In response to the U.S. Department of Labor’s proposed regulation released to the public on October 11, 2022 entitled “Employee or Independent Contractor Classification under the Fair Labor Standards Act,” an unprecedented number of comments – 52,644 – were posted by individuals and organizations as of 11:30 pm Eastern Time this evening, December 13, 2022, only one-half hour prior to the deadline to submit comments.  [Publisher’s note 12/19/22:  The number of comments recorded as of 11:59 pm on December 13, according to Regulations.gov., was 55,403.]  On the date the Labor Department released its proposed rule, we issued a comprehensive blog post entitled, “The Labor Department’s Independent Contractor Rule Has Little If No Legal Impact But Is Likely to Cause Anxiety for Many Stakeholders.” We asked in the introductory paragraph of that post, “What does this mean legally for both workers and businesses who are currently classified as ICs?”  Our response was:  “Not much, … since it is the courts that create law on this subject, not regulatory agencies.  But as a practical matter, the issuance of the proposed regulation, once finalized, will likely create anxiety among businesses and many of those who currently receive 1099s that the ground beneath them is shifting.  It will also give impetus to some workers who currently receive 1099s to file class actions seeking minimum wage or overtime payments under federal and state laws.”  Set forth below are the comments filed by the publisher of this legal blog on December 12, 2022.

COMMENTS AS FILED BY THIS BLOG’S PUBLISHER

The proposed rule in 29 C.F.R. section 795.110(1)-(6) specifically lists six so-called “economic reality factors” to be considered in determining the independent contractor or employee status of a worker, and then adds in section 795.110(b)(7), a generic seventh factor entitled “additional factors” that may be relevant.  Each of those seven factors is the subject of the comments below, followed by the reasons for each such comment.

Comment 1.  The first economic reality factor listed in the proposed rule is the “opportunity for profit or loss depending on managerial skill.”  See 29 C.F.R. 795.110(b)(1).  The proposed rule then states that certain specified facts can be relevant to determining independent contractor or employee status; however, some of the facts listed in the proposed rule actually have little or no relevance to managerial skill or, for that matter, whether a worker is an independent contractor or employee.  The few facts that may be relevant to a worker status determination are not present in many workplace contexts and some of the factors apply as often to workers who are employees are they do to workers who are independent contractors.  Finally, the one key fact pertaining to the opportunity for profit or loss – managerial efficiency – is not listed as a fact that should be considered for this factor. The final rule should properly address these matters and workplace realities.  

Reasons for Comment 1.

The first factor in 29 C.F.R. section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is the “(1) Opportunity for profit or loss depending on managerial skill.” The proposed rule states as follows:

“This factor considers whether the worker exercises managerial skill that affects the worker’s economic success or failure in performing the work. The following facts, among others, can be relevant: whether the worker determines or can meaningfully negotiate the charge or pay for the work provided; whether the worker accepts or declines jobs or chooses the order and/or time in which the jobs are performed; whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work; and whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space. If a worker has no opportunity for a profit or loss, then this factor suggests that the worker is an employee. Some decisions by a worker that can affect the amount of pay that a worker receives, such as the decision to work more hours or take more jobs, generally do not reflect the exercise of managerial skill indicating independent contractor status under this factor.”

Each of those five facts mentioned in factor 1 is addressed below.

a.  The first fact mentioned in this factor, addressing whether the worker determines or can meaningfully negotiate the charge or pay for the work provided, has absolutely no relevance to managerial skill as a matter of common sense and business sense. If a service recipient seeks service providers to perform a project, set of tasks, or deliverables or results, the negotiation or not of the financial compensation for such work by the service provider ordinarily has nothing to do with their “managerial skill.”

Negotiation “of the charge or pay” for services (or the absence of any such negotiation) has, however, been deemed by some courts as a separate or additional factor bearing on the independent contractor status of the worker, so it would make sense, on the one hand, to include this as an “additional factor” under 795.110(b)(7).

On the other hand, however, this fact oftentimes has no pertinence to independent contractor or employee status.  Many employees “negotiate” their starting salaries with new employers, who oftentimes will ask a prospective new employee in the interview phase of retention about their salary expectations, and based on such negotiations and discussions will agree to increase a new employee’s starting salary.  Likewise, many service recipients offer service providers they classify as independent contractors a pre-established or set amount for a project, tasks, or results based on the offering party’s calculation of a reasonable return on investment.

