent.'' They also note that low-income tax filers who switched from 
self-employment to a wage-earning job approximately doubled their 
income from 2013-2018. However, this analysis is specifically focused 
on workers in Washington, DC, and the definition of self-employment may 
differ from independent contractor classification under the FLSA.
---------------------------------------------------------------------------

    \651\ This analysis can also be found at: https://ora-cfo.dc.gov/blog/self-employment-income-drop.
---------------------------------------------------------------------------

    The Coalition for Workforce Innovation asserted that the Department 
failed to consider additional studies reconfirming that independent 
contractors earn more than traditional employees. They cite the Upwork 
study, saying ``[t]he number of freelancers who earn more by 
freelancing than in their traditional jobs continues to grow: 44% of 
freelancers say they earn more freelancing than with a traditional job 
in 2021, . . . up from 39% in 2020 and 32% in 2019.'' \652\ The 
Department notes that even if 44% of freelancers say that they earn 
more than they would under traditional employment, that would still 
mean that a larger share of freelancers (56%) either report earning the 
same or less than with traditional employment. Also, as discussed in 
section VII.B.1, the nature of this study and its definition of 
freelancing may not be applicable to how independent contracting is 
discussed in this rule.
---------------------------------------------------------------------------

    \652\ ``Upwork Study Finds 59 Million Americans Freelancing Amid 
Turbulent Labor Market,'' Upwork, December 8, 2021, https://www.upwork.com/press/releases/upwork-study-finds-59-million-americans-freelancing-amid-turbulent-labor-market. Full study 
available at https://www.upwork.com/research/freelance-forward-2021.
---------------------------------------------------------------------------

    The Economic Policy Institute (EPI) also submitted a comment with a 
quantitative analysis of the difference in the value of a job to a 
worker who is classified as an independent contractor rather than as an 
employee. Their analysis reviewed data for workers in 11 occupations 
identified as particularly vulnerable to misclassification: 
construction workers, truck drivers, janitors and cleaners, home health 
and personal care aides, retail sales workers, housekeeping cleaners, 
landscaping workers, call center workers, security guards, light truck 
delivery drivers, and manicurists and pedicurists.

F. Analysis of Regulatory Alternatives

    Pursuant to its obligations under Executive Order 12866,\653\ the 
Department assessed four regulatory alternatives to this rule.
---------------------------------------------------------------------------

    \653\ E.O. 12866 section 6(a)(3)(C)(iii), 58 FR 51741.
---------------------------------------------------------------------------

    The Department had previously considered and rejected two of these 
alternatives in the 2021 IC Rule--adopting either a common law or ABC 
test for determining employee or independent contractor status.\654\ 
The Department reaches the same

[[Page 1739]]

conclusion in this final rule. Section IV above discusses why legal 
constraints prevent the Department from adopting either of these 
alternatives and the comments received regarding these alternatives.
---------------------------------------------------------------------------

    \654\ See 86 FR 1238.
---------------------------------------------------------------------------

    For a third alternative, the Department considered a rule that 
would not fully rescind the 2021 IC Rule and instead retain some 
aspects of that rule. As the Department has noted throughout this final 
rule, there are multiple instances in which it is consistent or in 
agreement with the 2021 IC Rule. However, the numerous ways in which 
the 2021 IC Rule described the factors were in tension with judicial 
precedent and longstanding Department guidance and narrowed the 
economic reality test by limiting the facts that may be considered as 
part of the test, facts which the Department believes are relevant in 
determining whether a worker is economically dependent on the employer 
for work or in business for themself. For these reasons, and as 
discussed in sections III and IV above, the Department has ultimately 
concluded that a complete recission and replacement of the 2021 IC Rule 
is needed.
    For a fourth alternative, the Department considered rescinding the 
2021 IC Rule and providing guidance on employee and independent 
contractor classification through subregulatory guidance. For more than 
80 years prior to the 2021 IC Rule, the Department primarily issued 
subregulatory guidance in this area and did not have generally 
applicable regulations on the classification of workers as employees or 
independent contractors. The Department considered rescinding the 2021 
IC Rule and continuing to provide subregulatory guidance for 
stakeholders through existing documents (such as Fact Sheet #13) and 
new documents (for example a Field Assistance Bulletin). Rescinding the 
2021 IC Rule without issuing a new regulation would have lowered the 
regulatory familiarity costs associated with this rulemaking. As 
explained in sections III, IV, and V above, however, the Department 
continues to believe that replacing the 2021 IC Rule with regulations 
addressing the multifactor economic reality test that more fully 
reflect the case law and continue to be relevant to the modern economy 
will be helpful for both workers and employers. Specifically, issuing 
regulations with an explanatory preamble allows the Department to 
provide in-depth guidance. Additionally, issuing regulations allowed 
the Department to formally collect and consider a wide range of views 
from stakeholders by electing to use the notice-and-comment process. 
Finally, because courts are accustomed to considering relevant agency 
regulations, providing guidance in this format may further improve 
consistency among courts regarding this issue. Therefore, the 
Department is not rescinding the 2021 IC Rule and providing only 
subregulatory guidance.

