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Client Alert
New Independent Contractor Rule by the US Department of Labor - Puerto Rico
By: Angel Berberena, Esq.
January 9, 2024
Three years ago, the U.S. Department of Labor (DOL) announced a final rule modifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FSLA). See Client Alert of January 7, 2021. The 2021 Independent Contractor Rule focused on two “core factors” to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself. These were: i) the nature and degree of control over the work; and ii) the worker’s opportunity for profit or loss based on initiative and/or investment.
On January 9, 2024, the DOL released the final New Rule which rescinds the 2021 Independent Contractor Rule and restores the multifactor analysis previously used by courts to determine whether a worker is an employee or an independent contractor, these include: i) any opportunity for profit or loss a worker might have; ii) the financial stake and nature of any resources a worker has invested in the work; iii) the degree of permanence of the work relationship; iv) the degree of control an employer has over the person’s work; v) whether the work the person does is essential to the employer’s business; and vi) the worker’s skill and initiative. No factor or set of factors has a predetermined weight, and the totality of the circumstances of the working relationship must be considered. This multifactor analysis is in line with judicial interpretations by the Supreme Court of Puerto Rico.
This multifactor analysis must also be made in conjunction with Puerto Rico’s Act No. 4 of 2017, which creates an irrebuttable presumption that a person is an independent contractor if the following criteria are met:
- The individual has or has requested an employer identification number or employer social security number.
- The individual has filed income tax returns as an independent business or as self-employed.
- The relationship between the parties is through a written contract.
- The individual is contractually required to have licenses or permits issued by the government to operate his business or provide the agreed services.
In addition to having to comply with all four basic requirements, three of the following five criteria must be met by the individual:
- Maintain control and discretion over the way in which the work is performed, except for the necessary control by the principal to ensure compliance with any legal or contractual obligation.
- Maintain control over when the work will be performed unless there is a specific schedule agreement.
- Not be required to work exclusively for the principal unless required by law or in the case of limited time exclusivity agreements.
- Freedom to hire employees to assist in the rendering of the services.
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The individual made an investment to provide the services (e.g., tools, equipment, materials, licenses, or rental).
Act No. 4 specifically provides that unless these very specific requirements are met, no incontrovertible presumption is created, and the determination regarding the independent contractor/employee status should be based on the common law test following the intention of the parties and the degree of control over the work.
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