In sum, not only does this fact have nothing to do with managerial efficiency, the presence or absence of negotiation of the compensation for the services is not particularly useful in determining whether many types of workers are employees or independent contractors.  At most, negotiating the fees of the service provider should be added as a specific “additional factor” in the final rule in 29 C.F.R. section 795.110(b)(7) as it may be relevant in some circumstances to a worker’s classification status.

b.  The second fact noted in this first factor is “whether the worker accepts or declines jobs.” This likewise has no direct relationship to managerial skill; it can merely be a matter of choice.  That does not mean that affording a worker the right to accept or decline a job is not sometimes a factor bearing on their status as independent contractor or employee; indeed, it relates often to economic independence or dependence.  Further, what is key is not whether the worker accepts or declines jobs, but rather whether the worker has the right to accept or declines jobs.  This should be one of the many “additional factors” considered by the Department of Labor and specifically listed in the final rule in 29 C.F.R. section 795.110(b)(7).

c.  The third fact mentioned in this factor – whether the worker “chooses the order and/or time in which the jobs are performed” – is often related to managerial skill. However, there are times when the worker does not choose the order of the jobs performed, such as where there is a single task to perform, where a customer dictates the time when a task must be performed (such as allocating loading dock times for different distributors of products), or where the order of tasks is dictated by the nature of the work or industry standards.  Similarly, the time in which a job is to be performed (i.e., how long to spend on a task) can also be related to managerial skill, but sometimes spending too little time on a task is hardly related to managerial skill and sometimes reflects nothing more than performing a task inadequately or in a marginally acceptable way. Further, the order in which workers perform their services and the time in which the services are performed are just as variable for employees as they are for independent contractors.  The listing of those facts dealing with the order of work and the time in which to perform such work is not particularly meaningful to independent contractor or employee status unless the rule were to add the following language: “where the nature of the job is such that these facts are related to the managerial skill of the worker.” These words should be added where appropriate in the final rule.

d.  The fourth fact mentioned in this factor is “whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work.” This can certainly be pertinent to whether a worker is an independent contractor or employee, but it has little to do with “managerial skill.”  Rather, it relates to managerial “initiative,” a word that the first factor should use in addition to or instead of “skill.” This factor should therefore be one of the “additional factors” in 29 C.F.R. 795.110(b)(7).

Further, some independent contractors are so much in demand that work finds them and they have no need to market, advertise, or expand their business.  The fourth fact should more appropriately be listed as whether the worker “has the opportunity to engage or has engaged in marketing, advertising, or other efforts to expand their business or secure more work.” (Emphasis added.)  Indeed, because the first factor is related to the “opportunity for profit or loss,” it should focus on the “opportunity” for the worker to expand their business, not only whether they have exercised that opportunity.  If a group of workers has the opportunity to expand their business but some choose to do so and others choose not to do so, this does not suggest the worker who is less motivated is not an independent contractor but rather an employee.  The final rule should add the word “opportunity” as noted above and relegate marketing, advertising, and efforts to expand business to the 29 C.F.R. section 795.110(b)(7)’s “additional factors.”

e.  The fifth fact noted in this factor is “whether the worker makes decisions to hire others, purchase materials and equipment, and/or rent space.” While these facts may in some instances relate to the opportunity for profit or loss depending on managerial skill, some services do not need rental space, do not require the purchase of materials, and do not need helpers to complete the tasks.  Like the third fact listed in item c. of this Comment 1, the final rule should add the words, “where the nature of the job is such that these facts are related to the managerial skill of the worker.”

The opportunity for profit or loss is a meaningful factor in determining independent contractor status.  But one of the key facts related to this factor is missing:  managerial efficiency: how to perform the services satisfactorily and consistent with industry standards in an efficient manner.  The final rule should reference “efficiency” in connection with the first economic reality factor.

