Employee or Independent Contractor Classification Under the Fair Labor Standards Act, 1638-1743 [2024-00067]
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Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Rules and Regulations
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
Wage and Hour Division,
Department of Labor.
ACTION: Final rule.
AGENCY:
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:
SUMMARY:
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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
1 29
U.S.C. 202.
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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.
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.
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-thecircumstances analysis, considering
multiple factors to determine whether a
worker is an employee or an
independent contractor, with no factor
2 29
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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
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 (§ 795.105(d)).
5 Id. at 1246 (§ 795.105(c)).
6 Id. at 1247 (§ 795.105(d)(2)).
7 Id. at 1246 (§ 795.105(c)).
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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
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.
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
8 Id.
at 1246–47 (§ 795.105(d)(1) and (d)(2)(iii)).
9 Id. at 1247–48 (§ 795.110).
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’’).
11 87 FR 62218.
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whether a worker is economically
dependent on the employer for work or
in business for themself.
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-thecircumstances 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.
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
12 87
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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 totalityof-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
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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-thecircumstances 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
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is the most beneficial because it is
aligned with the Department’s decadeslong 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
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
13 29
U.S.C. 206(a), 207(a).
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).
18 29 U.S.C. 203(e)(1).
14 29
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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
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
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
19 29
U.S.C. 203(d).
U.S.C. 203(g).
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).
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.
20 29
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employees, who fall under the
protections of the FLSA, and
independent contractors, who do not.
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.
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
27 Id.
at 728.
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 NonViolence 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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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
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 employeremploye[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
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
30 322
U.S. at 118–20; 29 U.S.C. 152(3).
at 123–25, 129.
32 331 U.S. at 712–14.
33 Id. at 716.
34 Id.
35 Id.
36 331 U.S. at 727.
31 Id.
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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
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
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
37 Id.
at 723–24.
at 730.
39 See id.
40 Id. at 729–30.
41 332 U.S. at 130.
42 Id.
43 Id.
44 Id.
45 Labor Management Relations (Taft-Hartley)
Act, 1947, Public Law 80–101, sec. 101, 61 Stat.
38 Id.
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following year, Congress similarly
amended the SSA to exclude from
employment ‘‘any individual who,
under the usual common-law rules
applicable in determining the employeremployee 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
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 Coop., 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 selfemployed . . . [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.
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
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2. Application of the Economic Reality
Test by Federal Courts of Appeals
Since Rutherford, federal courts of
appeals have applied the economic
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’’).
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.
50 Darden, 503 U.S. at 325–26.
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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
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
51 Usery v. Pilgrim Equip. Co., 527 F.2d 1308,
1311 (5th Cir. 1976) (quoting Bartels, 332 U.S. at
130).
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 wellestablished 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.’’).
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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
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
In sum, since the 1940s, federal courts
have analyzed the question of employee
or independent contractor status under
the FLSA using a multifactor, totality-ofthe-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
54 Scantland,
721 F.3d at 1311–12.
at 1312 n.2.
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).
55 Id.
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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
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
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
59 WHD
Op. Ltr. (June 23, 1949).
60 Id.
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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).
63 See 27 FR 8032; 29 U.S.C. 213(b)(28)
(previously codified at 29 U.S.C. 213(a)(15)).
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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
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.
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
64 27
FR 8033 (29 CFR 788.16(a)).
65 Id.
66 27
FR 8033–34 (29 CFR 788.16(a)).
37 FR 12084, 12102 (introducing 29 CFR
780.330(b)).
68 Id.
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]’’).
67 See
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1643
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).
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.
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
70 29
CFR 500.20(h)(4).
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-flsaemployment-relationship).
72 AI 2015–1 is available at 2015 WL 4449086
(withdrawn June 7, 2017).
71 See
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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
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
C. The Department’s 2021 Independent
Contractor Rule
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1. Overview
On January 7, 2021, the Department
published the 2021 IC Rule, with an
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).
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).
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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
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.
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
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
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.
80 Id. at 1172, 1240.
81 Id. at 1172–75.
82 Id. at 1246 (§ 795.105(a)–(b)).
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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
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
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
83 Id.
at 1246–47 (§ 795.105(c) and (d)(2)(iv)).
at 1246 (§ 795.105(c)).
85 Id. at 1246–47 (§ 795.105(d)(1)(i)).
86 Id.
87 Id. (§ 795.105(d)(1)(ii)).
84 Id.
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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.
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
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
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
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
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88 Id.
(§ 795.105(d)(2)).
at 1246 (§ 795.105(c)).
90 Id. at 1247–48 (§§ 795.110–.115).
91 Id. at 1246 (§ 795.100).
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.
93 86 FR 8326.
89 Id.
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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
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
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 noticeand-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
94 86
FR 12535.
FR 14027.
96 86 FR 24303.
97 Id. at 24320.
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.
95 86
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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.
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.
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-thecircumstances 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.
