The U.S. Department of Labor (DOL) recently stated that it will not enforce an employee-friendly independent contractor rule implemented by the Biden administration in 2024 (“Biden Rule”). The Biden Rule made it more difficult for businesses to classify workers as independent contractors. In contrast, the DOL’s announced approach will renew focus on a factor that tends to favor independent contractor status – the worker’s “degree of independent business organization and operation.” The Biden Rule ignored this factor, which stemmed from 2008 DOL guidance.
What is the new state of play?
The Trump DOL indicated it will return to the following factors in enforcement actions:
- The extent to which the services rendered are an integral part of the principal’s business.
- The permanency of the relationship.
- The amount of the alleged contractor’s investment in facilities and equipment.
- The nature and degree of control by the principal.
- The alleged contractor’s opportunities for profit and loss.
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent business organization and operation.
These factors will guide the DOL in conducting audits or pursuing enforcement of the Fair Labor Standards Act (FLSA). However, importantly, the Biden Rule remains in effect for purposes of “private litigation.” That means that if a worker files a lawsuit claiming they were misclassified as an independent contractor, the worker can rely on the Biden Rule as persuasive guidance to support their claim.
What this means for businesses
The DOL’s shift should be welcome news to businesses using independent contractors. It signals a reprieve from misclassification enforcement actions and may lead to a formal rule that businesses can rely on for future litigation. In the meantime, however, the Biden Rule remains in effect for private litigation, and businesses must still comply with state and local law, which may be more employee-friendly (especially in jurisdictions like Washington, Oregon and California). Now is a good time to review how workers are classified and to consult your legal counsel for additional guidance.