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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations
2 The permanency of the workers relationship with the potential employer;
3 The amount of the workers investment in facilities, equipment, or helpers;
4 The amount of skill, initiative, judgment, or foresight required for the workers services;
5 The workers opportunities for profit or loss; and 6 The extent of integration of the workers services into the potential employers business.
WHD Opinion Letter FLSA20196 at 4
citing Rutherford Food, 331 U.S. at 730, and Silk, 331 U.S. at 716.
As discussed in the NPRM, the Department believes that this six-factor balancing test is neither more nor less permissive of independent contractor relationships as compared to the streamlined test finalized in this rulemaking. Both tests describe the economic dependence of the worker at issue as the ultimate inquiry; both emphasize the primacy of actual practice over contractual or theoretical possibilities i.e., the economic reality of the work arrangement; and both evaluate the same set of underlying factors, notwithstanding an emphasis and consolidation of certain factors under this rules streamlined test.
Notably, like 795.105d1i of the final rule, WHD Opinion Letter FLSA20196 advised that certain safety measures and quality control standards do not constitute control indicative of an FLSA employment relationship. See id. at 8 n.4. However, the Department explained in the NPRM that the sixfactor balancing test used by WHD and most courts, with some significant variations, would benefit from clarification, sharpening, and streamlining.
A number of commenters urged the Department to codify a six-factor balancing test. Several commenters, including NELP, Eastern Atlantic States Regional Council of Carpenters EASRCC, and the United Brotherhood of Carpenters, specifically requested that the Department reinstate AI 2015
1, which was withdrawn in 2017.
SWACCA asserted that codification of the six-factor balancing test may well achieve more consistency of application from the courts as it pushes them to develop their similar precedents to align with the Departments views, criticizing the proposed rule as a novel weighted test that will result in more litigation and less certain outcomes.
SWACCA also disputed the Departments assumption in the NPRM
that codifying the six-factor balancing
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test would not reduce initial regulatory familiarization costs or provide greater per-contract cost savings compared to the proposed rule, see 85 FR 60635, arguing that this assumption overlooks the fact that codifying the six-factor balancing test would simply incorporate what is now subregulatory guidance at the regulatory level. Finally, NELP, NWLC, and the State AGs asserted that the Department has no legal authority to promulgate any regulatory standard except the traditional six-factor balancing test, citing to Kimble v.
Marvel Entmt, LLC, 576 U.S. 446 2015, for the proposition that the six-factor balancing test derived from Silk and Rutherford Food has effectively become part of the FLSAs statutory scheme.
See id. at 456 All of the Supreme Courts interpretive decisions, in whatever way reasoned, effectively become part of the statutory scheme, subject just like the rest to congressional change..
While the Department agrees with NELP, NWLC, and the State AGs that Supreme Court precedent requires application of an economic reality test to evaluate independent contractor claims under the FLSA, we disagree that the Court has definitively prescribed the specific components of such a test. As explained earlier, courts in different Federal circuits have articulated the number and nature of relevant factors in different ways, so any formulation endorsed by the Department would be at least marginally novel to courts and affected stakeholders across jurisdictions in some respect. Moreover, many commenters are overstating the degree to which the standard finalized in this rule meaningfully departs from existing precedent. If anything, by elevating the two factors that are most probative to what courts have established as the ultimate inquiry of the testi.e., whether workers are in business for themselves, Saleem, 854
F.3d at 139the Departments approach is more faithful to courts instruction that the factors must be applied with that ultimate notion in mind. Usery, 527 F.2d at 1311. Moreover, because the Departments analysis of appellate case law since 1975 has found workers control and opportunity for profit or loss to be most predictive of a workers classification status, the finalized standard provides more accurate guidance.
To the extent that some businesses and independent contractors familiar with the Departments earlier subregulatory guidance might spend less time reviewing new regulatory language on the topic under this alternative, any reduction in initial
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regulatory familiarization costs compared to the streamlined test adopted in this final rule would likely be minimal. By contrast, and as we explained in the NPRM, codification of the traditional six-factor balancing test would yield smaller recurring benefits and cost savings over the long term, as the Department continues to believe in the added clarity of an appropriately weighted test with less overlapping redundancy.
The Department further believes that reinstatement of AI 20151s specific articulation of the six-factor test would be inappropriate because that withdrawn guidance exacerbates the very shortcomings that this rule remedies. As discussed in Section IIIA, the first such shortcoming is the need for consistent application of economic dependence. While the AI 20151
correctly stated that the ultimate inquiry under the FLSA is whether the worker is economically dependent on the employer or truly in business for him or herself, it failed to apply that concept consistently. Notably, it explained that the investment factor should be analyzed by comparing the amount of the workers investments with the amount the potential employer invests because if the workers investment is relatively minor, that suggests that the worker and the potential employer are not on similar footings and that the worker may be economically dependent on the employer. But the correct concept of economic dependence is not an inquiry into whether two entities are on a similar footing, but rather whether an individual is in business for himor herself.253 Such an approach to the investment factor is misleading by placing the focus on the workers financial means instead of the workers relationship with the purported employer. Several cases explicitly or implicitly reject the similar footing analysis, most plainly because independent contractors routinely work for companies with whom they are not on a similar footing. See Karlson, 860
F.3d at 1096 Large corporations can hire independent contractors. The similar footing concept of economic dependence is also inconsistent with the Supreme Courts analysis in Silk, 331 U.S. 718, which found that truck drivers who invested in their own vehicles were independent contractors who transported coal for a coal company. The Court did not compare 253 The Department is also concerned that the phrase similar footing lacks a clear meaning and therefore may be confusing to the regulated community.

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