Independent Contractor Rule Brought Back From the Dead

Author: Michael Cardman, Brightmine Legal Editor

March 18, 2022

A Trump administration rule that makes it easier for businesses to classify workers as independent contractors has been brought back to life.

The rule establishes a five-factor test for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA), replacing the decades-old "economic realities test" involving multiple, sometimes-overlapping factors used by most courts and by the DOL previously.

Last year, the Biden administration delayed and then ultimately withdrew the rule one day before it was supposed to take effect.

In response, a coalition of businesses representing staffing agencies, direct sellers, gig economy platforms and others sued the DOL, seeking to have the rule reinstated.

On March 14, a federal court in Texas granted their wish.

By withdrawing the rule completely instead of considering possible changes (such as not elevating any factors as core factors, using six factors instead of five, ranking the factors, or rephrasing any of the factors' wording), the Biden administration violated federal law governing agency rulemaking, the court held.

What's Next

With the court's order, the independent contractor rule is back in effect. Not only that, it has been in effect since its original effective date - meaning it could help protect employers from misclassification lawsuits involving work performed as long ago as March 8, 2021.

However, the DOL could appeal the decision to the 5th Circuit Court of Appeals. The DOL did not immediately respond to a request for comment asking whether it intends to do so.

The DOL also could issue a new rule to replace the current rule. President Biden has said he would 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.

Either course of action would take a long time, so employers can probably count on the five-factor test to stay in place for several months or more, barring a dramatic development like an emergency injunction.