From JDSupra, Ena Diaz discusses employment law issues for 2023 including the rules proposed by United States Department of Labor and by the Federatl Trade Commission that affect companies using independent contractors. Ena writes:
Classification of Workers: Employee or Independent Contractor: The U.S. Department of Labor (“DOL”) proposed a rule regarding independent contractor status on October 11, 2022. After extending the public comment through December 13, 2022, the DOL announced at the beginning of this year that the final rule is scheduled for publication in May 2023. The proposed rule would rescind the 2021 Independent Contractor Rule issued by the DOL, which emphasized the factors of control and opportunity for profit to determine classification, and would use a six-factor test and would consider other factors that may be relevant. Those six factors are: (1) opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the employer; (3) degree of permanence of the work relationship; (4) nature and degree of control; (5) extent to which the work performed is an integral part of the employer’s business and (6) skill and initiative. Each of these factors is slanted towards classifying the worker as an employee.
The practical result of the new DOL rule is that more workers will be classified as employees and some who have already been classified as independent contractors may have to be reclassified as employees. This may result in a larger number of the workforce becoming eligible for overtime pay. Some states have more stringent tests to determine whether workers should be classified as employees rather than independent contractors; thus, employers also need to be aware of any existing state laws or developments concerning the state standard on this issue.
The Future of Noncompetes: The Federal Trade Commission (FTC) proposed a rule on January 5, 2023, prohibiting noncompetition provisions in employment agreements. The FTC rule proposed to ban agreements that are written so broadly as to effectively ban working in the same field post-employment and ban clauses that require paying unreasonable training costs if the employment terminates within a specified period. If the rule is implemented as proposed, it would bar employers from entering into or enforcing noncompete agreements with employees or independent contractors. The proposed rule would also nullify any existing agreements within six months from the date the rule takes effect. The public has an opportunity to submit its comments to the proposed rule through March 6, 2023. The FTC may issue a final rule after the 60-day comment period ends. For more information on the proposed rule, please see our recent Legal Alert.
Employers should review their existing agreements and consider revising the agreements to include other contractual provisions that would protect their legitimate business interests even if the FTC rule takes effect.