On Thursday NJCJI hosted a webinar for the business community outlining the US Department of Labor’s proposed regulations which would adopt the economic reality test to determine an individual’s status – independent contractor or employee – under the Fair Labor Standards Act. Currently, there is no clear test to make this determination.
In announcing the proposal, USDOL Secretary Eugene Scalia stated, “Part of what’s notable about this proposed rule is simply that we’re doing it…employers and workers looking for guidance have …to parse the sometimes-divergent decisions of the federal courts of appeals, and opinion letters the Labor Department issues occasionally without public notice or input.”
The central inquiry under the FLSA of an individual’s status as an employee or independent contractor is whether, as a matter of economic reality the individual is economically dependent on the potential employer for work. The determination of economic dependence would be made after applying the economic reality test.
As proposed, the regulation would recalibrate and codify the existing economic reality test. The test would include five factors, but be heavily weighted towards two “core factors,” the nature and degree of control over the work (to include exclusivity of relationship) and the opportunity for profit and loss (to include investment made by worker). The three other factors are skill required, permanence of working relationship, and integrated unit factors.
The USDOL summarized the significance of the two core factors as follows, “In sum, the two core factors drive at the heart of the economic dependence question because they bear a causal relationship with the ultimate inquiry. A worker’s control over the work and the opportunity for profit or loss are generally what transforms him or her from being economically dependent on an employer as a matter of economic reality into being in business for him- or herself. This is not so with the other factors. Possessing a specialized skill, having a temporary working relationship, and not being part of an integrated unit of production are certainly characteristics shared by many workers who are in business for themselves. But they are often indicators rather than essential elements of being in business for oneself.”
While the USDOL proposal is excellent news, it does not change the NJ unemployment insurance law’s A-B-C test or the legislative proposal to further restrict state standards for worker classification. We will need to continue our vigilance as a broad based coalition to see that a reasonable across the board test for employment is adopted in NJ.
NJCJI will be circulating draft comments supporting the proposal next week to all coalition participants to review and consider signing on to. Comments are due October 26, 2020. If you wish to discuss this in greater detail contact Eric DeGesero at firstname.lastname@example.org or 973-464-9504.