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Proposed Change to Independent Contractor Rule

October 2022

The U.S. Department of Labor has proposed a change in the law concerning the classification of independent contractors which may affect many businesses.  The distinction between employees and independent contractors can be murky, but the proposed rule does not appear to provide the clarity the Biden administration has promised.

The current rule requires consideration of two factors: (1) the nature and degree of control over the work, and (2) the worker’s opportunity for profit or loss.  The proposed rule would add the following additional factors: the worker's investment in equipment or materials, or their employment of helpers, whether the service rendered requires a special skill, the degree of permanence of the working relationship, and the extent to which the service rendered is an integral part of the alleged employer's business.  The six factors the proposed rule identifies are non-exhaustive, and no one factor is dispositive.

The new six-factor test required by the proposed rule will create uncertainty for businesses and will lead to misclassification litigation, which may include class actions that can expose employers to significant liability.  The new rule will also make it more difficult for workers who prefer to be classified as independent contractors to maintain that status; those workers, who want the freedom to set their own hours and work without direct oversight, will face the same lack of clarity.

The current rule provides both employers and workers with clear guidance concerning the contours of the employee/independent contractor distinction.  The Department of Labor will accept comments on the proposed rule through November 28, 2022.  We would be pleased to assist you in preparing and submitting comments on the proposed rule, or you can submit comments yourself here: https://www.federalregister.gov/d/2022-21454.

If you have any questions, please feel free to contact Larry Byrne at lbyrne@pedersenhoupt.com or (312) 261-2155, or Ryan Young at ryoung@pedersenhoupt.com or (312) 261-2192.

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