VIII. Final Regulatory Flexibility Act (FRFA) Analysis

    The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq., 
as amended by the Small Business Regulatory Enforcement Fairness Act of 
1996, Public Law 104-121 (March 29, 1996), requires Federal agencies 
engaged in rulemaking to consider the impact of their rules on small 
entities, consider alternatives to minimize that impact, and solicit 
public comment on their analyses. The RFA requires the assessment of 
the impact of a regulation on a wide range of small entities, including 
small businesses, not-for profit organizations, and small governmental 
jurisdictions. Agencies must perform a review to determine whether a 
proposed or final rule would have a significant economic impact on a 
substantial number of small entities.

A. Need for Rulemaking and Objectives of the Rule

    As discussed in section II.C.3., on March 14, 2022, a district 
court in the Eastern District of Texas issued a decision vacating the 
Department's delay and withdrawal of the 2021 IC Rule and concluding 
that the 2021 IC Rule became effective on March 8, 2021. The Department 
believes that the 2021 IC Rule does not fully comport with the FLSA's 
text and purpose as interpreted by the courts and, had it been left in 
place, would have had a confusing and disruptive effect on workers and 
businesses alike due to its departure from decades of case law 
describing and applying the multifactor economic reality test. 
Therefore, the Department believes it is appropriate to rescind the 
2021 IC Rule and set forth an analysis for determining employee or 
independent contractor status under the Act that is more consistent 
with existing judicial precedent and the Department's longstanding 
guidance prior to the 2021 IC Rule.
    The Department is rescinding and replacing regulations addressing 
whether workers are employees or independent contractors under the 
FLSA. Of particular note, the regulations set forth in this final rule 
do not use ``core factors'' and instead return to a totality-of-the-
circumstances analysis of the economic reality test in which the 
factors do not have a predetermined weight and are considered in view 
of the economic reality of the whole activity. Regarding the economic 
reality factors, this final rule returns to the longstanding framing of 
investment as a separate factor, and integral as an integral part of 
the potential employer's business rather than an integrated unit of 
production. The final rule also provides broader discussion of how 
scheduling, remote supervision, price setting, and the ability to work 
for others should be considered under the control factor, and it allows 
for consideration of reserved rights while removing the provision in 
the 2021 IC Rule that minimized the relevance of retained rights. 
Further, the final rule discusses exclusivity in the context of the 
permanency factor, and initiative in the context of the skill factor. 
The Department also made several adjustments to the proposed 
regulations after consideration of the comments received, including 
revisions to the regulations regarding the investment factor and the 
control factor (specifically addressing compliance with legal 
obligations).
    The Department believes that rescinding the 2021 IC Rule and 
replacing it with regulations addressing the multifactor economic 
reality test--in a way that both more fully reflects the case law and 
continues to be relevant to the evolving economy--will be helpful for 
both workers and employers. The Department believes this rule will help 
protect employees from misclassification while at the same time 
providing a consistent approach for those businesses that engage (or 
wish to engage) independent contractors as well as for those who wish 
to work as independent contractors.

B. Significant Issues Raised in Public Comments, Including by the Small 
Business Administration Office of Advocacy

    Several commenters submitted feedback in response to the NPRM's 
Initial Regulatory Flexibility Analysis (IRFA) or otherwise addressing 
the potential impact of this rulemaking on small entities. Commenters, 
including the Small Business Administration Office of Advocacy (SBA) 
contended that the Department has severely underestimated the economic 
impacts of this rule on small businesses and independent contractors. 
For example, several commenters criticized the rule familiarization 
time estimates referenced in the IRFA, with the Independent Electrical 
Contractors, the Small Business & Entrepreneurship

[[Page 1740]]

