Department of Labor issues guidance on worker classification

The Department of Labor recently issued new guidance regarding worker classification as it considers rescinding a 2024 rule.

On May 1, the department’s Wage and Hour Division informed staff that it will no longer apply the 2024 independent contractor rule when enforcing the Fair Labor Standards Act during investigations. Replacing a rule that was finalized during President Donald Trump’s first term in 2021, the 2024 rule is being challenged in court by a variety of stakeholders, including lawsuits filed by two trucking companies.

The Department of Labor’s enforcement guidance is similar to the 2024 rule in principle. Because of that, the situation may not change for many companies and workers, including trucking companies and owner-operator truck drivers.

More substantial changes to independent contractor classification may be ahead.

2024 independent contractor rule

In January 2024, the Department of Labor replaced a 2021 independent contractor rule that was considered more employer-friendly.

In his final days in office during his first term, Trump issued the first independent contractor classification regulation. Before the 2021 rule, employment determination was based on agency guidance and court rulings that drew from a number of tests and factors.

The 2021 rule looked at five factors when determining whether a worker is an independent contractor:

1. Nature and degree of control
2. Opportunity for profit or loss based on initiative, investment or both
3. Skill required for the work
4. Permanence of the work relationship
5. Whether the work is part of an integrated unit of production

The first two factors were considered “core factors.” If those core factors clearly favored an independent contractor, the determination was made. If the core factors were more ambiguous, then the remaining three factors were available for further guidance.

Under former President Joe Biden, the Department of Labor delayed the start date before officially withdrawing the rule and replacing it with a new one.

Although the 2024 rule included similar factors to consider, it looked at the totality of the factors. Each factor had equal weight, with no factors being more determinative than the others.

Proponents of the 2024 rule have claimed it would solve widespread issues of misclassification. Opponents have argued the more ambiguous six-factor economic reality test would force employers to reclassify bona fide independent contractors as employees.

What does new guidance do?

The Department of Labor’s new guidance retains the totality of factors seen in the 2024 rule while ignoring all of the regulatory details.

Specifically, the department is using 2008 guidance that points to seven factors that courts have looked at in employment classification lawsuits:

1. Extent to which the services rendered are an integral part of the principal’s business
2. Permanency of the relationship
3. Amount of the alleged contractor’s investment in facilities and equipment
4. Nature and degree of control by the principal
5. Alleged contractor’s opportunities for profit and loss
6. Amount of initiative, judgment or foresight in open market competition with others required for the success of the claimed independent contractor
7. Degree of independent business organization and operation

As in the 2024 rule, none of those factors has more weight than the other when determining whether a worker is an independent contractor.

When it comes to making that determination, Department of Labor investigators are working off that framework. Although similar to the 2024 rule, there is something missing: 339 pages of a final rule. By eliminating that context, the department will have more discretion when determining who is an independent contractor.

Essentially, the new guidance puts employers back to where they were before the 2021 rule. For trucking companies and owner-operators, not much has changed … for now.

As of press time, the 2024 rule was still intact, but that may change. In its guidance letter, the Department of Labor pointed out that the 2024 rule is still valid and that it is merely choosing not to enforce it. LL