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NEW FEDERAL RULE ADOPTED ON WHETHER TO CLASSIFY A WORKER AS AN EMPLOYEE OR INDEPENDENT CONTRACTOR

On March 11, 2024, the U.S. Department of Labor’s (USDOL) final rule for determining whether a person is an employee or an independent contractor under the federal Fair Labor Standards Act (FLSA) will take effect. 29 CFR part 795. FLSA establishes minimum wage, overtime pay, recordkeeping and child labor standards affecting full and part time workers in both the private and public sectors. Employees receive the protection of the FLSA as opposed to independent contractors who do not because they are considered in business for themselves.

Whether a worker is an employee or an independent contractor under the FLSA is determined by looking at the economic realities of the worker’s relationship with the employer.  See generally USDOL, Wage and Hour Division Fact Sheet 13 (Fact Sheet 13). If the economic realities show that the worker is economically dependent on the employer for work, then the worker is an employee. If the economic realities show that the worker is in business for themself, then the worker is an independent contractor.

The new final rule adopted the USDOL a six-factor test that delves into the economic relationship between potential employers and workers: 1) Opportunity for profit or loss depending on managerial skill; 2) Investments by the worker and the potential employer; 3) Degree of permanence of the work relationship; 4) Nature and degree of control; 5) Extent to which the work performed is an integral part of the potential employer’s business; 6) Skill and initiative. Additional factors may be considered if relevant to whether a worker is in business for themselves but economically dependent on the employer for work. See Fact Sheet 13.

Opportunity for profit or loss depending on managerial skill. This factor primarily looks at whether a worker can earn profits or suffer losses through their own independent effort and decision making. Relevant facts include whether the worker negotiates their pay, decides to accept or decline work, hires their own workers, purchases material and equipment, or engages in other efforts to expand a business or secure more work, such as marketing or advertising. Id.

Investments by the worker and the employer. This factor primarily looks at whether the worker makes investments that are capital or entrepreneurial in nature. Investments by a worker that support the growth of a business, including by increasing the number of clients, reducing costs, extending market reach, or increasing sales, weigh in favor of independent contractor status. A lack of such capital or entrepreneurial investments weighs in favor of employee status. Id.

Degree of permanence of the work relationship. This factor primarily looks at the nature and length of the work relationship. Work that is sporadic or project-based with a fixed ending date (or regularly occurring fixed periods of work), where the worker may make a business decision to take on multiple different jobs indicates independent contractor status.  Work that is continuous, does not have a fixed ending date, or may be the worker’s only work relationship indicates employee status. Id.

Nature and degree of control. This factor primarily looks at the level of control the potential employer has over the performance of the work and the economic aspects of the working relationship. Relevant facts include whether the potential employer: controls hiring, firing, scheduling, prices, or pay rates; supervises the performance of the; has the right to supervise or discipline workers; and takes actions that limit the worker’s ability to work for others. Where the potential employer maintains more control over these aspects of the work relationship, this factor weighs in favor of employee status, and where the potential employer maintains less control over these aspects of the work relationship, this factor weighs in favor of independent contractor status. Id.

Extent to which the work performed is an integral part of the employer’s business. This factor primarily looks at whether the work is critical, necessary, or central to the potential employer’s principal business, which indicates employee status. Where the work performed by the worker is not critical, necessary, or central to the potential employer’s principal business, this indicates independent contractor status. Id.

Skill and initiative. This factor primarily looks at whether the worker uses their own specialized skills together with business planning and effort to perform the work and support or grow a business. The fact that a worker does not use specialized skills (for example, the worker relies on the employer to provide training for the job) indicates that the worker is an employee. Id.

Under New Jersey’s state wage and hour laws the so-called “ABC” control test governs whether a plaintiff is an employee or independent contractor for purposes of resolving a wage-payment or wage-and-hour claim. Hargrove v. Sleepy’s, LLC, 220 N.J. 289, 205 (2015).  The ABC test assumes an employment relationship exists unless the employer can show all of the following:

  1. The employer did not exercise control over the individual or have the ability to exercise control in terms of completion of the work;
  2. The individual provided services that were outside the usual course of business or performed outside of all of the places of business of the employer; and
  3. The individual’s work comes from an enterprise that exists independently and will continue to exist independently after the termination of the relationship between the individual and the employer.

N.J.S.A., 43:21-19(k)(6)(A) – (C)

At Mashel Law LLC, we are well experienced in handling wage and hour claims brought under FLSA, and/or the New Jersey Wage Payment and Wage and Hour Laws. If you believe your employer unlawfully withheld your wages or failed to pay you overtime wages, call the attorneys at Mashel Law (732) 536-6161 or fill out the contact form on this page for immediate help in assessing whether you have an actionable claim against your employer. At Mashel Law, LLC, located in Marlboro, New Jersey, we are dedicated to protecting the rights of employees.

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