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Examples from Department of Labor’s Final Rule on Independent Contractor Status under the Fair Labor Standards Act

Introduction to the Fair Labor Standards Act

The Fair Labor Standards Act (“FLSA”) is a federal law that requires certain employers to pay non-exempt employees the federal minimum wage (currently $7.25 per hour) and/or overtime at time-and-a-half for all hours worked in excess of forty (40) in a given week. In addition to addressing matters regarding pay, the FLSA also contains a provision regarding employer retaliation. The FLSA provisions are enforced by the Department of Labor’s (“DOL”) Wage and Hour Division.

DOL Final Rule

Pursuant to the FLSA, an independent contractor is not an employee and, therefore, not subject to the FLSA’s protections. On January 6, 2021, the DOL announced a final rule updating the Code of Federal Regulations (“CFR”), which clarified the standard for determining whether an individual is an employee or an independent contractor for purposes of examining potential FLSA violations and/or compliance. In addition to changing and/or clarifying certain factors relevant to the independent contractor analysis, the final rule also provides six (6) fact-specific examples, which explain how to apply the two (2) core factors used when assessing an individual’s economic reality. The two (2) factors are (i) the nature and degree of the individual’s control over his/her work, and (ii) the individual’s opportunity for profit or loss. One (1) example has been provided herein for each of the core factors.

Example 1: Nature and Degree of Control

In the first example provided by the DOL, an individual provides transportation services with a tractor-trailer that she both owns and operates for a logistics company. Although the individual substantially controls the key aspects of her work, the logistics company paid for and installed a device that limits the individual’s maximum speed when driving. The logistics company also monitors the individual’s speed through GPS. The purpose of the logistic company’s speed limitations is to comply with federally mandated motor carrier safety regulations and to ensure compliance with local traffic laws. The logistics company also requires that the individual meet contractually imposed delivery deadlines. The contract includes incentives for meeting the imposed deadlines and penalties for missing the same.

In viewing the foregoing in light of the core factors, the DOL found that the individual is an independent contractor because she exercises substantial control over key aspects of her work and the requirements imposed by the logistics company are imposed for the purpose of complying with safety requirements and legal obligations. The delivery requirements are also typical of contractual arrangements. Therefore, the nature of the individual’s relationship with the logistics company and the degree to which she controls her work, renders her an independent contractor.

Example 2: Opportunity for Profit or Loss

In the second example provided by the DOL, an individual receives and accepts assignments from a company that provides an app-based service linking individuals who need repairs made to their home, with individuals who can complete the requested repair work. In this scenario, the individual (i) can increase his earnings with his own initiative and business sense and (ii) has invested in his own equipment. The company has invested millions of dollars in developing, marketing, promoting, and otherwise maintaining the app.

In this scenario, the individual is, once again, an independent contractor. Although the company has invested more money than the individual, the value of the investment is not relevant in determining whether the individual has a meaningful opportunity for profit or loss through his initiative, investment, or both. As the individual can increase his earnings via his own initiative and business sense, as well as via investment into his own equipment, he is an independent contractor.

If you feel your rights have been violated under the FLSA or if you have any other questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Wrady Michel & King. You can contact us either online or by calling us at (205) 319-9724. We are here to serve you.