The Department of Labor has withdrawn its January 7, 2021, independent contractor rule, effective immediately. That rule set out a simple test that stressed two key factors for employers to use when determining whether to classify workers as “employees” or “independent contractors” for purposes of Fair Labor Standards Act (FLSA) compliance. The FLSA governs when employees must be paid minimum wage and overtime, among other things. Dealerships historically see worker classification issues with respect to dealer exchange drivers, detailers and other workers providing services to dealerships.
After reviewing prior case law and guidance on worker classification, the DOL is stating that businesses, including dealerships, should apply the old “economic reality” test when classifying workers. The test typically involves six factors. The first two relate to whether workers are economically dependent on another’s business or are in business for themselves:
- The nature and degree of control over the work
- The worker’s opportunity for profit or loss based on initiative and/or investment
Four other factors typically are considered, particularly when the two factors above do not point to the same classification:
- The amount of skill required for the work
- The degree of permanence of the working relationship between the worker and the dealership
- The amount of the worker’s investment in facilities and equipment
- The extent to which the worker’s services are an integral part of the dealership’s business
As always, actual worker and dealership practices are more relevant than what may be contractually or theoretically possible. Dealerships are urged to contact labor counsel when worker classification issues arise. Important: state wage and hour laws may treat this issue differently. Questions on DOL’s withdrawal of the independent contractor rule can be directed to [email protected].
Chairman, Regulatory Affairs Committee