The U.S. Dept. of Labor has finalized a rule under the Fair Labor Standards Act that it says will prevent unscrupulous employers from misclassifying legitimate employees as independent contractors. The rule is largely opposed by construction employer groups. 

The rule, published in the Jan. 10 edition of the Federal Register, goes into effect March 11. Initially proposed in October 2022, it replaces a 2021 rule that construction groups say provided employers as well as employees with more flexibility and opportunities.

According to the department, the new rule is consistent with longstanding judicial precedent. It restores a six-factor test that helps employers and courts determine whether a worker is an employee or an independent contractor. It is designed to create a more holistic picture of the entirety of the relationship between employers and their workers, says the department’s acting secretary, Julie Su. 

Factors include the degree of permanence of the work relationship, the degree of control an employer has over the person’s work, and whether the work the person does is essential to the employer’s business. 

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” Su said in a statement. “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.” 

Union groups praised the rule. Mark McManus, general president of the United Association, said in a statement that the rule reflects “age-old” criteria for defining employees under the law. “Simply put, this rule will ensure the basic rights of all workers, consistent with the [law.],” he said. 

But construction employer groups say the new rule does not take into account the realities of the industry. “By undermining the flexible, independent work for millions of Americans, President Joe Biden’s DOL is choosing to move forward with a final rule that creates an ambiguous and difficult-to-interpret standard for determining independent contractor status,” said Ben Brubeck, Associated Builders and Contractors’ vice president of regulatory, state and labor affairs.

Brian Turmail, vice president of public affairs and strategic initiatives at the Associated General Contractors of America, said in an email to ENR that the 2021 rule provided a “consistent, common-sense economics realities test.” But the new six-factor test upends the clarity of the 2021 rule, he says, and replaces it with a new test that “could jeopardize legitimate independent contractor relationships in the industry. The only certainty to avoid an enforcement action an employer has under this new test is classifying, or misclassifying, someone as an employee instead of as an independent contractor, potentially stifling the entrepreneurial spirit that has long defined the industry,” he said.