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Last month, my kids got a board game called Catapult Feud. We opened the first box and were greeted with an encyclopedic rule book. In an attempt to keep them away from screens and engaged in competition, I streamlined the rules to: players take turns shooting their catapult at the other fortress. It was simple, digestible, and something young kids could understand: if one鈥檚 figurines and buildings go flying backward, then you lose.

We lived in board game bliss until this recent snowstorm when my dad came to stay temporarily after losing power. He opened the same board game, proceeded to read the rules from his soapbox, and created needless confusion. This is how many employers feel about the new U.S. Department of Labor (DOL) rule on independent contractors.

The Biden administration in January officially rescinded a rule that made it easier to classify workers as independent contractors under federal wage and hour rules. Outlined below are five things that employers should know about the new rule that takes effect on March 11, 2024:

1. Refocus on the totality of circumstances

The new rule adopts a comprehensive approach, considering all relevant circumstances to distinguish between employees and independent contractors. It leans toward an employee-centric interpretation, likely classifying more workers as employees. Previously, the economic realities test focused on five factors, emphasizing the worker鈥檚 control over work and their profit or loss potential. This older method also prioritized actual work practices over theoretical arrangements. The change adds complexity for businesses using contractors.

2. New core factors

The new rule scraps the use of these factors and returns to a 鈥渢otality-of-the-circumstances analysis.鈥� Under the rule, 鈥渢he factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity.鈥� The six factors set forth in the new rule are:

• the worker鈥檚 opportunity for profit or loss depending on managerial skill;
• the relative amount of investment made by the worker in comparison to investments made by the potential employer;
• the permanency of the worker鈥檚 relationship with the potential employer;
• the nature and degree of the potential employer鈥檚 control;
• the extent to which the work performed is an integral part of the potential employer鈥檚 business; and
• whether the worker uses specialized skills indicative of business-like initiative.

In addition, the new rule states that 鈥渁dditional factors may also be considered if they are relevant to the overall question of economic dependence.鈥�

3. Oregon鈥檚 tests still apply

Employers should note that the DOL鈥檚 test applies only to the Fair Labor Standards Act (FLSA), and Oregon has its own tests that are applied to state-level wage and hour claims. As a reminder, in Oregon, six agencies oversee employment and have various tests to determine if an individual is an employee or independent contractor. These agencies apply varied legal criteria to assess independent contractor status, leading to potential discrepancies in their findings. For instance, a worker deemed an independent contractor by the Department of Revenue might be classified as an employee by the Workers鈥� Compensation Division.

4. Increased liability concerns

Under federal wage and hour law, employees are entitled to certain benefits such as a minimum wage and overtime premiums. But most businesses do not provide these benefits to independent contractors. These forms of compensation do not always square with the way contractors carry out work compared to typical employees, and the law does not require businesses to provide them.

Once this new rule takes effect, the risk of misclassification will skyrocket, which means more businesses will face potential liability for not paying these benefits to their workers. The ramifications can be staggering: class-action lawsuits, large settlement demands, backpay, liquidated damages, interest, penalties, and attorneys鈥� fees can quickly add up.

5. Next steps

Businesses that rely on independent contractors are at substantial risk of having that classification challenged by the DOL or in private litigation and should proactively take steps to mitigate the risk of misclassification. Compliance is not just a requirement; it’s a strategic advantage. Take decisive steps now to fortify your organization鈥檚 standing and ensure smoother operations:

• Conduct audits: Businesses that are part of the gig economy or have freelancers or independent contractors should perform internal audits to assess their level of risk for misclassification.
• Determine any classification changes needed: Since the new rule will make it harder to classify workers as independent contractors, some existing contractors may no longer meet the criteria and changes will be necessary to ensure compliance.
• Update policies and procedures: Review your workforce planning model 鈥� as well as your protocols for engagements with gig workers and other independent contractors 鈥� to see if updates need to be made in accordance with the DOL鈥檚 final rule.
• Train managers: Take the opportunity to ensure managers understand best practices for navigating independent contractor relationships.
• Work with counsel: Classification issues are complicated, and errors can result in major consequences with huge costs for businesses. So, it鈥檚 a good idea to work with experienced counsel before the new rule takes effect to evaluate your programs and minimize your risks.

The new independent contractor rule signifies a pivotal shift, demanding meticulous attention and adaptation from businesses. I anticipate many businesses feel how my kids felt when my dad announced we would be playing Catapult Feud by the written rules. As my kids know all too well, acceptance and compliance are the only routes forward.

Stephen Scott is a partner in the Portland office of Fisher Phillips, a national firm dedicated to representing employers鈥� interests in all aspects of workplace law. Contact him at 503-205-8094 or [email protected].

The opinions, beliefs and viewpoints expressed in the preceding commentary are those of the author and do not necessarily reflect the opinions, beliefs and viewpoints of the Daily Journal of Commerce or its editors. Neither the author nor the 91视频 guarantees the accuracy or completeness of any information published herein.