This first ecoonomic reality factor focusing on profit and loss should also revise the wording of the factor: the phrase should not be the “opportunity for profit or loss” but rather the “opportunity for profit and/or the risk of loss.” (Emphasis added.)  Employees typically do not have a risk of loss, unlike independent contractors.  Risk of loss has been found to be a relevant factor by courts in determining independent contractor status and should be included in the final rule.  For example, workers can be subject to loss if, for example, they have to re-do work that is not consistent with industry standards or does not meet a customer’s expectations; to the extent they may be potentially liable to a purported employer under a contractual indemnification clause in the event their actions or inactions cause harm or legal expense to the purported employer; or they fail to render services in a cost-efficient manner by not managing expenses or investing far too much time on activities that are unproductive.  These and other examples of risk of loss should be identified in this first factor so it is clear it does not focus only on profit.

Comment 2.  The second economic reality factor listed in the proposed rule is the “investments by the worker and the employer.”  See 29 C.F.R. section 795.110(b)(2).  The proposed rule then states that “costs borne by a worker to perform their job (e.g., tools and equipment to perform specific jobs and the worker’ labor) are not evidence of capital or entrepreneurial investment and are indicate employee status” whereas “[i]nvestments that are capital or entrepreneurial in nature … indicate independent contractor status.” While the latter is undoubtedly true – capital investments typically support independent contractor status – the former is hardly consistent with workplace realities, and the final rule should make this distinction.   

Reasons for Comment 2.

The second factor in section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is “(2) Investments by the worker and the employer.” The proposed rule states as follows:

“This factor considers whether any investments by a worker are capital or entrepreneurial in nature. 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. 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 employer’s investments in its overall business. The 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.”

While some employees in certain specialized trades (such as plumbing) may purchase some of their own tools or equipment, most employees in  most occupations do not purchase their own tools and equipment, which are typically purchased by their employer and provided to employees without charge.  Independent contractors, on the other hand, provide their own tools and equipment.  Thus, the main thrust of this factor is out of touch with the realities of the workplace and the overwhelming number of court decisions.

The second-to-last sentence of this factor, which focuses on a comparison between a worker’s investment and the purported employer’s investment is also out of touch with workplace reality.  Few independent contractors operating as sole proprietorships, limited liability companies, or corporations are likely to have anywhere close to the amount of investment in their small business that a large company will have that engages them.  While the proposed rule states that “[t]he worker’s investments need not be equal to the employer’s investments,” the clear inference is that almost no workers will ever have, as a practical matter, anywhere close to the amount of the investment of the companies that engage them.   As such, this factor will almost always weigh in favor of employee status, which is wholly inconsistent with the way this factor has been treated by the courts.

The final rule should reevaluate this factor and make it clear that purchases of tools and equipment may well be indicative of independent contractor status, that relatively minor investments should not be regarded as favoring independent contractor status where employees in the same industry also make similar investments, and that a far greater capital investment by a purported employer compared to the capital investment of a worker is not typically indicative of a worker’s employee status.

Comment 3.  The third economic reality factor listed in the proposed rule is the “Degree of permanence of the work relationship.”  See 29 C.F.R. section 795.110(b)(3).  The proposed rule provides a one-size-fits-all proposition that indefinite or continuous relationships weighs in favor of employee status when there are numerous situations where such relationships are fully consistent with a legitimate independent contractor relationship involving a long-term customer relationship, especially where the indefinite or continuous relationship is not exclusive in nature.  The proposed rule also seems to require independent contractors to market their services to multiple entities instead of focusing on their right to market their services to multiple entities even if they choose not to do so. The final rule should properly recognize these situations that give context to workers’ indefinite or continuous relationships with their own long-term customers.

Reasons for Comment 3.

The third factor in section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is “(3) Degree of permanence of the work relationship.” The proposed rule states as follows:

“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. 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, rather than the workers’ own independent business initiative, this factor is not indicative of independent contractor status.”

A rule suggesting that indefinite or continuous work is indicative of employee status is inconsistent with a host of legitimate independent contractor relationships with customers that are indefinite in duration even when there is no exclusive working relationship.  Some examples include a gardener who has provided service weekly to a homeowner customer for 20 years and provides services to other homeowners as well; a distributor who has chosen to operate his or her own business distributing a company’s products yet permitted to distribute products manufactured by other customers; and a tutor who has provided frequent tutoring services to the same family’s children throughout their school years and provides tutoring services to many other customers.  The final rule should acknowledge that while permanence may indicate employee status, a worker’s decision to continue a profitable continuous relationship with the same company or customer does not necessarily suggest employee status, particularly when the worker has a right to provide their services to others as well.

