The Department of Labor this morning issued a final rule that will change how senior living companies and other employers determine who is an employee and who is an independent contractor.
The rule is effective March 11.
“The misclassification of employees as independent contractors may deny workers minimum wage, overtime pay and other protections,” the Labor Department said in an online post. “This final rule will reduce the risk that employees are misclassified as independent contractors while providing a consistent approach for businesses that engage with individuals who are in business for themselves.”
The rule also ensures that “employers that comply with the law are not placed at a competitive disadvantage when competing against employers that misclassify employees,” the department said in an email.
According to the DOL, the final rule:
- Restores the multifactor, totality-of-the-circumstances analysis to assess whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.
- Ensures that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
- Uses the longstanding interpretation of the economic reality factors. Those factors include 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 the worker’s skill and initiative.
The new rule also rescinds one issued during the final days of the Trump administration in January 2021. The Labor Department under the Biden administration had sought to delay the rule, and then withdrew it in May 2021, believing that it was inconsistent with the FLSA’s text and purpose. A district court, however, in March 2022 determined that the rule had taken effect on its original effective date and remained in effect.
That rule, Solicitor of Labor Seema Nanda said at the time, “legally risked increasing instead of reducing misclassifications because it narrowed the facts and basis for determining whether a worker is an employee under the FLSA” and was ”out of sync” with what the courts had been saying for decades.
In June 2022, the DOL announced plans to hold public forums to gather feedback on writing a new rule. A proposed rule was issued in October of that year.
Tuesday, the Labor Department said it had received “thousands of comments from a diverse array of stakeholders that helped inform the regulatory updates” during a comment period that was open through November 2022.
The rule issued Tuesday has not been published in the Federal Register yet but is available as a PDF. Read it here.
Editor’s note, Jan. 10: Read the follow-up story with industry reaction here.
