New Independent Contractor Rule Faces Lawsuit

A new independent contractor rule that changes classification standards for independent contractors and employees—filed by the U.S. Department of Labor last week—was challenged on Tuesday by a group of freelance writers and earlier last week by a business coalition, which includes the Associated Builders and Contractors of America.

Set to take effect March 11, the new rule revises the test for determining whether a worker is a contractor or employee. It provides courts with a new economic reality test to identify the economic dependence on a business. 

This is said to increase labor costs for industries that rely heavily on contracted workers, as employees are guaranteed protections, such as minimum wage and overtime pay. 

The four freelance workers allege the ruling is vague and illegal, saying it goes against the US Constitution and would force them to lose business. They’re seeking a temporary blocking of the rule as their lawsuit moves forward. 

DOL says the new rule will preserve essential worker rights and will “provide consistency for entities covered by the Fair Labor Standards Act,” but the lawsuit alleges it conflicts with the Act.

Associated Builders and Contractors filed a motion Friday to appeal the rule alongside the Coalition for Workforce Innovation (which Uber and Lyft are members) and Financial Services Institute and revive previous litigation filed.

The construction trade association released a statement saying the new rule "will cause workers who have long been properly classified as independent contractors in the construction industry to lose opportunities for work."

The US Chamber of Commerce also announced its disappointment and says it’s “weighing a legal challenge.”

“Changing the rules isn’t necessary to improve enforcement; it simply raises the bar so that more companies will now be out of compliance,” wrote VP of Employment Policy at the US Chamber of Commerce Marx Freedman.

The new rule rescinds the 2021 Independent Contractor Rule that categorized workers based on two key factors: control and opportunity for profit or loss; worker’s effect on profitability or loss for the business and if the work performed is central to the business. 

The new rule provides six factors to be weighed equally:

• opportunity for profit or loss depending on managerial skill;
• investments by the worker and the potential employer;
• degree of permanence of the work relationship;
• nature and degree of control;
• extent to which the work performed is an integral part of the potential employer’s business; and
• skill and initiative.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” explained Acting Secretary of Labor Julie Su. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”