In addition, the proposed rule states that relationships that are definite in duration, non-exclusive, project-based, or sporadic are indicative of independent contractor status where the workers are “marketing their services or labor to multiple entities” (emphasis added), whereas it would be far more appropriate if the proposed rule had stated, where the workers “have the right to market their services or labor to multiple entities” (emphasis added).  A large group of workers may all have the right to market their services to multiple entities but one or more may elect not to do so for a variety of individual business reasons, and the election not to exercise such right should not be deemed indicative of employee status.  The final rule should make this change by adding the italicized words above regarding a right to market their services.

Comment 4.  The fourth economic reality factor listed in the proposed rule is the “Nature and degree of control.”  See 29 C.F.R. section 795.110(b)(4).  The proposed rule fails to distinguish control over the manner and means of performing the work (i.e., how the work is to be performed) in contrast to control over the results of the work performed – the latter not being indicative of employee status according to the overwhelming number of court decisions. The proposed rule suggests that the use of technology is a means to supervise workers, but it fails to recognize that some forms of technology are simply used to verify a worker’s fulfillment of contractually agreed upon results.  The proposed rule also indicates that workers who choose to fulfill results on a full-time are more likely to be employees even if they choose to perform the work themselves instead of exercising a right to engage helpers. The proposed rule also places undue emphasis on a purported employer setting the price with its customers for services rendered by a service provider, suggesting that control over prices is indicative of employee status.  Similarly, the proposed rule places undue emphasis on whether workers negotiate their compensation for services rendered or their labor, even though many employees regularly negotiate their pay and many independent contractors in business for themselves regularly accept a service recipient’s offer to perform services at an established rate.  The proposed rule also seeks to disregard long-established judicial decisions that a worker’s agreement to abide by the law, adhere to a company’s safety and security policies when working onsite, and complying with customer service standards are not indicative of employee status.  The final rule should properly address these matters and do so in a manner consistent with court decisions and workplace realities.

Reasons for Comment 4.

The fourth factor in section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is “(4) Nature and degree of control.” The proposed rule states as follows:

“This factor considers the employer’s control, including reserved control, over the performance of the work and the economic aspects of the working relationship. Facts relevant to the employer’s control over the worker include whether the 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 employer’s control over the worker include whether the employer uses technological means of supervision (such as by means of a device or electronically), reserves the right to supervise or discipline workers, or places demands on workers’ time that do not allow them to work for others or work when they choose. Whether the 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. 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. More indicia of control by the employer favors employee status; more indicia of control by the worker favors independent contractor status.”

This factor of the proposed rule focuses on the “performance of work.” This term, however, fails to note the distinction made by the courts between control over the manner and means by which the services are performed as opposed to control over the results of the work performed – the former being an indication of employee status, whereas the latter is not.  By using the term “performance of work,” the proposed rule will lead to a failure by the Department of Labor to recognize and carry out this critical distinction.  The final rule should make this distinction consistent with court decisions.

To illustrate this point, an independent contractor plumber retained by a managing agent of an apartment complex to unclog a drain or install a new toilet, for example, has to be told “what” to do and of course, when and where to perform his/her task.  Thus, control over what, where, and when are not necessarily meaningful to an independent contractor analysis.  If the potential employer, on the other hand, controls how the plumber should perform the work or retains the right to do so, that factor would favor employee status.  Thus, the wording of the proposed rule regarding control by a potential employer “over the performance of the work” is not particularly meaningful and may lead to erroneous conclusions as to whether workers are employees or independent contractors.

The proposed rule also addresses technology, suggesting that it is a means of supervision.  Technology is ubiquitous in the workplace regardless of whether it is used to “supervise” or rather to “verify” performance, the former being a use that is indicative of employee status to the extent it relates to control over the manner and means of performance, whereas the latter is indicative of an entity’s right to ensure that the contracted services (i.e., the deliverables or results) have been performed.  The final rule should distinguish these two uses of technology and not lump the use of all technology into a form of supervision.