Council (``SBE Council''), and SBA citing the length of the NPRM as 
evidence that the Department was providing an underestimate. By 
contrast, the SWACCA asserted that the ``well understood framework'' of 
the NPRM's proposed guidance would reduce regulatory familiarization 
costs for stakeholders ``compared to the January 2021 Rule's novel, 
untested weighted framework.''
    As explained in section VII.C., the Department considered all of 
the comments received on this topic and has increased the regulatory 
familiarization cost estimate for this rule to 1 hour for firms and 30 
minutes for independent contractors, who may be small businesses 
themselves. The Department believes that this time estimate is 
appropriate because it represents an average, in which some small 
businesses will spend more time reviewing the rule and others will 
spend no time reviewing.
    Some commenters asserted that the Department failed to identify 
other potential costs of this rulemaking. For example, SBA wrote that 
``DOL has failed to estimate any costs for small businesses and 
independent contractors to reclassify workers as independent 
contractors, for lost work, and for business disruptions.'' Similarly, 
SBE Council wrote that the IRFA did ``not include the cost to a small 
business or small entity if an independent contractor is determined to 
be `misclassified,' or if a small business or small entity loses 
business revenue due to the loss of human capital, or the cost to 
comply with the new rule, or if an independent contractor loses 
business due to potential or actual misclassification.'' As discussed 
in greater detail in section III(C) and VII(A), the Department does not 
believe that this rule will lead to widespread reclassification.
    SBA claimed that the IRFA for failed to address certain employment-
related costs related to the reclassification of independent 
contractors as employees (e.g., payroll tax obligations, employment 
benefits costs, etc.) that were mentioned in the NPRM's Regulatory 
Impact Analysis; see also American First Legal Foundation (``AFL'') 
(``The Department failed to consider that small businesses 
reclassifying independent contractors as employees under the Proposed 
Rule will substantially increase their respective tax burdens.''); 
Engine (asserting that ``startups that err on the side of caution and 
hire or shift to full-time workers'' may have to ``offer more robust 
compensation packages'' to compete with larger competitors). The 
Department's Regulatory Impact Analysis only provides a qualitative 
discussion of these potential transfers and explains that these 
transfers may result from reduced misclassification resulting from this 
rule. The Department does not believe that coming into compliance with 
the law would be a ``cost'' for the purposes of the economic analyses 
of this rulemaking.
    SBA also commented that ``many independent contractors or freelance 
workers, who may also be small businesses, believe they will lose work 
because of this rule.'' The Department does not believe that this rule 
will lead to job losses because most workers who were properly 
classified as independent contractors before the 2021 IC Rule will 
continue to retain their status as independent contractors.
    Finally, AFL was concerned about the Department ``treating small 
businesses the same as all other entities'' and asserted that Section 
223 of the Small Business Regulatory Enforcement Fairness Act of 1996 
(``SBREFA'') requires the Department to creation an exemption waiving 
the application of civil money penalties for small entities ``that will 
inevitably misapply the confusing and inconsistent `economic reality' 
test.'' See also Engine (``It is unclear how the proposed rule, if 
implemented, will be enforced consistent with SBREFA, if the Department 
does not accommodate differing compliance requirements by waiving or 
reducing penalties when circumstances warrant.''). In response to these 
comments, the Department notes that courts apply the same economic 
reality test when evaluating the FLSA employment status of any worker 
alleged to be an independent contractor, regardless of the size of the 
potential employer.\655\ Similarly, the Department is striving to 
provide a generally-applicable regulation in this rulemaking. As with 
other enforcement-related requests from commenters described in section 
II.E., whether the Department should reduce or waive certain civil 
money penalties for small entities found to have violated the FLSA is 
an enforcement issue that is beyond the scope of this rulemaking.
---------------------------------------------------------------------------

    \655\ See, e.g., Rutherford, 331 U.S. at 724 (noting that the 
slaughterhouse involved in the case ``had one hourly paid employee'' 
prior to hiring the alleged independent contractors at issue); Silk, 
331 U.S. at 706 (describing the employer at issue as an individual 
named ``Albert Silk, doing business as the Albert Silk Coal Co.,'' 
who ``owns no trucks himself, but contracts with workers who own 
their own trucks to deliver coal'').
---------------------------------------------------------------------------

