One month ago today, a new U.S. Department of Labor rule updating the standard for classifying workers as employees or independent contractors under the Fair Labor Standards Act became effective. The new rule has received extensive coverage, with some commentators praising it as a needed expansion of workers’ rights, while others disparaged it as unfairly restricting opportunities for freelancers. Regardless of one’s perspective, the rule is now effective and employers and workers alike should familiarize themselves with its elements and its impact on their jobs or businesses. Whether you’re a worker or an employer, classification errors under the FLSA can potentially be highly damaging, which is why it’s vital to consult a knowledgeable Atlanta wage and hour lawyer about your situation.
As this blog discussed in October 2022, the new rule utilizes the “economic realities” test to determine if a worker is an employee or an independent contractor. The rule calls upon decision-makers to make assessments using six economic realities. The 11th Circuit Court of Appeals (which covers Georgia, Alabama, and Florida,) described those six in 2013 as:
- the degree to which the hiring entity has a right to control how the work is performed;
- the worker’s opportunity for profit or loss depending upon their managerial skill;
- the worker’s investment in equipment or materials required for their work
- the extent to which the work requires a special skill;
- the degree of permanence of the working relationship; and
- the extent to which the work is integral to the hiring entity’s business.
This standard is generally considered more “worker-friendly” and more likely to yield more workers employees and fewer independent contractors as compared to the previous rule, which the Labor Department promulgated during the Trump Administration. Some state laws, such as California’s, create their own state-specific test for classification that is even more employee-friendly. Georgia is not one of those states.
The Risks of Misclassification and How to Avoid Them
As noted above, erroneous classifications can have major negative impacts. For a worker, it may deny him/her compensation compliant with minimum wage and overtime laws that he/she has a statutory right to receive. For employers, misclassifications can lead to litigation and, even if the error was purely unintentional, they may have to pay that worker back pay plus liquidated damages, which functionally has the effect of providing the worker with double damages.
Given the major liability implications, one step employers should consider taking in the wake of this new rule is risk mitigation. Employers may seek to partner with legal counsel to perform an internal audit to look at all the employer’s independent contractors and determine if those classifications remain compliant in light of the new rule. Employers may need to modify their independent contractor agreements, alter how they compensate contractors or change the way they manage contractors.
Obtaining reliable advice from experienced counsel is crucial in making these decisions effectively. The knowledgeable Atlanta worker classification attorneys at the law firm of Parks, Chesin & Walbert have assisted many businesses in minimizing liability exposure arising from misclassification. Our team of attorneys has the in-depth understanding of the FLSA necessary to provide clear and trustworthy answers to all your classification questions. Contact us today at 404-873-8048 or through this website to schedule a consultation.