Effective today, May 7, 2021, the U.S. Department of Labor (“DOL”) is officially withdrawing independent-contractor rule approved in early January and at the end of the Trump Presidency, which would have made it easier for businesses to classify workers as independent contractors rather than employees under the Fair Labor Standards Act (“FLSA”).
Under President Trump’s framework, two core factors were prioritized and deemed most probative as to the question of whether a worker was economically depending on someone else’s business or was in business for him/herself: 1) the nature and degree of control over the work and 2) the worker’s opportunity for profit or loss.
The DOL cited several reasons for withdrawing this rule and returning to the “economic realities” test, namely:
- Tension with the text and purpose of the FLSA
- The undermining of the balanced “economic realities test” and established judicial precedent requiring review of the “totality of the circumstances” in the relationship
- The narrowing of overall facts to be considered in the analysis of whether a worker is an employee or an independent contractor that would ultimately result in workers losing FLSA protection
The withdrawal is one in addition to several other pro-worker moves advanced by President Biden in 100+ days of his administration, which was highlighted by U.S. Labor Secretary Marty Walsh’s statement: “By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect.”
Although employers should not expect a new rule in the near future, President Biden has shown public support for California’s “ABC” independent-contractor rule, which requires three factors to be met for a worker to be properly classified as an independent contractor:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work
- The worker performs tasks that are outside the usual course of the hiring entity’s business
- The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity
For now, employers should rely on the longstanding judicial precedent applying the economic realities test and look for additional information from Frantz Ward’s Labor & Employment Practice Group, which is closely monitoring developments in this and other areas.