Why You Should Care About DOL’s New Independent Contractor Rule

This blog post represents the opinions of the authors, who are co-founders of Fight for Freelancers, which advocates for the rights of freelance workers. While the American Society of Journalists and Authors (ASJA) has signed on to a letter from the Institute for the American Worker urging Congress to rescind the US Department of Labor rule, ASJA is not a party to Warren v. DOL.

On March 11, the US Department of Labor implemented a new independent contractor rule designed to determine who is an employee and who is an independent contractor.

It’s the latest government anti-freelancer effort, one that began in 2019 with the passing of California’s AB5 law. Since then, states such as New Jersey, New York, Minnesota and Illinois have sought to pass similar freelance-busting laws. At the federal level, the Congress introduced PRO Act but any action on it has stalled. Overall, it’s been a giant game of Whac-a-Mole.

Let’s dive into what the DOL’s new independent contractor rule is and what it means for freelancers.

Why does the rule matter and are freelancers at risk?

Debbie Abrams Kaplan is an ASJA member and a co-founder of Fight for Freelancers.

A federal labor law called the Fair Labor Standards Act governs employee protections such as federal minimum wage and overtime. The DOL implemented the new rule to provide guidance in determining who is an employee and deserving of these protections.

The FLSA governs employers to ensure they pay a minimum wage and overtime and track employee hours. Employers that fail to do so could be liable for penalties and exposed to potential lawsuits from employees or from independent contractors who believe they qualify for employee status.

The FLSA doesn’t directly govern freelancers. However, freelancers could be affected by the independent contractor rule because it advises employers – for purposes of the FLSA – which workers are considered employees by the DOL and under federal law.

What is the rule?

According to the 339-page independent contractor rule, “The six factors…should guide an assessment of the economic realities of the working relationship and the question of economic dependence.”

The DOL calls the six factors a “totality-of-the-circumstances test” but does not share how to weigh the six factors (which are really seven):

  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
  7. Additional factors

How is the rule different from past rules?

Jen Singer is an ASJA member and a co-founder of Fight for Freelancers.

The new rule purports to adopt a new interpretation and understanding of the FLSA. It’s distinct from state labor law and federal tax law.

Before 2021, the DOL provided informal guidance for worker classification, but mostly left it up to the courts to determine on a case-by-case basis whether someone was an employee based on prior case law. That determination could differ from state to state.

The DOL first issued an independent contractor rule in 2021 under the Trump administration. Then-Secretary of Labor Eugene Scalia proposed a uniform standard for worker classification that could be applied to all workers to determine if a person is an employee under the FLSA. That rule focused on two factors, control and opportunity for profit. As a result, it was a more comprehensive interpretation of who is or is not an employee under federal labor law compared to any prior guidance.

The new independent contractor rule does not revert to the pre-2021 guidance, when an amalgam of court decisions was the basis of understanding, as the DOL claims. Instead, the DOL created and adopted the rule with its balancing test based on six factors (but really seven) for determining who is an independent contractor or employee.

How will the new rule affect freelancers?

The new rule could provide a chilling effect for independent contractors’ client relationships. Businesses that misinterpret the rule could be audited, which could result in large fines. If a company falls out of favor with the DOL, or if independent contractors file complaints about misclassification, it could be held liable.

Some companies will continue to conduct business as usual without adhering to the new rule, hoping to avoid scrutiny from the DOL or trial lawyers. Others are reevaluating their independent contractor relationships and may choose to sever ties to avoid scrutiny.

It’s important to understand that this is a rule, not a law. It won’t put an end to the business of freelance writing in the United States overnight, like the passage of AB5 did for many independent contractors in California. Rather, the rule’s effects likely will occur slowly, as companies assess the risk and decide whether or not to change their business practices when it comes to working with independent contractors.

The biggest difference between the DOL’s independent contractor rule is that unlike California’s AB5, there are no exemptions for specific industries.

The rule puts freelancers who work with other freelancers on a project or contract basis, in a position of potentially being classified as an employer. It’s something to be aware because of the potential consequences to those freelancers’ businesses.

Are freelancers protected by forming an LLC or S Corp?

The DOL has stated: “The Department is concerned that facts such as whether the worker has incorporated or receives an IRS Form 1099 from a potential employer reflect mere labels rather than the economic realities and are thus not relevant.”

How can I help rescind the new rule?

Four parties have filed federal lawsuits against the new rule. Freelance writers have filed two, including Warren vs. USDOL by the co-founders of our group, Fight for Freelancers, as well as Littman vs. USDOL. A third lawsuit was filed by a trucking company that works with both independent truckers and employed truckers; and the fourth by a larger group of businesses.

The lawsuit we filed alleges that the new DOL rule not only fails to provide clear guidance to employers, it doesn’t adequately explain the need to withdraw the 2021 rule. It also alleges that the new rule is too vague for employers to apply, and that vagueness is a constitutional and statutory issue.

To get involved, write to your senators and U.S. representative and ask them to co-sponsor the Congressional Review Act (CRA) introduced by Senator Bill Cassidy and Representative Kevin Kiley, which would rescind the independent contractor rule. You can also ask any professional writer group or other industry organization you’re part of to send a letter or email expressing support for the CRA to the sponsors. ASJA has sent its own note supporting the act. The U.S. House of Representatives’ Committee on Education and the Workforce recently approved the resolution, making it eligible for a full House vote.

How can I learn more?

To learn more, listen to a recording of the Feb. 28 webinar on the new rule hosted by ASJA and the Society for Professional Journalists. Debbie was a panelist, as was Wilson Freeman, a Pacific Legal Foundation lawyer representing us plus fellow Fight for Freelance cofounders Karon Warren and Kim Kavin in our lawsuit against the DOL. ASJA and SPJ member Susan Valot moderated.

Other background:

Debbie Abrams Kaplan is a journalist and content marketing writer, focusing on health and medical, supply chain, and business. She is a co-founder of Fight for Freelancers and a long-time ASJA member. Learn more at Kaplanink.com

Jen Singer is a ghostwriter, developmental editor, and author, long-time ASJA member, and a co-founder of Fight for Freelancers. Learn more at Jen-Singer.com.

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