Modern Worker Act Changes FLSA Rules: Employee Status Now Based on 'Common Law,' Shifting Overtime Eligibility

The “Modern Worker Empowerment Act” is short, but what it does is a major shake-up to federal labor law. This legislation specifically targets the Fair Labor Standards Act (FLSA) of 1938, which is the cornerstone law that guarantees minimum wage, overtime pay, and child labor protections. The bill’s core move is changing the legal test used to decide who counts as an “employee” under the FLSA. Instead of using current standards, it mandates that employee status must now be determined using the “usual common law rules.”

The Shift to Common Law: Why It Matters

If you’re not a lawyer, “common law rules” might sound like jargon, but here’s the real-world translation: it’s the standard courts have historically used to determine employment based mostly on the degree of control the employer has over the worker. This is often contrasted with broader tests that the FLSA has sometimes used over the years, which focused more on the economic reality of the relationship—like whether the worker is economically dependent on the business. By forcing the FLSA to use the common law test (Section 2), this bill is essentially narrowing the gate for who qualifies as an employee.

For workers, this is a big deal because if you are not classified as an “employee,” you are automatically ineligible for FLSA protections. That means no guaranteed minimum wage, no mandated overtime pay for working over 40 hours, and no protection against illegal deductions. This change could significantly impact the growing number of workers in the gig economy or those in other non-traditional arrangements. For instance, a driver or delivery person who might have qualified as an employee under a broader economic reality test might now be reclassified as an independent contractor under the common law standard, losing their right to overtime pay in the process.

Who Stands to Benefit (and Who Doesn’t)

This shift primarily benefits companies that rely heavily on classifying their workforce as independent contractors. By adopting the common law rule, employers gain a clearer, and potentially easier, path to arguing that many contingent workers—from freelance coders to construction subcontractors—do not qualify as employees. This translates directly into cost savings by eliminating payroll taxes, workers’ compensation insurance, and the expense of overtime pay.

Conversely, the people who lose out are the workers who need the baseline protections of the FLSA the most. If you’re a worker currently on the edge of the employee/contractor line, this bill pushes you firmly toward the contractor side. This could mean working 50 or 60 hours a week without receiving time-and-a-half pay, or finding yourself earning less than minimum wage after factoring in expenses. Since the term “usual common law rules” is still subject to interpretation, we could see years of court battles defining the new boundaries, creating significant uncertainty for millions of workers and the businesses that hire them.