An article in the American Bar Association’s Journal of Labor & Employment Law analyzes how independent contractor classification applies to multi-level marketing (MLM) models under the U.S. Department of Labor’s 2024 final rule on worker classification. The authors explain that although MLM participants are commonly labeled as independent contractors, the Department of Labor’s return to a totality-of-the-circumstances economic-reality test requires a more searching analysis under the Fair Labor Standards Act.
According to the ABA analysis, the 2024 rule evaluates multiple factors—such as the degree of control exercised by the company, the worker’s opportunity for profit or loss, the permanence of the relationship, and whether the work is integral to the business—without giving any single factor controlling weight. In the MLM context, the article notes that features like standardized pricing, sales quotas, recruiting expectations, and ongoing relationships can weigh against independent-contractor status when viewed holistically.
The authors caution that misclassification risk is particularly acute for MLM and other platform-based business models, where contractual labels may diverge from operational realities. Enforcement actions and private litigation can expose companies to wage-and-hour liability, tax penalties, and statutory damages, especially as federal and state regulators continue to scrutinize contingent-work arrangements.
Outside Legal Counsel LLP advises independent contractors and companies on worker-classification audits, independent-contractor agreement structuring, and compliance strategies aligned with current Department of Labor guidance and evolving litigation trends. Contact us today.
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