About the Issue

Independent Contractor Status

Today, millions of Americans choose to work as independent contractors – meaning that they are in business for themselves and earn income outside of a traditional employer-employee relationship. While a variety of federal and state laws regulate the employment relationship, most of these laws do not apply to independent contractors and in many cases are incompatible with the autonomy and flexibility that defines independent work.

The Rise of Independent Work

While independent contractors have played a vital role across the economy for decades, 21st century technological innovation has made opportunities for independent work accessible to more people than ever before – and a growing share of Americans are increasingly choosing this type of work as their primary career path or as a way to earn supplemental income.

Policies Undermining Independent Work

Unfortunately, some policymakers at the federal, state, and local levels have embarked on misguided attempts to undermine opportunities for independent contractors. Many of these efforts seek to change the legal standard used to determine a worker’s classification for purposes of a particular law in a manner that makes it more difficult for a worker to be considered an independent contractor.

The U.S. Department of Labor’s 2024 Rule on Independent Contractor Status

The U.S. Department of Labor (DOL) finalized a rule in January 2024 that expands the scope of the “economic realities test” used to determine whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) and narrows opportunities for independent work. The regulation adopts a test where any of six different factors – and an open-ended seventh factor – could be determinative of employee status, injecting significant subjectivity into worker classification determinations. By doing so, the rule will invite frivolous litigation and create confusion for workers and businesses that could ultimately have a chilling effect on opportunities for independent work. 

The rule replaces, and is a significant departure from, a regulation that DOL adopted in 2021, where two core factors primarily guided classification determinations under the FLSA. That rule – which was carefully developed to provide certainty for stakeholders and encourage innovation and entrepreneurship – provided a workable classification test that was practical, predictable, and easy to apply to the realities of the modern economy.

Independent Contractor Status under the National Labor Relations Act

In June 2023, the National Labor Relations Board (NLRB) issued a decision in The Atlanta Opera and adopted a new standard for determining who is an employee and who is an independent contractor under the National Labor Relations Act (NLRA). The decision reinstates a classification standard that has been rejected by the U.S. Court of Appeals for the DC Circuit and would narrow opportunities for independent work. In particular, the standard adopted in The Atlanta Opera drastically undervalues the significance of a worker’s entrepreneurial opportunity for economic gain in worker classification determinations under the NLRA.

The “ABC” Test

State and federal policymakers have pursued the adoption of a worker classification standard known as the “ABC test” for the purposes of a variety of laws. The ABC test makes it significantly more difficult for a worker to be considered an independent contractor by presuming that an individual is an employee unless a hiring entity can satisfy three prongs to prove independent contractor status: A) The individual is free from the entity’s control or direction in performing their work, both under contract and in fact; B) The work performed by the individual is outside the usual course of the entity’s business; and C) The individual is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the entity. 

On February 28, 2023, federal lawmakers reintroduced the Protecting the Right to Organize (PRO) Act (H.R. 20, S. 567). The PRO Act includes a provision that would adopt the ABC test for worker classification determinations under the NLRA – greatly narrowing opportunities for independent work under the Act. While the PRO Act is pending before both chambers of Congress, the ABC test has successfully been enacted in California under the controversial law known as “AB 5,” which adopted the test for purposes of the state’s wage and hour, unemployment insurance, and labor codes. The problems with AB 5 and the ABC test are well-documented and have demonstrated just how unworkable the test is – particularly given that California lawmakers were forced to enact over 100 occupational exemptions to the law in order to preserve the ability of independent contractors to remain in business for themselves.