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
103 See Fifth Circuit No. 22–40316 (appeal filed,
May 13, 2022).
104 See 87 FR 62218.
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days to December 13, 2022, resulting in
a total comment period of 61 days.105
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.
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
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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.
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.
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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 FLSAcovered employees and independent
contractors; it does not replace or
supplant the analyses that courts and
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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.
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 FLSAcovered 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
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).
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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
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-thecircumstances 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
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’’).
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contractors. Moreover, the 2021 IC Rule
did not address the potential risks to
workers of such misclassification.110
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.
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
110 86
FR 1225; see also id. at 1206–07.
86 FR 24307–18.
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).
111 See
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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.
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
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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
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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 totalityof-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 selfidentified 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
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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
115 See 86 FR 1246 (§ 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
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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-forwork’’ 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.
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
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.
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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.
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
117 86
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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
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-thecircumstances 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.
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.
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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.
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
119 87 FR 62227 (citing 86 FR 1246 (§ 795.105(c)
and (d))).
120 86 FR 1246 (§ 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 (§ 795.105(c)).
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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.
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
122 See
123 Id.
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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
124 For example, although some commenters cited
Walsh v. Medical Staffing of America, that case
explicitly stated that ‘‘[n]o single factor in the sixfactor 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,
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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.
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
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)).
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 employeremployee 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
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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
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
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 sixfactor 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.’’).
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
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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.
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
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.’’).
134 See 86 FR 1196–97.
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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.
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
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
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underscores the unduly narrow focus on
two ‘‘core factors’’ in the 2021 IC Rule.
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.
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
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).
136 Id. at 1246–47 (§ 795.105(c), (d)).
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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
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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.
3. The 2021 IC Rule Improperly Altered
Several Factors by Precluding the
Consideration of Relevant Facts
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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 agreedupon 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)
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.
139 86 FR 1246–47 (§ 795.105(d)(1)(i)).
140 Id. at 1247 (§ 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
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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.
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
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 (§ 795.105(d)(2)(iii)); see also id. at
1248 (noting through an example in
§ 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
§ 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 § 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).
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1653
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.’’
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
144 See
86 FR 1247 (§ 795.105(d)(2)(iii)).
at 1168.
146 See supra section III.A.
145 Id.
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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.
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
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
147 See
generally 87 FR 62229.
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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
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
148 See
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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’’).
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
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 nonbinding ‘‘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.
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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
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’’
150 See Wallen v. TendoNova Corp., No. 20-cv790–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 FLSAcovered 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).
152 See supra section III.A.1.
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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
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 wellsupported 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.
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
153 See
supra n.52.
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.
156 87 FR 62275 (proposed § 795.110(b)(4)).
157 87 FR 62275 (proposed § 795.110(b)(2)).
158 See infra, section V.C.
154 See
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1655
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
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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 totalityof-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
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 ‘‘twofactor test,’’ see, e.g., CEI; National
Demolition Association (‘‘NDA’’), while
others mistakenly assumed that noncore 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
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.
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
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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’’).
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
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).
164 See 87 FR 62230 (describing commenter
feedback from the Withdrawal Rule asserting that
‘‘misclassification is rampant in low-wage, laborintensive industries where women and people of
color, including Black, Latinx, and AAPI workers,
as overrepresented’’).
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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
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,
165 Id.
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).
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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).
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
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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,
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1657
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
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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
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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-thecircumstances’’ 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
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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 selfidentified 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
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
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.
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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 longstanding, 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
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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
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
168 See
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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.
Further, as noted in the 2021 IC Rule,
the Department ‘‘without question has
relevant expertise in the area of what
169 See
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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.
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.
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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.
170 86
FR 1176.
171 Id.
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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
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-asindependent-contractors-under-the-fair-laborstandards-act.
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community and workers had previously
been relying on to distinguish between
employees and independent contractors.
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.
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
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
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.
176 87 FR 62230.
177 Id. (citing 86 FR 1238).
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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
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
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
178 See
179 See
generally id. at 62231.
generally id. at 62231–32.
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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
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.’’
Having considered the comments, the
Department reaffirms its position that
the FLSA’s definitions, as interpreted by
courts, reflect Congress’ rejection of the
180 See
generally id. at 62232.
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.
181 A
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1661
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
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-thecircumstances’ 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 economicrealities 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
182 See, e.g., Darden, 503 U.S. at 326; Portland
Terminal, 330 U.S. at 150–51.
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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
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.
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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 wellfounded reasons for rescinding and
replacing the 2021 IC Rule.187 For all of
these reasons, this final rule does not
adopt an ABC test.
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
186 See
supra section II.B.
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.
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.’’
187 The
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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.
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-thecircumstances 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
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
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-thecircumstances 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.
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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
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
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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
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.
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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
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,
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 ‘secondguessing the [agency]’s weighing of risks and
benefits and penalizing [it] for departing from the
. . . inferences and assumptions’ of others.’’)
