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Chris Holman welcomes back Clifford {Cliff} Hammond Shareholder, Employment & Labor Lawyer, Foster Swift Collins & Smith, Southfield and Lansing Foster Swift, with a half dozen locations across Michigan.
Topic: New Independent Contractor Rule.   

What’s is the new rule about? 

What are the industries and types of employers that may need to really take a close look at this? 

What can happen if you misclassify someone under this rule? 

Foster Swift also shared this recent article on the subject:

Independent Contractor Final Rule Could Have Major Impact on Select Industries

The much-anticipated independent contractor final rule issued earlier this month by the U.S. Department of Labor (DOL) will become effective March 11, 2024. Several years in the making, the new rule could result in a wholesale reexamination of worker classification practices, especially in industries where independent contractors are extensively utilized.

Construction, transportation/logistics, healthcare, consulting/business/IT services and the gig sector (e.g., Uber, Lyft, DoorDash, and Grubhub) are among the industries that are most likely to experience a significant impact due to the changed requirements of the updated rule.

The new rule utilizes a test like the ones many courts have used for years to determine whether workers should be classified and treated as independent contractors or employees under U.S. wage laws. The new version of the rule, however, is controversial because of the likelihood that it will result in the DOL recognizing fewer independent contractors and more employees.

The U.S. Chamber of Commerce and other business groups are expected to challenge the rule in the courts. Louisiana Sen. Bill Cassidy has said a resolution will be introduced to repeal the rule. If such a resolution were to make it through both the Senate and House, it’s likely that President Biden would veto the measure.

Independent Contractor Final Rule: The Details

The final version of the rule utilizes a review and analysis which assesses the “totality of circumstances” to establish whether a worker is an independent contractor or an employee.

The test analyzes six factors equally without assigning a predetermined weight to any particular or set of factors. The six factors are:

Opportunity for Profit or Loss Depending on Managerial Skill – Whether the worker exercises managerial skill that affects their economic success or failure in performing the work.
Investments by the Worker and Potential Employer – Whether the investments of a worker (capital or entrepreneurial) contribute to and support the maintenance and growth of the business.
Degree of Permanence of the Work Relationship – Whether the nature of the work is steady, sporadic, or project-based with fixed beginning and ending dates.
Nature and Degree of Control – Which party controls hiring, firing, scheduling, pricing, pay rates, supervision, and other economic and performance factors?
Extent that Work Performed is an Integral Part of the Potential Employer’s Business – Whether the work performed is critical, necessary, or central to the potential employer’s principal line of business.
The Worker’s Skill and Initiative – Whether a worker uses their own specialized skills together with business planning to support, grow, or improve the business.
Employers should note that the new rule doesn’t represent new law. Nor does it create any new legal obligations, but rather clarifies the DOL’s interpretation of the existing law.

In addition, the federal rule may not be fully applicable in those states which have their own laws or tests for classifying workers as employees or independent contractors, which include California, Illinois, Massachusetts, New Jersey, New York, and others.

Michigan Business Beat | Cliff Hammond, Foster Swift Preparing for New Independent Contractor Rules!

The Home of Business in Michigan. Get on-demand access to audio programs, articles and resources presented by savvy business leaders and industry experts.

New tracks tagged #classify