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Federal Register / Vol. 86, No. 86 / Thursday, May 6, 2021 / Rules and Regulations
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The Independent Contractor Rule explained that its purpose was to establish an economic realities test that improved on prior articulations that the Rule viewed as unclear and unwieldy. 51 It stated that the existing economic realities test applied by WHD
and courts suffered from confusion regarding the meaning of economic dependence, a lack of focus in the multifactor balancing test, and confusion and inefficiency caused by overlap between the factors.52 The Rule explained that the shortcomings and misconceptions associated with the test were more apparent in the modern economy and that additional regulatory clarity would promote innovation in work arrangements.53
The Independent Contractor Rule further explained that under the FLSA, independent contractors are not employees and are therefore not subject to the Acts minimum wage, overtime pay, or recordkeeping requirements.54
The Rule would have applied an economic dependence test under which a worker is an employee of an employer if that worker is economically dependent on the employer for work and is an independent contractor if that worker is in business for him or herself.55
The Rules new economic realities test would have identified five economic realities factors to guide the inquiry into a workers status as an employee or independent contractor.56 These factors would not have been exhaustive, and additional factors would have been considered if they in some way indicated whether the worker was in business for himor herself, as opposed to being economically dependent on the potential employer for work. 57 Under the Rules economic realities test, no one factor would have been dispositive, but two of the identified factors were designated as core factors that would have carried greater weight in the analysis. If both of those factors indicated the same classification, as either an employee or an independent contractor, there would have been a substantial likelihood that the classification indicated by those factors was the workers correct classification.58
In support of this elevation of two core factors, the Rule noted that the Department had conducted a review of FR 1172.
FR 117275.
53 See 86 FR 1175.
54 See 86 FR 1246 795.105a.
55 See 86 FR 1246 795.105b.
56 See 86 FR 1246 795.105c.
57 86 FR 124647 795.105c & d2iv.
58 86 FR 1246 795.105c.

appellate case law since 1975, and this review indicated that courts of appeals had effectively been affording the control and opportunity factors greater weight.59
The first core factor was the nature and degree of control over the work, which would have indicated independent contractor status to the extent that the worker exercised substantial control over key aspects of the performance of the work, such as by setting his or her own schedule, by selecting his or her projects, and/or through the ability to work for others, which might include the potential employers competitors.60 Under the Rules analysis, requiring the worker to comply with specific legal obligations, satisfy health and safety standards, carry insurance, meet contractually agreed upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses as opposed to employment relationships would not have constituted control.61
The second core factor was the workers opportunity for profit or loss.62
This factor would have weighed towards the worker being an independent contractor to the extent the worker has an opportunity to earn profits or incur losses based on either his or her exercise of initiative such as managerial skill or business acumen or judgment or his or her management of investment in or capital expenditure on, for example, helpers or equipment or material to further the work.63 While the effects of the workers exercise of initiative and management of investment would both have been considered under this core factor, the worker did not need to have an opportunity for profit or loss based on both initiative and management of investment for this factor to have weighed towards the worker being an independent contractor.64 This factor would have weighed towards the worker being an employee to the extent the worker is unable to affect his or her earnings or is only able to do so by working more hours or faster.65
The Rule would have also identified three other non-core factors: The amount of skill required for the work, the degree of permanence of the working relationship between the worker and the employer, and whether
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FR 1198.
86 FR 124647 795.105d1i.
61 See id.
62 See 86 FR 1247 795.105d1ii.
63 See id.
64 See id.
65 See id.
60 See
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the work is part of an integrated unit of production which is distinct from the concept of the importance or centrality of the workers work to the employers business.66 The Rule would have provided that these other factors would be less probative and, in some cases, would not be probative at all and would be highly unlikely, either individually or collectively, to outweigh the combined probative value of the two core factors. 67
The Rule would have further provided that the actual practice of the parties involved is more relevant than what may be contractually or theoretically possible.68 The Rule would also have provided five examples illustrating how different factors informed the analysis.69
After publication of the Rule, WHD
issued Opinion Letters FLSA20218 and FLSA20219 on January 19, 2021
applying the Rules analysis to specific factual scenarios, and then withdrew those opinion letters on January 26, 2021, explaining that the letters were issued prematurely because they were based on a Rule that had yet to take effect.70
D. Delay of Rules Effective Date On February 5, 2021, the Department published a proposal to delay the Independent Contractor Rules effective date until May 7, 2021, 60 days after the original effective date of March 8, 2021.71 On March 4, 2021, after considering the approximately 1,500
comments received in response to that proposal, the Department published a final rule delaying the effective date of the Independent Contractor Rule as proposed.72 The Department explained that the delay was consistent with a January 20, 2021 memorandum from the Assistant to the President and Chief of Staff, titled Regulatory Freeze Pending Review. 73 The Department further explained that a delay would allow it additional time to consider significant and complex issues associated with the Rule, including whether the Rule effectuates the FLSAs purpose to broadly cover workers as employees as well as the costs and benefits attributed 66 See
86 FR 1247 795.105d2.
FR 1246 795.105c.
68 See 86 FR 1247 795.110.
69 See 86 FR 124748 795.115.
70 See https www.dol.gov/agencies/whd/
opinion-letters/search?FLSA last visited April 28, 2021, noting the withdrawal of Opinion Letters FLSA20218 and FLSA20219.
71 See 86 FR 8326.
72 86 FR 12535.
73 Id. citing January 20, 2021 memo from the Assistant to the President and Chief of Staff, titled Regulatory Freeze Pending Review, 86 FR 7424.
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