C. Estimating the Number of Small Businesses Affected by the Rulemaking

    The Department used the Small Business Administration size 
standards, which determine whether a business qualifies for small-
business status, to estimate the number of small entities.\656\ The 
Department then applied these thresholds to the U.S. Census Bureau's 
2017 Economic Census to obtain the number of establishments with 
employment or sales/receipts below the small business threshold in the 
industry.\657\ These ratios of small to large establishments were then 
applied to the more recent 2019 Statistics of United States Businesses 
(SUSB) data on number of establishments.\658\ Next, the Department 
estimated the number of small governments, defined as having population 
less than 50,000, from the 2017 Census of Governments.\659\ In total, 
the Department estimated there are 6.5 million small establishments or 
governments who could potentially have independent contractors, and who 
could be affected by this rulemaking. However, not all of these 
establishments will have independent contractors, and so only a share 
of this number will actually be affected. The impact of this rule could 
also differ by industry. As shown in Table 2 of the regulatory impact 
analysis, the industries with the highest number of independent 
contractors are the professional and business services and construction 
industries.
---------------------------------------------------------------------------

    \656\ SBA, Summary of Size Standards by Industry Sector, 2017, 
https://www.sba.gov/sites/default/files/2018-05/Size_Standards_Table_2017.xlsx. The most recent size standards were 
issued in 2022. However, the Department used the 2017 standards for 
consistency with the older Economic Census data.
    \657\ The 2017 data are the most recently available with revenue 
data.
    \658\ For this analysis, the Department excluded independent 
contractors who are not registered as small businesses, and who are 
generally not captured in the Economic Census, from the calculation 
of small establishments.
    \659\ 2017 Census of Governments. https://www.census.gov/data/tables/2017/econ/gus/2017-governments.html.
---------------------------------------------------------------------------

    Additionally, as discussed in section VII.B., the Department 
estimates that there are 22.1 million independent contractors. Some of 
these independent contractors may be considered small businesses and 
may also be impacted by this rule.

D. Compliance Requirements of the Final Rule, Including Reporting and 
Recordkeeping

    This rule provides guidance for analyzing employee or independent 
contractor status under the FLSA. It does not create any new reporting 
or

[[Page 1741]]

recordkeeping requirements for businesses.
    In the Regulatory Impact Analysis, the Department estimates that 
regulatory familiarization to be one hour per entity and one-half hour 
per independent contractor. The per-entity cost for small business 
employers is the regulatory familiarization cost of $52.80, or the 
fully loaded median hourly wage of a Compensation, Benefits, and Job 
Analysis Specialist multiplied by 1 hour. The per-entity rule 
familiarization cost for independent contractors, some of whom would be 
small businesses, is $11.73 or the median hourly wage of independent 
contractors in the CWS multiplied by 0.5 hour.

E. Steps the Department Has Taken To Minimize the Significant Economic 
Impact on Small Entities

    The RFA requires agencies to discuss ``any significant alternatives 
to the proposed rule which accomplish the stated objectives of 
applicable statutes and which minimize any significant economic impact 
of the proposed rule on small entities.'' \660\ As discussed earlier in 
section VII.F., the Department does not believe that it has the legal 
authority to adopt either a common law or ``ABC'' test to determine 
employee or independent contractor status under the FLSA, foreclosing 
the consideration of these alternatives for purposes of the RFA.
---------------------------------------------------------------------------

    \660\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    As explained in section VII.F., the Department considered two other 
regulatory alternatives: a rule that would not fully rescind the 2021 
IC Rule and instead retain some aspects of that rule in the new rule; 
and completely rescinding the 2021 IC Rule and providing guidance on 
employee or independent contractor classification through subregulatory 
guidance, as the Department had done for over 80 years prior to the 
2021 IC Rule. The Department believes that the overall economic impact 
of retaining some portions of the 2021 IC Rule while issuing a rule to 
revise other portions of the rule would not minimize the economic 
impact on small entitles as they would incur costs to familiarize 
themselves with the new regulation. Similarly, the Department believes 
that the overall economic impact of fully rescinding the 2021 IC Rule 
and providing subregulatory guidance, would not necessarily minimize 
the economic impact on small entities as they would incur some costs to 
familiarize themselves with any subregulatory guidance. Moreover, as 
explained in sections III, IV, and V above, the Department believes 
that replacing the 2021 IC Rule with regulations addressing the 
multifactor economic reality test that more fully reflect the case law 
and continue to be relevant to the modern economy will be helpful for 
both workers and employers, particularly over the long term.