(citations omitted).
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.
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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.
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 crossreferences 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
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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.
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.
The Department responds to
commenters’ feedback on the proposed
rule below.
A. Introductory Statement (§ 795.100)
Proposed § 795.100 explained that the
interpretations in part 795 will guide
WHD’s enforcement of the FLSA and are
intended to be used by employers,
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.
B. Economic Dependence (§ 795.105)
In the NPRM, the Department
proposed to simplify § 795.105(a) of the
2021 IC Rule and make additional
clarifying edits to § 795.105(b).203
Proposed § 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.
The Department proposed that
paragraph § 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.
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.
200 29
202 87
201 Comments
203 87
CFR 500.20(h)(1), (4).
regarding this aspect of the NPRM
are discussed in section V.F. below.
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FR 62233 (proposed § 795.100).
FR 62233 (proposed § 795.105(a), (b)).
204 87 FR 62233 (proposed § 795.105(b)).
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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 selfidentified 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 ‘‘selfemployed 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 § 795.105(b) but suggested
that the provision be edited for clarity,
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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
205 86
FR 1178.
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.’’).
206 See
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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
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 § 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 § 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
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.
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‘‘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 § 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 § 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 § 795.110. The
comments regarding the discontinuation
of ‘‘core factors’’ and the Department’s
return to the economic reality test’s
longstanding totality-of-thecircumstances analysis are discussed in
section V.C.
C. Economic Reality Test and Economic
Reality Test Factors (§ 795.110)
In the NPRM, the Department
proposed to replace § 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 § 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 § 795.110(b).212
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
211 87
FR 62234–37 (proposed § 795.110).
212 Id.
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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 longstanding 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-ofthe 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
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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-thecircumstances 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
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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’’).
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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 § 795.110(a) as
proposed.
Regarding comments that the
Department’s proposal is generally
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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 wellbeing 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
213 87
FR 62234.
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.
214 29
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rapidly as practicable . . .
eliminate.’’ 218
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
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.’’).
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
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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
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-thecircumstances economic reality test will
cause confusion or uncertainty and that
the 2021 IC Rule’s core factors analysis
was clearer. The Department believes,
(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 SixtyMinutes Delivery Serv., Inc., 161 F.3d 299, 303 (5th
Cir. 1998)).
223 Rutherford, 331 U.S. at 728–30.
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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 employeremployee 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.
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
224 Rosenwasser,
323 U.S. at 362.
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.’’).
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’’).
225 See
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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
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
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-thecircumstances 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
234 Pilgrim
230 331
U.S. at 716.
231 Id.
232 See
id.
233 Rutherford, 331 U.S. at 729–30.
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236 Off Duty Police, 915 F.3d at 1055 (alterations
and internal quotations omitted).
237 See generally supra n.52.
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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.
Regarding comments that the
Department should provide additional
guidance regarding how to weigh the
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.
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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-thecircumstances 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-thecircumstances, 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
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.’’).
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analysis that accompanies each factor
below is more appropriate guidance
than rote instructions for weighing the
factors.
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 employeremploye[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.
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
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.
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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, pricesetting, 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 industryspecific 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
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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
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The Department is finalizing
§ 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
(§ 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
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
254 See generally 87 FR 62274–75 (proposed
§ 795.110(b)(1)).
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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
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
255 See
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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 owneroperator 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.
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
256 Id.
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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’
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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
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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.
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
257 Id. at 62238; see also Scantland, 721 F.3d at
1316–17.
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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
§ 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
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1673
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-thecircumstances 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
258 29
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guidance after this final rule takes
effect.259
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
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.
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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.
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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-forprofit-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.’’
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
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).
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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.
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
261 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).
‘‘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
262 Id.
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263 87
FR 62239.
(citing Karlson v. Action Process Serv. &
Private Investigations, LLC, 860 F.3d 1089, 1095
264 Id.
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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.
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
(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).
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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
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).
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and perfected by others. WFCA’s
suggested language would detract the
focus from, and not necessarily be
consistent with, managerial skill.
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
The Department is finalizing the
opportunity for profit or loss depending
on managerial skill factor
(§ 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
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.
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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 (§ 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
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
268 See generally 87 FR 62275 (proposed
§ 795.110(b)(2)).
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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
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-thecircumstances 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
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
269 See
270 See
generally id. at 62240–41.
generally id. at 62241–43.
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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
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1677
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 nonprobative 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
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potential employer imposes unilaterally
on the worker.’’ 271
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 employersponsored 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
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
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.
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).
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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
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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 relativeinvestment 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 capitalintensive.’’ 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
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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
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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
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.
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1679
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.
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
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).
277 825 F.3d at 243.
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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
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
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
278 Id.
at 241.
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.
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.
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279 Id.
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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.
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-thecircumstances 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
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.
287 87 FR 62275 (proposed § 795.110(b)(2)).
