New Test
The Final Rule implements a five-factor economic reality test; however, those factors are split into two core factors and three guiding factors. The DOL explains that the economic reality test requires that a workers economic dependence on the employer is measured primarily by two core factors, although three other factors may be considered if needed. While no one factor is considered dispositive on its own, the Final Rule states that the two core factors are the most probative.
Two Core Factors:
- The nature and degree of the workers control over the work. DOL examples of facts more indicative of contractor status include: (1) workers setting their own work schedule; (2) workers selecting their own assignments; and (3) workers retaining the ability to work for others.
- The workers opportunity for profit or loss. DOL examples of facts more indicative of contractor status include: (1) the exercise of personal initiative, including managerial skill or business acumen; and/or (2) the management of investments in or capital expenditure on items such as helpers, equipment, or material.
Three Guiding Factors:
The three guiding factors of the economic reality test, which are to be applied if the core factors are not determinative, are as follows:
- The amount of skill required for the work. An analysis should be done of whether the work requires a specialized training or skill or whether the worker depends on the employer for training? If the employer provides the training, the worker is more likely an employee.
- The degree of permanence of the working relationship between the worker and the potential employer. An analysis should be done as to whether the work is of a definite and longer-term duration or sporadic and short-term? A working relationship that is indefinite in duration or continuous suggests that the worker is an employee.
- Whether the work is part of an integrated unit of production. The Final Rule looks at whether the work is a component of the potential employers integrated production process for a good or service. The more integrated the work, the more likely the worker is an employee.
Senior CounselDorraine Larison concentrates her practice in the areas of bankruptcy law, debtor/creditor law, and employment law. She has extensive experience in the areas of commercial financing, creditors’ rights, and creditor ...
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