IX. Unfunded Mandates Reform Act of 1995

    The Unfunded Mandates Reform Act of 1995, 2 U.S.C. 1532, requires 
agencies to prepare a written statement, which includes an assessment 
of anticipated costs and benefits, before proposing any unfunded 
Federal mandate that may result in excess of $100 million (adjusted 
annually for inflation) in expenditures in any one year by State, 
local, and tribal governments in the aggregate, or by the private 
sector. Adjusting the threshold for inflation using the GDP deflator, 
using a recent annual result (2021), yields a threshold of $165 
million. Therefore, this rulemaking is expected to create unfunded 
mandates that exceed that threshold. See section VII for an assessment 
of anticipated costs and benefits.

X. Executive Order 13132, Federalism

    The Department has reviewed this rule in accordance with Executive 
Order 13132 regarding federalism and determined that it does not have 
federalism implications. The rule will not have substantial direct 
effects on the States, on the relationship between the National 
Government and the States, or on the distribution of power and 
responsibilities among the various levels of government.

XI. Executive Order 13175, Indian Tribal Governments

    This rule will not have tribal implications under Executive Order 
13175 that require a tribal summary impact statement. The rule will not 
have substantial direct effects on one or more Indian tribes, on the 
relationship between the Federal Government and Indian tribes, or on 
the distribution of power and responsibilities between the Federal 
Government and Indian tribes.

List of Subjects

29 CFR Part 780

    Agriculture, Child labor, Wages.

29 CFR Part 788

    Forests and forest products, Wages.

29 CFR Part 795

    Employment, Wages.

    For the reasons set out in the preamble, the Wage and Hour 
Division, Department of Labor amends Title 29 CFR chapter V, as 
follows:

PART 780--EXEMPTIONS APPLICABLE TO AGRICULTURE, PROCESSING OF 
AGRICULTURAL COMMODITIES, AND RELATED SUBJECTS UNDER THE FAIR LABOR 
STANDARDS ACT

0
1. The authority citation for part 780 continues to read as follows:

    Authority:  Secs. 1-19, 52 Stat. 1060, as amended; 75 Stat. 65; 
29 U.S.C. 201-219. Pub. L. 105-78, 111 Stat. 1467.


0
2. Amend Sec.  780.330 by revising paragraph (b) to read as follows:


Sec.  780.330   Sharecroppers and tenant farmers.

* * * * *
    (b) In determining whether such individuals are employees or 
independent contractors, the criteria set forth in Sec. Sec.  795.100 
through 795.110 of this chapter are used.
* * * * *

PART 788--FORESTRY OR LOGGING OPERATIONS IN WHICH NOT MORE THAN 
EIGHT EMPLOYEES ARE EMPLOYED

0
3. The authority citation for part 788 continues to read as follows:

    Authority:  Secs. 1-19, 52 Stat. 1060, as amended; 29 U.S.C. 
201-219.


0
4. Amend Sec.  788.16 by revising paragraph (a) to read as follows:


Sec.  788.16   Employment relationship.

    (a) In determining whether individuals are employees or independent 
contractors, the criteria set forth in Sec. Sec.  795.100 through 
795.110 of this chapter are used.
* * * * *

0
5. Add part 795 to read as follows:

PART 795--EMPLOYEE OR INDEPENDENT CONTRACTOR CLASSIFICATION UNDER 
THE FAIR LABOR STANDARDS ACT

Sec.
795.100 Introductory statement.
795.105 Determining employee or independent contractor 
classification under the FLSA.
795.110 Economic reality test to determine economic dependence.
795.115 Severability.

    Authority:  29 U.S.C. 201-219.


Sec.  795.100   Introductory statement.

    This part contains the Department of Labor's (the Department) 
general interpretations for determining whether workers are employees 
or independent

[[Page 1742]]

contractors under the Fair Labor Standards Act (FLSA or Act). See 29 
U.S.C. 201-19. These interpretations are intended to serve as a 
``practical guide to employers and employees'' as to how the Department 
will seek to apply the Act. Skidmore v. Swift & Co., 323 U.S. 134, 138 
(1944). The Administrator of the Department's Wage and Hour Division 
will use these interpretations to guide the performance of their duties 
under the Act, unless and until the Administrator is otherwise directed 
by authoritative decisions of the courts or the Administrator concludes 
upon reexamination of an interpretation that it is incorrect. To the 
extent that prior administrative rulings, interpretations, practices, 
or enforcement policies relating to determining who is an employee or 
independent contractor under the Act are inconsistent or in conflict 
with the interpretations stated in this part, they are hereby 
rescinded. The interpretations stated in this part may be relied upon 
in accordance with section 10 of the Portal-to-Portal Act, 29 U.S.C. 
251-262, notwithstanding that after any act or omission in the course 
of such reliance, the interpretation is modified or rescinded or is 
determined by judicial authority to be invalid or of no legal effect. 
29 U.S.C. 259.


