How to Comply With the Federal Independent Contractor Rule

Misclassification of workers has increasingly become a target of the U.S. Department of Labor, the National Labor Relations Board, and plaintiffs’ attorneys who believe that many companies incorrectly use and identify employees as independent contractors. The construction industry, particularly in the South, has been flagged by the Department of Labor, and the former head of the department’s Wage and Hour Division has written that “the problem has been long entrenched” in the industry.

Whether a regulator takes action or an independent contractor sues, claiming to be misclassified, these cases pose significant risks for companies. In late 2023, two national companies paid $55 million and $30 million to settle misclassification claims. In most cases, the settlement is just the start of the impact to the bottom line: fees and penalties — including criminal penalties — are possible, and reclassifying independent contractors as employees results in substantial increases in labor expenses going forward.

These disputes are likely to continue to rise this year after the Jan. 9 release of the Department of Labor’s final version of a new rule that is considered “employee-friendly” in how it approaches classification.

From our experience litigating these kinds of disputes and advising clients on independent contractor agreements, construction companies can take several steps to limit or avoid these types of cases. They include ensuring the use of clear and up-to-date contracts, training employees at all levels of the company (top to bottom) on how to interact with independent contractors, and navigating potential joint employer issues that arise in the construction industry.

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