The proposed rule states that a purported employer that places demands on workers’ time, with the result that it prevents them from working for others or working when they choose, is a factor indicating employee status.  However, the rule does not take into account the circumstance of whether workers have the right to delegate any part of the work to one or more helpers so that they can spend their time providing services to others, regardless of whether they choose to exercise their right to delegate the work.  Likewise, the proposed rule suggests that offering engagements that require work at a particular time is indicative of employee status, even if the circumstances regarding the nature of the work may require that services be provided only at times when customers need such services or only when certain facilities are open. The final rule should recognize that these circumstances should be taken into account in determining the worker’s classification.

The proposed rule also fails to recognize that control over prices charged to customers is not the type of economic control that most courts deem meaningful in determining independent contractor or employee status.  The courts have never held that legitimate independent contractors turn into employees simply because a purported employer, which engages a service provider to provide services to a customer of the purported employer, negotiates the price of such services with the customer, regardless of whether the purported employer sets the rate for which it will pay service providers for their services.  Likewise, as a practical matter, a company engaging thousands of workers to perform services for customers and to permit them to do so in a manner and means determined by the worker cannot operate efficiently by having to negotiate different rates with each of the workers.  The final rule should specifically exclude any reference to prices and should give little if any weight to a worker agreeing to work for a set rate.  Indeed, as noted earlier in the comments to the first factor, many employees negotiate their rates of pay and many legitimate independent contractors readily accept a service recipient’s offer to pay an established rate for requested services.

The proposed rule goes far overboard and is wholly inconsistent with prevailing case authority when it states that “[c]ontrol implemented by the employer for purposes of complying with legal obligations, safety standards, or contractual or customer service standards may be indicative of control.”  With regard to an employer’s insistence that a worker comply with the law, the courts have overwhelmingly determined that requiring workers to abide by the law is not the type of control that is meaningful in determining independent contractor status.  Similarly, imposing safety standards upon independent contractors to ensure that they do not risk the safety of the purported employer’s own employees is a prudent and long-standing workplace standard that the courts have not generally treated as indicative of employee status.  Indeed, it is typical for all contractors and others who visit a company’s worksite to adhere to safety and security rules to protect the company’s employees and customers.

A purported employer that agrees to honor a customer’s service standards and enters into an agreement with a service provider to honor such customer’s service standards is hardly imposing its control over the worker.  For the reasons in items e. and f., above, the final rule should delete any reference to a purported employer and worker agreeing that the worker will comply with law, meet the same safety considerations as all those who enter its workplace, and satisfy customer service standards imposed by a customer.

The final sentence of the fourth factor should also be revised: it states that the “[m]ore indicia of control by the [purported] employer favors employee status.”  Once again, the rule fails to differentiate, as do the courts, between control over the manner and means of performance (which favors employee status) in contrast to control over the performance of results (which does not typically impact employee status).  The final sentence should instead state that the “[m]ore indicia of control by the [purported] employer over the manner and means of performing the services favors employee status.” (Emphasis added.)

Comment 5.  The fifth economic reality factor listed in the proposed rule is the “Extent to which the work performed is an integral part of the employer’s business.”  See 29 C.F.R. section 795.110(b)(5).  The proposed rule merely provides a very short description of what is or is not an integral part of the purported employer’s business and provides no illustrations or examples.  The final rule should do so.  

Reasons for Comment 5.

The fifth factor in section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is “(5) Extent to which the work performed is an integral part of the employer’s business.” The proposed rule states as follows:

“This factor considers whether the work performed is an integral part of the 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. This factor weighs in favor of the worker being an employee when the work they perform is critical, necessary, or central to the 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 employer’s principal business.”

This factor has traditionally been regarded by the courts as being the least meaningful of all the economic reality factors.  It is also inconsistent with common business practices because few companies themselves perform with their own employees all work that is “critical, necessary, or central to the [purported] employer’s principal business.”  The words “an integral part of the [purported] employer’s business” are not synonymous with work that is “critical, necessary, or central” to a company’s enterprise. For example, many companies manufacture products and do not distribute their products.  Is distribution “critical, necessary, or central” to a manufacturer’s business?  Some companies market for customers who need tutoring services but have no tutors and simply refer students and their families to qualified independent tutors who have their own customers as well as customers referred to them by such marketing companies.  Is the work of tutors “critical, necessary, or central” to the tutor marketing company?

The final rule should make clear by examples what the Department of Labor considers to be critical, necessary, or central to an illustrative number of companies, as well as indicating that this factor is far less meaningful in determining independent contractor or employee status than certain of the other factors, such as control over the manner and means of performance of the work.