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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.’’
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
288 See
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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
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.
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
289 Id.
290 884
F.3d at 1236 (quoting Snell, 875 F.2d at
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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)).
293 331 U.S. at 717–18.
294 Id. at 719.
295 331 U.S. at 725.
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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-milliondollar 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.
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.
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
297 Id.
at 62275 (proposed § 795.110(b)(2)).
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.’’
298 Id.
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).
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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
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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.’’
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
299 Id.
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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.
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 fulltime 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
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
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.
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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
302 781
F.2d at 1318.
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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,
303 Off
Duty Police, 915 F.3d at 1056.
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.
304 814
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1683
consistent with the totality-of-thecircumstances analysis.
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
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
307 87
FR 62275 (proposed § 795.110(b)(2)).
308 Id.
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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 wellgrounded 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
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
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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
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
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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
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.
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
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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
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.
320 This hypothetical and the hypotheticals
offered by Club for Growth Foundation, Flex, and
other commenters overlook the totality-of-thecircumstances 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
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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 (§ 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
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.
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1685
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 (§ 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, projectbased, 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
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
322 See generally 87 FR 62243–45, 62275
(proposed § 795.110(b)(3)).
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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
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
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-ofworking-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’’).
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).
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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.
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
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).
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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
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
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’’).
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
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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.’ ’’
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 longerterm, 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 3year 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,
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 (§ 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).
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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-ofthe-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
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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-toproject 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
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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 § 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.
Many commenters suggested
industry-specific analyses for the
permanence factor. See, e.g., ACLI
(insurance agents); AFL–CIO (platformbased 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
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’’).
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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
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
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).
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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 totalityof-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
333 See
87 FR 62244–45.
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
334 See,
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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.
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
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.
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,’’
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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, projectbased 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 projectbased work with independent contractor
status,342 but it notes that ‘‘projectbased’’ 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.
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.
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).
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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
343 331
344 Id.
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without losing their benefits under the
FLSA.’’ 345
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
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).
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-forincome’’ analysis as incorrect and a ‘‘dependencefor-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.
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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.’’
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 longterm relationships with clients without
being considered employees of their
clients, to which the Department
responded above. See Fight for
Freelancers; NRF & NCCR.
The Department is finalizing the
permanence factor (§ 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.
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).
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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
(§ 795.110(b)(4))
In the NPRM, the Department
proposed to modify § 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
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
In addition, and contrary to the 2021
IC Rule, the Department’s proposed
regulation included a sentence stating
that an employer’s compliance with
349 See
86 FR 1246–47 (§ 795.105(d)(1)(i)).
at 1247 (§ 795.105(d)(1)(i)).
351 See supra section III.A.
350 Id.
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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
352 86 FR 1180; 87 FR 62275 (proposed
§ 795.110(b)(4)).
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who has the ability to control key
aspects of the work is likely an
employer.’’
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
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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.’’
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
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.
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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.’’
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
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 industryspecific types of control) that can be relevant when
determining under the FLSA whether a worker is
an employee or independent contractor.’’ 86 FR
1182.
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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 § 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
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.’’).
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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;’’
357 Reid,
490 U.S. at 751.
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).
358 See
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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.
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
Regarding the comments received
addressing the scope of the control
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).
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.
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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
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.
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1693
status.’’ 367 Thus, substantial control by
the employer would clearly favor
employee status, though it is not
required.368
Finally, current § 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.
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-thecircumstances, economic reality
analysis.370 The NPRM explained
367 29
CFR 795.110(b)(4).
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.
369 86 FR 1247 (§ 795.105(d)(1)(i)).
370 As the Eleventh Circuit explained in
Scantland, the ‘‘economic reality inquiry requires
368 The
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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.
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
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).
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
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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.’’
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
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.’’).
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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.
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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.
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.
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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
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.
373 87 FR 62275 (proposed § 795.110(b)(4)).
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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.
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
374 86
FR 1246–47 (§ 795.105(d)(1)(i)).
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
375 See,
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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
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
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.’’)).
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).
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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.
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.
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
381 331
U.S. at 706, 718.
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).
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)).
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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
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.
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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.’’
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
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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-thecircumstances 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
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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.’’
[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).
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1697
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.
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.
390 87
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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
The Department is finalizing the
scheduling portion of the control factor
at § 795.105(b)(4) as proposed.
c. Supervision
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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 inperson, continuous supervision are not
required to determine that this factor
weighs in favor of employee status.395
391 For discussion of this issue generally, see
section V.C.4(a).
392 Id.
393 87 FR 62275 (proposed § 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
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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
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
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’’).
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’’).
402 781 F.3d at 814.
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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
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
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.
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
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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.
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 technologicallymediated 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
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).
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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
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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.
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 factspecific 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,
409 See
section V(D).
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).
410 See
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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
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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
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’’).
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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.
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.
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
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).