Sec.  795.105   Determining employee or independent contractor 
classification under the FLSA.

    (a) Relevance of independent contractor or employee status under 
the Act. The Act's minimum wage, overtime pay, and recordkeeping 
obligations apply only to workers who are covered employees. Workers 
who are independent contractors are not covered by these protections. 
Labeling employees as ``independent contractors'' does not make these 
protections inapplicable. A determination of whether a worker is an 
employee or independent contractor under the Act focuses on the 
economic realities of the worker's relationship with the worker's 
potential employer and whether the worker is either economically 
dependent on the potential employer for work or in business for 
themself.
    (b) Economic dependence as the ultimate inquiry. An ``employee'' 
under the Act is an individual whom an employer suffers, permits, or 
otherwise employs to work. 29 U.S.C. 203(e)(1), (g). ``Employer'' is 
defined to ``include[ ] any person acting directly or indirectly in the 
interest of an employer in relation to an employee.'' 29 U.S.C. 203(d). 
The Act's definitions are meant to encompass as employees all workers 
who, as a matter of economic reality, are economically dependent on an 
employer for work. A worker is an independent contractor, as 
distinguished from an ``employee'' under the Act, if the worker is, as 
a matter of economic reality, in business for themself. Economic 
dependence does not focus on the amount of income the worker earns, or 
whether the worker has other sources of income.


Sec.  795.110   Economic reality test to determine economic dependence.

    (a) Economic reality test. (1) In order to determine economic 
dependence, multiple factors assessing the economic realities of the 
working relationship are used. These factors are tools or guides to 
conduct a totality-of-the-circumstances analysis. This means that the 
outcome of the analysis does not depend on isolated factors but rather 
upon the circumstances of the whole activity to answer the question of 
whether the worker is economically dependent on the potential employer 
for work or is in business for themself.
    (2) The six factors described in paragraphs (b)(1) through (6) of 
this section should guide an assessment of the economic realities of 
the working relationship and the question of economic dependence. 
Consistent with a totality-of-the-circumstances analysis, no one factor 
or subset of factors is necessarily dispositive, and the weight to give 
each factor may depend on the facts and circumstances of the particular 
relationship. Moreover, these six factors are not exhaustive. As 
explained in paragraph (b)(7) of this section, additional factors may 
be considered.
    (b) Economic reality factors--(1) Opportunity for profit or loss 
depending on managerial skill. This factor considers whether the worker 
has opportunities for profit or loss based on managerial skill 
(including initiative or business acumen or judgment) that affect the 
worker's economic success or failure in performing the work. The 
following facts, among others, can be relevant: whether the worker 
determines or can meaningfully negotiate the charge or pay for the work 
provided; whether the worker accepts or declines jobs or chooses the 
order and/or time in which the jobs are performed; whether the worker 
engages in marketing, advertising, or other efforts to expand their 
business or secure more work; and whether the worker makes decisions to 
hire others, purchase materials and equipment, and/or rent space. If a 
worker has no opportunity for a profit or loss, then this factor 
suggests that the worker is an employee. Some decisions by a worker 
that can affect the amount of pay that a worker receives, such as the 
decision to work more hours or take more jobs when paid a fixed rate 
per hour or per job, generally do not reflect the exercise of 
managerial skill indicating independent contractor status under this 
factor.
    (2) Investments by the worker and the potential employer. This 
factor considers whether any investments by a worker are capital or 
entrepreneurial in nature. Costs to a worker of tools and equipment to 
perform a specific job, costs of workers' labor, and costs that the 
potential employer imposes unilaterally on the worker, for example, are 
not evidence of capital or entrepreneurial investment and indicate 
employee status. Investments that are capital or entrepreneurial in 
nature and thus indicate independent contractor status generally 
support an independent business and serve a business-like function, 
such as increasing the worker's ability to do different types of or 
more work, reducing costs, or extending market reach. Additionally, the 
worker's investments should be considered on a relative basis with the 
potential employer's investments in its overall business. The worker's 
investments need not be equal to the potential employer's investments 
and should not be compared only in terms of the dollar values of 
investments or the sizes of the worker and the potential employer. 
Instead, the focus should be on comparing the investments to determine 
whether the worker is making similar types of investments as the 
potential employer (even if on a smaller scale) to suggest that the 
worker is operating independently, which would indicate independent 
contractor status.
    (3) Degree of permanence of the work relationship. This factor 
weighs in favor of the worker being an employee when the work 
relationship is indefinite in duration, continuous, or exclusive of 
work for other employers. This factor weighs in favor of the worker 
being an independent contractor when the work relationship is definite 
in duration, non-exclusive, project-based, or sporadic based on the 
worker being in business for themself and marketing their services or 
labor to multiple entities. This may include regularly occurring fixed 
periods of work, although the seasonal or temporary nature of work by 
itself would not necessarily indicate independent contractor 
classification. Where a lack of permanence is due to operational 
characteristics that are unique or intrinsic to particular businesses 
or industries and the workers they employ, this factor is not 
necessarily indicative of independent contractor status unless the 
worker is

