The U.S. Department of Labor (“DOL”) has proposed a new rule interpreting independent contractor status under the Fair Labor Standards Act (“FLSA”). The purpose of the proposed rule is to provide clarity as to when a worker is an independent contractor, and not an employee, under the FLSA. If adopted, the proposed rule would operate as DOL’s sole interpretation of independent contractor status. Note that, as discussed below, DOL’s proposed rule does not affect Virginia’s new law on independent contractor status.

Currently, when determining whether an individual is an employee or independent contractor for purposes of FLSA, courts utilize the economic reality test.  Under the economic reality test, the key inquiry is whether “as a matter of economic reality” the workers are “dependent upon the business to which they render service.” Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311 (5th Cir. 1976). Courts use a set of non-exhaustive factors to guide this inquiry, including: (1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; (2) the alleged employee’s opportunity for profit or loss depending on his managerial skill; (3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; (4) whether the service rendered requires a special skill; (5) the degree of permanency of the working relationship; and (6) whether the service rendered is an integral part of the alleged employer’s business. Real v. Driscoll Strawberry Assocs., Inc., 603 F.2d 748, 754 (9th Cir. 1979). Although courts frequently use these factors, confusion regarding application and interpretation persist.

Due to the varied application and interpretation of the FLSA’s economic reality test, DOL’s proposed rule seeks to clarify and provide a more consistent standard for evaluating whether a worker is an employee or independent contractor under the FLSA. Specific issues DOL addresses in the proposed rule include clarifying that “economic dependence” turns on whether a worker is in business for him- or herself (i.e., the worker is an independent contractor) or is economically dependent on a potential employer for work (i.e., the worker is an employee). The proposed rule also provides guidance on other factors, including the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. As has always been the case, the parties’ actual practice is more relevant to the analysis than what may be described in any written contract.

DOL is accepting comments on the proposed rule until October 26, 2020. The link to comment can be found here.

DOL’s proposed rule on independent contractor status under the FLSA does not affect the new Virginia law on independent contractors that went into effect on July 1, 2020. The new Virginia law creates a legal presumption that anyone performing services for pay is an employee; the business has the burden to rebut that presumption by proving that the worker was properly classified as an independent contractor pursuant to the Internal Revenue Service’s guidance. Thus, for purposes of Virginia’s laws—including state taxation laws and state wage payment laws—the DOL’s proposed rule will have little effect. But for purposes of the FLSA, DOL’s proposed rule, if adopted, will apply.

Businesses need to proceed cautiously in classifying a worker as an independent contractor. The labor and employment attorneys at Vandeventer Black can assist in this analysis.

On September 22, 2020, President Trump signed the Executive Order on Combating Race and Sex Stereotyping (“EO”). Under the EO, executive departments and agencies, the military, federal contractors, and federal grant recipients are required to include specific provisions pertaining to workplace training in every government contract entered into after November 21, 2020. The EO, which applies to all government contracts subject to Equal Employment Opportunity requirements, jeopardizes common anti-discrimination training programs, such as implicit bias training.

Under the EO, federal contractors are prohibited from conducting any workplace training “that inculcates in its employees any form of race or sex stereotyping or any form of race or sex scapegoating.” The EO defines “race or sex stereotyping” as character traits, values, moral and ethical codes, privileges, status, or beliefs assigned to a race or sex, or to an individual because of his or her race or sex, and the term “race or sex scapegoating” means assigning fault, blame, or bias to a race or sex or to members of a race or sex because of their race or sex.

More specifically, contractors are prohibited from discussing the following concepts in workplace training programs:

• • • one race or sex is inherently superior to another race or sex;
    • an individual, by virtue of his or her race or sex, is inherently racist, sexist, or oppressive, whether consciously or unconsciously;
    • an individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex;
    • members of one race or sex cannot and should not attempt to treat others without respect to race or sex;
    • an individual’s moral character is necessarily determined by his or her race or sex;
    • an individual, by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex;
    • any individual should feel discomfort, guilt, anguish, or any other form of psychological distress on account of his or her race or sex; or
    • meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race.

Similarly, the heads of all agencies are directed to review their grant programs and require that recipients certify that they will not use Federal funds to promote these concepts.

Among other requirements in the EO, contractors must also send a notice—provided by the relevant agency’s contracting officer—to each labor union or representative of its employees advising the labor union or representative of the contractor’s obligations under the EO. Copies of these notices must be posted in conspicuous places available to both employees and applicants for employment. The EO also mandates contractors to ensure subcontractors and vendors comply with the EO.

Importantly, if contractors do not comply with the EO’s requirements, the contract may be canceled, terminated, or suspended in whole or in part and the contractor may be declared ineligible for further Government contracts. Compliance will be enforced by the Office of Federal Contract Compliance Programs (“OFCCP”), which is directed to establish a hotline to investigate complaints received about contractors using prohibited training programs.

By its terms, the EO is effective immediately, but government contracts are not required to incorporate the above provisions until November 21, 2020. In the meantime, contractors should protect themselves from the adverse consequences of noncompliance by reviewing their current diversity and anti-bias training programs. Attorneys at Vandeventer Black are available to assist.