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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
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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 § 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
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
415 87
416 87
FR 62275 (proposed § 795.110(b)(4)).
FR 62250.
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
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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
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
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).
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).
423 87 FR 62251.
424 Id. n. 410 (quoting McFeeley, 825 F.3d at 242–
43).
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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
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
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’’)).
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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
426 87
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analysis to the particular working
relationship, the particular workplace,
and the particular industry in each
FLSA case.’’ 427
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 whitecollar 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
427 McFeeley,
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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-forprofit-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-thecircumstances 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
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
428 Whitaker
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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
§ 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
429 87
PO 00000
indicative of an employer-employee
relationship.430
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
430 See
86 FR 1247 (§ 795.105(d)(1)(i)).
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 SixtyMinutes, 161 F.3d at 303 (‘‘Independent Contractor
Agreement’’ did not contain a ‘‘covenant-not-tocompete’’ 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
431 87
FR 62275 (proposed § 795.110(b)(4)).
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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
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
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.
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-tocompete and drivers could work for other courier
delivery providers).
438 87 FR 62252.
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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.
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
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
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.
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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
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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.
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
445 See
supra, section V.B.
854 F.3d at 141.
446 Saleem,
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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
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 (‘multiapping’) [is] now simply dependent on
two platform companies for which the
employee is waiting around for work to
447 29
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1705
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
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 inhome 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
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).
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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.
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
449 See
supra, section V.C.3.
450 Brant, 43 F.4th at 669–70.
451 Id.
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practical matter,’’ haul loads for other
carriers, weighed in favor of employee
status.452
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.
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
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).
453 87 FR 62275 (proposed § 795.110(b)(4)).
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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-thecircumstances test where no one factor
is dispositive.454
The Department is finalizing the
ability to work for others portion of
control factor at § 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
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.’’).
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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 (§ 795.110(b)(5))
In § 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 totalityof-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
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
455 87
FR 62275 (proposed § 795.110(b)(5)).
at 62253.
457 Id. at 62254; Rutherford, 331 U.S. at 729.
456 Id.
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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
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
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.
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
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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
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
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).
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
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noted that while it is only one part of
the overall inquiry, courts continue to
find the integral factor useful for
evaluating economic dependence.
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
likely to be ‘employees’ under the FLSA if they
perform the primary work of the alleged
employer’’).
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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.
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
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).
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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 totalityof-the-circumstances approach, under
which all relevant facts should be
considered, the Department recognizes
that the extent to which a worker is
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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
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
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
471 87
FR 62254.
U.S. at 716.
473 See supra section II.B.2.
472 331
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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
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
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).
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’’).
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1709
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
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
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.’’).
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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 totalityof-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.
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
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.
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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
483 87
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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.
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
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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-thecircumstances 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 (§ 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 (§ 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
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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
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
484 See generally 87 FR 62275 (proposed
§ 795.110(b)(6)).
485 See generally id. at 62254–57.
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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 businesslike 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 standalone 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
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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.
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.
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
id. (citing cases).
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).
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.’’
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
486 See
487 See,
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Superior Care, 840 F.2d at 1060); the second
sentence was at 87 FR 62256.
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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
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
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.
490 See, e.g., Hobbs, 946 F.3d at 834; Parrish, 917
F.3d at 385; Cornerstone Am., 545 F.3d at 345;
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‘‘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.
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.
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
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.
493 334 U.S. at 718.
494 Id. at 719.
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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
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
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1713
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
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
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.
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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.
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
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).
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
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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.
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
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’’).
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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.
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’’
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.
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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-thecircumstances 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
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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-thecircumstances analysis, no one factor or
subset of factors is necessarily
dispositive.’’ 500
The Department is finalizing the skill
and initiative factor (§ 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 (§ 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 § 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
500 29
501 86
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1715
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
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
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
502 87
503 Id.
FR 62275 (proposed § 795.110(b)(7)).
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.
507 87 FR 62257.
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Revenue Service (IRS) Form 1099 from
an potential employer—reflect mere
labels rather than the economic realities
and are thus not relevant.’’ 508
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
508 Id.
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
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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
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.
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);
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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
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
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).
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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, factspecific 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 non515 87
FR 62236.
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core and additional factors in 2021 IC
Rule, and with respect to the suggested
devaluation of potential additional
factors that some commenters urged
here.
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
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1717
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
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
516 See
WHD Fact Sheet #13 (July 2008).
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’’).
517 See,
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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
The Department is finalizing the
additional factors section
(§ 795.110(b)(7)) as proposed with one
minor editorial change as explained.
D. Primacy of Actual Practice (2021 IC
Rule § 795.110)
The Department proposed to remove
§ 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
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
518 WHD
Fact Sheet #13 (July 2008).
FR 62257.
520 86 FR 1247 (§ 795.110).
521 87 FR 62258.
522 Id.
519 87
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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
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
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
523 See
generally 87 FR 62258.
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).