Comment 6.  The sixth economic reality factor listed in the proposed rule is “Skill and initiative.”  See 29 C.F.R. section 795.110(b)(6).   But in describing this factor, the rule focuses on “specialized skills” but provides no explanation of which skills are “specialized” and which are not.  The final rule should do so.  Further, the proposed rule requires that such specialized skills be utilized “in connection with business-like initiative” in order for such skills to indicate an independent contractor relationship.  The proposed rule does not explain the connection, and those two concepts – specialized skills and business initiative – are wholly different concepts. Absent any explanation connecting them, the proposed rule provides no meaningful guidance to the public.  The final rule should give an example or illustration of how these two concepts supposedly intersect.  

Reasons for Comment 6.

The sixth factor in section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is “(6) Skill and initiative.” The proposed rule states as follows:

“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 employer to perform the work. Where 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.”

The proposed rule adds the word “specialized” before the word “skills” and then seems to only recognize such specialized skills that “contribute to business-like initiative” as indicative of independent contractor status.  The proposed rule, however, gives no examples or illustrations about what would or would not be regarded as a “specialized” skill.  The final rule should do so.

Further, the proposed rule introduces the notion of business initiative, which is a concept that should have been considered in the first factor dealing with “opportunity for profit or loss depending on managerial skill,” as noted in Comment 1.  In addition, the language of the proposed rule links specialized skills with business initiative. Those are two different concepts.  There are many legitimate independent contractors that do not have “specialized skills” but who regularly demonstrate business initiative.  To suggest that business initiative must be associated with specialized skills is limiting the application of this factor to a situation that is not commonplace.  At a bare minimum, the final rule should seek to explain what the Department of Labor means by connecting those two concepts.

For example, a limousine or “black car” driver may have limited skills, but can be an independent contractor if he or she purchases a right to be offered engagements for private rides and exercises his or her contractual rights in a manner that turns a profit, without being subject to any control by the potential employer over how the driver performs his or her work.

The proposed rule mentions “training” as indicative of employee status, but it fails to differentiate between two very distinctive types of training:  one, training as to “how” to perform the services, in contrast to training about a software program to record the worker’s performance of contracted for services and/or to deliver such services in a manner that can be used by the purported employer or its customers. Before the advent of computers, many legitimate independent contractors delivered their services in writing, oftentimes in lengthy reports.  Today, most service recipients and their customers want deliverables to be communicated to them by electronic means.  Training how to use such electronic platforms has nothing to do with training how to perform the services, and therefore should be clarified in the final rule.

Comment 7.  After the proposed rule in Section 795.110 lists six economic reality factors to be considered in determining independent contractor or employee status of a worker, it then adds a seventh entitled “additional factors” that may be relevant.  This factor of “additional factors” should include a listing of relevant additional factors based on decisions by the courts.

Reasons for Comment 7.

The seventh factor in section 795.110(b) of the proposed rule for determining employee and independent contractor classification under the FLSA is “(7) Additional factors.” The proposed rule states as follows:

“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 employer for work.”

This seventh factor dovetails with the reference in 29 C.F.R. 795.110(a)(2) that the six specifically listed factors “are not exhaustive” and that “[c]onsistent with the totality-of-the-circumstances analysis, no one factor or subset of factors is necessarily dispositive, and the weight to be given to each factor may depend on the facts and circumstances of the particular case.”

The proposed rule, however, fails to identify any of the many additional factors that the courts have considered in determining a worker’s or group of workers’ independent contractor or employee status under the FLSA.  It would be extremely helpful to the public for the proposed rule to list a number of such factors.

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.

The final rule should mention at least some of these or other additional factors the Department of Labor deems relevant; otherwise, many pertinent factors bearing on a worker’s classification are far less likely to be considered.

Finally, some of the “facts” listed in the first factor do not relate to “opportunity for profit or loss depending on managerial skill” and should instead be included in this final factor of “additional factors,” such as “negotiat[ion of] the charge or pay” for services (or the absence of any such negotiation); whether the worker “accepts or declines jobs” or has the right to do so; and whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work.

These comments are attributable solely to Richard Reibstein as publisher of this legal blog and are not intended to reflect the views of Locke Lord LLP, other lawyers at the firm, or clients of the firm.