March 7, 2024

U. S. Labor Department Changes the Rules Again on Classification of Independent Contractor or Employee

On January 9, 2024, the U.S. Labor Department released a final rule that revises its interpretation of a provision in the Fair Labor Standards Act concerning how to determine whether a worker is an independent contractor. The Department clarified that there are six factors to consider, including the degree of permanence for the work, how much control an employer has over someone’s work and whether the work someone does is essential to the business. The factors also include the worker’s opportunity for profit or loss, as well as the financial stake and nature of resources a worker has invested in the work. The new rule will take effect March 11, 2024. Industries that will likely be affected include home health care, construction, trucking, and ride-share and delivery services. This rule change seeks to curtail the use of misclassification that deprives many workers of full and fair compensation, including overtime, health care benefits, workers’ compensation coverage, protection against discrimination and entitlement to social security. Getting an independent contractor classification wrong can be very expensive for employers.

In Pennsylvania, employers are not required to carry workers’ compensation insurance for workers who are classified as independent contractors. The Pennsylvania Bureau of Workers’ Compensation (BWC) has no specific authority regarding worker misclassification. The misclassification issue in workers’ compensation typically arises when an employer rejects the claim of an injured worker by denying that the injured worker was an employee. This issue can arise in many types of industries. The decision whether a worker was misclassified as an independent contractor by their employer is made by a Workers’ Compensation Judge (WCJ) who determines whether an injured worker was an employee injured in the course and scope of employment. If a WCJ determines that a worker was misclassified and the business failed to carry the requisite workers’ compensation insurance, the BWC Compliance Section has the authority to file criminal charges under Section 305 of the Workers’ Compensation Act. If the employer is found guilty of these charges, penalties may include imprisonment, fines, and restitution.

While it is true that Companies are not obliged to purchase workers compensation insurance for independent contractors, the test for determining whether a worker is an employee or independent contractor is not a bright line test and judges might not agree with an employer’s classification of a worker as being an independent contractor.  When faced with a catastrophic work related accident, the misclassification of an employee as an independent contractor (or vice versa) could have significant economic implications for employers.  Employers may be able to mitigate that risk by the way that they structure and document the rights and obligations of those working for them. However, employers should be cognizant of the significant economic risks of misclassifying workers as either employees or independent contractors.

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Zachary M. Rubinich is a partner in the Philadelphia office. He focuses his practice on the defense of insurance carriers, self-insured entities and third-party administrators against workers’ compensation claims in Pennsylvania. Based on his extensive experience, the Pennsylvania Bar Association Workers’ Compensation Law Section has certified him as Specialist in the practice of workers’ compensation law Zach has handled all aspects of litigation before workers’ compensation judges, the Workers’ Compensation Appeal Board, the Commonwealth Court and the Pennsylvania Supreme Court.

Zach has been appointed to the following American Bar Association Tort Trial and Insurance Practice (TIPS) leadership positions: Chair-Elect of the Litigation and Trial Practice Committee; Vice-Chair of the Appellate Advocacy Committee; member of the Ethics and Professionalism Standing Committee; and member of the CLE Board Committee. He is the Past Chair of the ABA’s Tort Trial and Insurance Practice (TIPS) Workers’ Compensation and Employers’ Liability Law Committee from 2018-2019. He served as Vice-Chair of this committee for 2015 to present. In addition, Zach served as Vice-Chair of the 2017-2018 American Bar Association Standing Committee for Diversity and Inclusion. He is also a Committee Member of the ABA’s Legal Opportunity Scholarship Fund.

Zach has been rated AV Preeminent by Martindale-Hubbell for the twelfth consecutive year for 2024. He has been selected as a 2019, 2020 and 2021 Pennsylvania Super Lawyer by Super Lawyers. He was selected as a Pennsylvania Rising Star by Super Lawyers from 2010 to 2014. He was selected as an International Advisory Experts (IAE) Award recipient in 2019 for his accomplishments as a workers’ compensation attorney in Pennsylvania. Zach has been selected as a Fellow of the College of Workers’ Compensation Lawyers Class of 2020. Mr. Rubinich was recognized as a Main Line Today 2023 Top Lawyer.

Zach can be reached directly at: (215) 575-4340 • zrubinich@rawle.com

Rawle & Henderson LLP Workers’ Compensation Section

CHAIR: Claudio J. DiPaolo
PARTNERS: Zachary M. Rubinich, J. Brendan O’Brien, Richard B. Polner, Jennifer Schwartz, Christian  M. Stein
OF COUNSEL: Edward J. Chiodo, James Curry, Daniel Spafford
ASSOCIATES: Mary Bergmann, Iyanna Greene

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