DOL Withdraws Trump-Era Independent Contractor Rule
Author: Michael Cardman, Brightmine Legal Editor
May 5, 2021
The US Department of Labor (DOL) tomorrow will withdraw a Trump administration rule that would have made it easier for businesses to classify workers as independent contractors - one day before the rule was to have taken effect.
Withdrawing the rule will "help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect," Labor Secretary Marty Walsh said a statement.
The DOL said it is withdrawing the rule because:
- It was in tension with the text and purpose of the Fair Labor Standards Act (FLSA), as well as relevant judicial precedent;
- Its prioritization of two "core factors" for determining employee status would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances; and
- It would have resulted in workers losing FLSA minimum wage and overtime protections.
What's Next
Currently, neither the FLSA nor its regulations define the term independent contractor. However, the federal courts have developed a relatively uniform set of factors to determine independent contractor status, commonly referred to as the economic realities test.
The Trump administration had said that this test, and the process of applying it, lacks focus and has not always been sufficiently explained by courts or by the DOL, resulting in uncertainty for employers.
Without the new rule, the economic realities test will remain the standard for the time being.
In an email to HR & Compliance Center, the DOL said it "did not propose and is not now issuing regulatory guidance to replace the guidance that the Independent Contractor Rule would have introduced."
The DOL noted that other guidance, such as Fact Sheet #13, remains in place. (While similar, the economic realities tests applied by different federal appellate courts differ slightly; the DOL's fact sheet outlines seven key factors for determining whether a worker is an independent contractor.)
Nevertheless, the door is open for the DOL to issue a new rule. President Biden has said he will work with Congress to establish a federal standard modeled on the "ABC test," not only for the FLSA but for all labor, employment and tax laws.
A few states - including California, Massachusetts and New Jersey - already have an ABC test in place under their wage and hour laws. Several others have ABC tests under unemployment laws, workers' compensation laws and other statutes.
In a recent interview with Reuters, Walsh said that gig workers should be classified as employees in several cases. "[I]n some cases they are treated respectfully and in some cases they are not and I think it has to be consistent across the board," he told the news agency.