[[Page 1743]]

exercising their own independent business initiative.
    (4) Nature and degree of control. This factor considers the 
potential employer's control, including reserved control, over the 
performance of the work and the economic aspects of the working 
relationship. Facts relevant to the potential employer's control over 
the worker include whether the potential employer sets the worker's 
schedule, supervises the performance of the work, or explicitly limits 
the worker's ability to work for others. Additionally, facts relevant 
to the potential employer's control over the worker include whether the 
potential employer uses technological means to supervise the 
performance of the work (such as by means of a device or 
electronically), reserves the right to supervise or discipline workers, 
or places demands or restrictions on workers that do not allow them to 
work for others or work when they choose. Whether the potential 
employer controls economic aspects of the working relationship should 
also be considered, including control over prices or rates for services 
and the marketing of the services or products provided by the worker. 
Actions taken by the potential employer for the sole purpose of 
complying with a specific, applicable Federal, State, Tribal, or local 
law or regulation are not indicative of control. Actions taken by the 
potential employer that go beyond compliance with a specific, 
applicable Federal, State, Tribal, or local law or regulation and 
instead serve the potential employer's own compliance methods, safety, 
quality control, or contractual or customer service standards may be 
indicative of control. More indicia of control by the potential 
employer favors employee status; more indicia of control by the worker 
favors independent contractor status.
    (5) Extent to which the work performed is an integral part of the 
potential employer's business. This factor considers whether the work 
performed is an integral part of the potential employer's business. 
This factor does not depend on whether any individual worker in 
particular is an integral part of the business, but rather whether the 
function they perform is an integral part of the business. This factor 
weighs in favor of the worker being an employee when the work they 
perform is critical, necessary, or central to the potential employer's 
principal business. This factor weighs in favor of the worker being an 
independent contractor when the work they perform is not critical, 
necessary, or central to the potential employer's principal business.
    (6) Skill and initiative. This factor considers whether the worker 
uses specialized skills to perform the work and whether those skills 
contribute to business-like initiative. This factor indicates employee 
status where the worker does not use specialized skills in performing 
the work or where the worker is dependent on training from the 
potential employer to perform the work. Where the worker brings 
specialized skills to the work relationship, this fact is not itself 
indicative of independent contractor status because both employees and 
independent contractors may be skilled workers. It is the worker's use 
of those specialized skills in connection with business-like initiative 
that indicates that the worker is an independent contractor.
    (7) Additional factors. Additional factors may be relevant in 
determining whether the worker is an employee or independent contractor 
for purposes of the FLSA, if the factors in some way indicate whether 
the worker is in business for themself, as opposed to being 
economically dependent on the potential employer for work.


Sec.  795.115   Severability.

    If any provision of this part is held to be invalid or 
unenforceable by its terms, or as applied to any person or 
circumstance, or stayed pending further agency action, the provision 
shall be construed so as to continue to give the maximum effect to the 
provision permitted by law, unless such holding shall be one of utter 
invalidity or unenforceability, in which event the provision shall be 
severable from this part and shall not affect the remainder thereof.

    Signed this 2nd day of January, 2024.
Jessica Looman,
Administrator, Wage and Hour Division.
[FR Doc. 2024-00067 Filed 1-9-24; 8:45 am]
BILLING CODE 4510-27-P