524 87
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‘‘[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:
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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
§ 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 totalityof-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.
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
530 87
FR 62258.
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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.’’).
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‘‘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-ofthe-circumstances approach to the
economic dependence inquiry and the
potential relevance of the reserved right
to control as an indicator of economic
533 87
FR 62223.
534 Id.
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1719
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-today working relationship between a
worker and their potential employer.536
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
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.’’).
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).
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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.
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, factspecific approach to the economic
dependence or independence inquiry
that has been adopted by the courts.542
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
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.’’).
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.’’).
543 See, e.g., Parrish, 917 F.3d at 388.
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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
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-today 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
544 43
F.4th 656 (7th Cir. 2022).
at 666.
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.’’)
545 Id.
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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.
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
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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.
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
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547 86
FR 1204 (‘‘As emphasized in the NPRM,
and as the plain language of § 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.’’).
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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
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
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
549 See discussion regarding the Seventh Circuit’s
decision in Brant v. Schneider Nat’l, supra.
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).
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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
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.’’).
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contractual provisions that are relevant.
The examination is specific to the facts
of each economic relationship and
cannot be predetermined.
For all of the foregoing reasons, the
Department is finalizing the removal of
§ 795.110 of the 2021 IC Rule (Primacy
of actual practice). As discussed in
section V.C, § 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 § 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.
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 commonlyoccurring 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
553 87
FR 62259.
554 Id.
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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
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-thecircumstances 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
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.
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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
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
556 87
FR 62253.
557 Id.
558 Id.
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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.
Several comments suggested that the
Department include new industryspecific examples for various factors.
For instance, Gale Healthcare Solutions
requested that the Department provide
an example that would apply to ondemand 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.
559 87
560 Id.
FR 62254.
at 62255.
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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
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1723
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 professionspecific 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.
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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.
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F. Severability (§ 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
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
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
561 87
FR 62275 (proposed § 795.115).
562 Id.
563 Id.
at 62259.
generally id. at 62233.
564 See
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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
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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.
G. Amendments to Regulatory
Provisions at §§ 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.
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,
566 87
565 See,
e.g., Carlson v. Postal Regulatory
Comm’n, 938 F.3d 337, 351 (D.C. Cir. 2019).
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FR 62274.
88 FR 21879 (Apr. 11, 2023); 58 FR 51735,
51741 (Oct. 4, 1993).
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.
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 abovementioned executive orders.
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-thecircumstances 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
567 See
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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-thecircumstances 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.
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
569 See
86 FR 1168.
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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
570 See
CWI v. Walsh, 2022 WL 1073346.
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.’’
571 OMB
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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.
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.
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
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.
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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
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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
573 ‘‘New Study Finds Millions Could Lose Work
if U.S. Reclassifies Contractors,’’ April 6, 2022.
https://progresschamber.org/new-study-findsmillions-could-lose-work-if-u-s-reclassifiescontractors/.
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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.
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.
The Department believes that the
Current Population Survey (CPS)
Contingent Worker Supplement (CWS)
offers an appropriate lower bound for
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.
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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.
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
• Workers reporting that they are selfemployed are asked: ‘‘Are you selfemployed 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.
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.
576 The variables used are PES8IC=1 for selfemployed and PES7=1 for other workers.
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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
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 followup 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.
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to adjust its estimate of independent
contractors.
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
The CWS also uses proxy responses,
which may underestimate the number of
independent contractors. The RAND
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-topeer.’’ 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/19rpgigworkreplacing
traditionalemployment.pdf.
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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 upperbound 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
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
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.
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 Decisionmaking 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
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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
Conversely, another source of bias in
the CWS is that some workers who selfidentify 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.
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,
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.
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.’’).
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1729
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
593 Including, but not limited to: McKinsey Global
Institute, ‘‘Independent Work: Choice, Necessity,
and the Gig Economy’’ (2016),https://
www.mckinsey.com/featured-insights/employmentand-growth/independent-work-choice-necessityand-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/kocg1047720freeagent20
whitepaper20210x21020final2.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/19rpgigworkreplacing
traditionalemployment.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-economyresearch-policy-implications-regional-economicdemographic-trends/#ixzz5IpbJp79a; Dourado and
Koopman, ‘‘Evaluating the Growth of the 1099
Workforce,’’ Mercatus Center (2015), https://www.
mercatus.org/publication/evaluating-growth-1099workforce.
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’’
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Federal Register / Vol. 89, No. 7 / Wednesday, January 10, 2024 / Rules and Regulations
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.
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.).
TABLE 1—SUMMARY OF ESTIMATES OF INDEPENDENT CONTRACTING
Source
Method a
CPS CWS .......
Survey ....
ALP .................
Survey ....
Gallup .............
GSS QWL .......
Jackson et al ...
Lim et al ..........
Survey ....
Survey ....
Tax data
Tax data
Percent of
workers
Definition b
Independent
only).
Independent
only).
