Mark Pestronk
Mark Pestronk

Q: In your Oct. 24 Legal Briefs column, "Labor's rule clarifying IC status is coming," you stated that many travel agencies with independent contractors (ICs) would not pass muster under the Labor Department's proposed rule because they would fail to comply with the fifth of six criteria for valid IC status: "Extent to which the work performed is an integral part of the employer's business." However, you also wrote that the Labor Department emphasizes that, "no one factor or subset of factors is necessarily dispositive, and the weight to give each factor may depend on the facts and circumstances of the particular case. Moreover, these six factors are not exhaustive, [and] additional factors may be considered." First, what are the other five criteria? Second, how would most IC-host relationships be judged under them?

A: Here are the five other factors that the Labor Department says it will weigh. As with the "integral part" factor, each one needs to be explained before one can understand what the government is really driving at:

1) Opportunity for profit and loss depending on managerial skill. This means that the IC could suffer a loss as a result of the IC's independent decisions. This factor can also consider whether the worker can, at least in theory, negotiate pay; decline work and thus make no money; market themselves to secure more work; decide to hire employees; purchase equipment; or rent space. In my view, most ICs would come out well here.

2) Investments by the worker and the employer. This means that the IC should make investments in the IC's own business, such as paying for office equipment or business cards. The amount of investment required must be more than minimal, but it does not have to be equal to the host's own expenses. Here again, most ICs could probably pass muster.

3) Degree of permanence of the work relationship. The government believes that true ICs are gig workers who jump from job to job, like a freelance journalist, whereas employees typically stay with one company. Unfortunately, most ICs would do poorly here, as they tend to stick with a host with which they have a smooth and lucrative relationship.

4) Nature and degree of control. As with every government agency's tests for ICs, the company cannot control how, where or when the IC works. The Labor Department would consider the worker's schedule, degree of supervision, limitations on the worker's ability to work for others and the extent of contractual or customer service standards. Most IC relationships should do well under this criterion.

5) Skill and initiative. This refers to both specialized skills, which advisors certainly possess, and "business initiative," which must be used in connection with the specialized skills, not just initiative standing alone. Here, again, most IC relationships would fare well under this factor.

So, it looks like most ICs would have trouble only under the "integral part" and "nature and degree of permanence" criteria. In a future column, I'll discuss ways to comply with them, too. 

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