Late in the Trump administration, the Department of Labor issued final rules intended to distinguish between employees and independent contractors for purposes of qualification for overtime and minimum wage obligations under the Fair Labor Standards Act. Prior to this rule, the classification question depended on a series of factors that were complex and difficult for employers and DOL to consistently apply. The new rule replaced this analysis with a look at the economic realities of the situation to determine whether the worker has control over the work, and has the opportunity for profit or loss. This interpretation likely would result in many gig and other workers being considered contractors not covered under the FLSA.

When it took office, the Biden administration first delayed and then withdrew the final rule. Effectively, this left in place the prior, more complex analysis of multiple factors when determining employee/contractor status. Last Friday, a federal district court judge in Texas held that DOL improperly withdrew the prior final rules because it did not follow applicable administrative procedures. The judge said this means that the final rule takes immediate effect unless or until DOL decides to start the process over.

DOL has a number of options in response to this decision. It could appeal the judge’s ruling to the Fifth Circuit Court of Appeals. It could also issue a new notice of proposed rulemaking to withdraw the final rule. Until this decision is revisited, employers can argue that the final rule applies to FLSA classifications currently under investigation. This decision does not supersede state laws or other employee/contractor classification tests used outside the FLSA context.

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