Independent
Independent
Independent
Independent
Sample size
Year
contractor, consultant or freelance worker (main
6.9
50,392 ............................
2017
contractor, consultant or freelance worker (main
7.2
6,028 ..............................
2015
contractor ..............................................................
contractor, consultant or freelancer (main only) ...
contractor, household worker ...............................
contractor ..............................................................
14.7
14.1
c 6.1
8.1
5,025 ..............................
2,538 ..............................
∼5.9 million d ..................
1% of 1099–MISC and
5% of 1099–K.
2017
2014
2014
2016
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.
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.
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
(2018), https://www.nber.org/papers/w24950, Table
4.
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/taxanalysis/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.
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-economicwell-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).
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/.
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2. COVID–19 Adjustment to the
Estimated Number of Independent
Contractors
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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 parttime 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.
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-millionamericans-freelancing-amid-turbulent-labormarket. 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.
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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 18to 24-year-olds, 41.3 percent did
informal work over the past month. The
rate fell to 25.7 percent for 45- to 54year-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
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.
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1731
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
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
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
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.
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-independentcontractor-activity.pdf.
609 Id.
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.
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TABLE 2—CHARACTERISTICS OF WORKERS, ALL WORKERS AND INDEPENDENT CONTRACTORS
Number of
workers
(millions)
Demographic
Total .......................................................................................................................
Percent of
workers
Number of
independent
contractors
(primary job)
(millions)
Percent of
independent
contractors
158.9
100
10.6
100
8.2
59.2
49.8
43.6
5.1
37.3
31.3
27.5
0.1
2.5
3.6
4.5
0.7
23.4
33.8
42.1
75.4
85.4
47.4
53.7
3.8
6.8
35.7
64.3
125.6
20.3
14.9
79.1
12.8
9.4
9.0
0.9
0.8
84.6
8.3
7.1
27.0
133.8
17.0
84.2
1.6
9.0
14.8
85.2
2.6
0.8
11.0
16.5
20.5
8.0
3.0
10.9
19.3
36.2
15.1
7.8
7.2
1.6
0.5
6.9
10.4
12.9
5.1
1.9
6.9
12.2
22.8
9.5
4.9
4.6
0.2
0.0
2.0
0.2
0.8
0.6
0.2
1.0
2.7
1.0
0.7
1.0
0.0
2.0
0.1
19.3
2.2
7.9
5.7
2.2
9.6
25.1
9.6
6.2
9.7
0.4
14.3
41.9
45.3
37.3
21.9
9.0
26.4
28.5
23.5
13.8
1.0
2.6
2.8
2.7
1.5
9.3
24.4
26.5
25.5
14.5
By Age
16–20 (Generation Z) ............................................................................................
21–37 (Millennials) .................................................................................................
38–52 (Generation X) ............................................................................................
53+ (Baby Boomers and Matures) ........................................................................
By Sex
Female ...................................................................................................................
Male .......................................................................................................................
By Race
White only ..............................................................................................................
Black only ..............................................................................................................
All other races ........................................................................................................
By Ethnicity
Hispanic .................................................................................................................
Not Hispanic ..........................................................................................................
By Industry
Agr, forestry, fishing, and hunting .........................................................................
Mining ....................................................................................................................
Construction ...........................................................................................................
Manufacturing ........................................................................................................
Wholesale and retail trade .....................................................................................
Transportation and utilities ....................................................................................
Information .............................................................................................................
Financial activities ..................................................................................................
Professional and business services ......................................................................
Educational and health services ............................................................................
Leisure and hospitality ...........................................................................................
Other services ........................................................................................................
Public administration ..............................................................................................
By Education
Less than high school diploma ..............................................................................
High school diploma or equivalent ........................................................................
Less than Bachelor’s degree .................................................................................
Bachelor’s degree ..................................................................................................
Master’s degree or higher .....................................................................................
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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
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of employed men who report being selfemployed 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
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-selfemployment-who-is-working-for-themselves-now/.
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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 selfemployed 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
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independent contractors, but the
Department has not made any
adjustments to its overall estimate of the
number of independent contractors.
C. Costs
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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.
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
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.
615 U.S. Census Bureau, 2019 SUSB Annual
Datasets by Establishment Industry. https://
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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.
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.
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
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.
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.
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.
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1733
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 × 1 hour ×
2,817,230) in 2022 dollars.
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
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.
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independent contractors in Year 1 are
estimated to be $259,233,000 ($23.46 ×
0.5 hour × 22.1 million).
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
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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.
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
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.’’).
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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.
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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.
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,
624 NELP, ‘‘Independent Contractor
Misclassification Imposes Huge Costs on Workers
and Federal and State Treasuries,’’ (Oct. 2020),
https://www.nelp.org/publication/independentcontractor-misclassification-imposes-huge-costsworkers-federal-state-treasuries-update-october2020.
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.
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-contractormisclassification-imposes-huge-costs-workersfederal-state-treasuries-update-october-2020.
627 Marina Zhavoronkova et al., Occupational
Segregation in America, Center for American
Progress (Mar. 29, 2022), https://www.american
progress.org/article/occupational-segregation-inamerica/.
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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, ridehail, and janitorial and building
service.629
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.
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
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-sgig-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.
630 29 U.S.C. 202(a), (b).
631 Id.
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-forWage-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-publiccost-of-low-wage-jobs-in-the-us-constructionindustry/.
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Department would anticipate benefits
for affected workers and businesses in
competition.
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
Additionally, a major source of
retirement savings is employersponsored 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.
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 parttime 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 fulltime 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
Employer cost
for benefit as a
share of employer
cost for wages
and salaries
(%)
(Q4 2022) a
Employer-provided benefit
Value of benefit
for the median
weekly wage
of a full-time
independent
contractor
($1017) d
Value of benefit
for the median
weekly wage
of a part-time
independent
contractor
($398) d
Health Insurance ................................................................................................
Retirement b .......................................................................................................
Paid Leave c .......................................................................................................
11.2
7.4
10.8
$113.90
75.26
109.84
$44.58
29.45
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
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As self-employed workers,
independent contractors are legally
obligated to pay both the employee and
employer shares of the Federal
Insurance Contributions Act (FICA)
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.
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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
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.
637 See 86 FR 1218.
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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.
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
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.
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
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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.
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.
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
Construction Industry, 13 (September 2019),
https://oag.dc.gov/sites/default/files/2019-09/OAGIllegal-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/oigreports/TIGTA/201330058fr_0.pdf.
642 Adjusted for inflation using the CPI–U, the
current value of this tax loss would be $4.5 billion.
643 NELP, supra n.553.
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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 selfemployed 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.
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
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).
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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.
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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.
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
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
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.
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).
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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.
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
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 selfemployment 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 lowincome tax filers who switched from
self-employment to a wage-earning job
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.
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.
651 This analysis can also be found at: https://oracfo.dc.gov/blog/self-employment-income-drop.
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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.
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.
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.
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
652 ‘‘Upwork Study Finds 59 Million Americans
Freelancing Amid Turbulent Labor Market,’’
Upwork, December 8, 2021, https://
www.upwork.com/press/releases/upwork-studyfinds-59-million-americans-freelancing-amidturbulent-labor-market. Full study available at
https://www.upwork.com/research/freelanceforward-2021.
653 E.O. 12866 section 6(a)(3)(C)(iii), 58 FR 51741.
654 See 86 FR 1238.
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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.
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
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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
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1739
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
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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
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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 generallyapplicable regulation in this
rulemaking. As with other enforcementrelated 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’’).
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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.
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
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/2017governments.html.
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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.
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
660 5
U.S.C. 603(c).
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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,
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1741
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
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.
2. Amend § 780.330 by revising
paragraph (b) to read as follows:
■
§ 780.330
farmers.
Sharecroppers and tenant
*
*
*
*
*
(b) In determining whether such
individuals are employees or
independent contractors, the criteria set
forth in §§ 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
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.
4. Amend § 788.16 by revising
paragraph (a) to read as follows:
■
§ 788.16
Employment relationship.
(a) In determining whether
individuals are employees or
independent contractors, the criteria set
forth in §§ 795.100 through 795.110 of
this chapter are used.
*
*
*
*
*
■ 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.
§ 795.100
Introductory statement.
This part contains the Department of
Labor’s (the Department) general
interpretations for determining whether
workers are employees or independent
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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.
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§ 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
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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.
§ 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-thecircumstances 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
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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, nonexclusive, 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
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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
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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
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1743
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.
§ 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
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Agencies
[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
[[Page 1638]]
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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.
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\1\ 29 U.S.C. 202.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\2\ 29 U.S.C. 203(d), (e)(1), (g).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
\11\ 87 FR 62218.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\18\ 29 U.S.C. 203(e)(1).
\19\ 29 U.S.C. 203(d).
\20\ 29 U.S.C. 203(g).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\30\ 322 U.S. at 118-20; 29 U.S.C. 152(3).
\31\ Id. at 123-25, 129.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\32\ 331 U.S. at 712-14.
\33\ Id. at 716.
\34\ Id.
\35\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\36\ 331 U.S. at 727.
\37\ Id. at 723-24.
\38\ Id. at 730.
\39\ See id.
\40\ Id. at 729-30.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\41\ 332 U.S. at 130.
\42\ Id.
\43\ Id.
\44\ Id.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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'').
---------------------------------------------------------------------------
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)).
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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\
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\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).
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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.'').
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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.
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\134\ See 86 FR 1196-97.
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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.
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\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.
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\136\ Id. at 1246-47 (Sec. 795.105(c), (d)).
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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.
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\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.
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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.
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\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.
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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'').
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\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.
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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\
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\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).
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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.
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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 co