Biden DOL Officially Withdraws Trump Administration Independent Contractor Rule

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On January 7, the outgoing Trump Administration published regulations that set forth new, more “business-friendly” standards for determining whether a worker was an independent contractor or an employee. The regulations were to take effect March 8.

On February 5, two weeks after President Biden was sworn in, the U.S. Department of Labor published a proposal to delay the effective date of the Trump regulations for 60 days, until May 7.

After reviewing approximately 1,500 comments received in response to its proposed delay, on March 11, the Biden DOL issued a Notice of Proposed Rulemaking in which it sought to completely withdraw the Trump regulations. The comment period for the proposed withdrawal closed on April 12.

Yesterday, in a move that should surprise no one, the Biden DOL made it official and withdrew the Trump regulations effective today. The withdrawal means that the DOL will continue applying the standards that were in place before the Trump regulations were issued.

Summary of the Trump regulations

The Trump regulations would have reaffirmed an “economic reality” test for determining whether a worker was an independent contractor or an employee, with the focus on two “core factors” that would have carried the most weight. Those factors were (1) the nature and degree of control over the work performed, and (2) the worker’s opportunity for profit or loss. With respect to the first factor, independent contractor status would have been found depending upon the extent to which the worker exercised substantial control over key aspects of the performance of the work, such as by setting his or her own schedule. Under the second factor, a worker would have been found to be an independent contractor if he or she had an opportunity to earn profits or incur losses based on either (1) the exercise of initiative, or (2) the investment in or capital expenditures on, for example, helpers, equipment, or material to further the work.

The Biden DOL’s rationale for withdrawing the Trump regulations

According to a DOL press release, the Biden Administration withdrew the Trump regulations primarily for the following reasons:

  • The Trump regulations were in tension with the text and purpose of the Fair Labor Standards Act, as well as relevant judicial precedent.

  • The Trump regulations prioritized the two “core factors” for determining employee status under the FLSA, which would have undermined the longstanding balancing approach of the “economic realities test” as well as court decisions requiring a review of the “totality of the circumstances” related to the employment relationship.

  • The Trump regulations would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers’ losing FLSA protections.

(Quoted from the press release with minor edits.)

Secretary of Labor Marty Walsh was quoted in the DOL press release as saying, “Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors. We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”

Jessica Looman, principal Deputy Administrator in the Wage and Hour Division of the DOL, told reporters in a call that the Biden Administration has not replaced the Trump regulations with a new interpretation of how to determine whether a worker is an employee or an independent contractor. Rather, the current DOL is returning to (or leaving in place) past precedent to make that determination. As the Biden Administration noted in the withdrawal regulations issued yesterday,

[S]ince the 1940s, federal courts have consistently analyzed the question of employee status under the FLSA by examining the economic realities of the employment relationship to determine whether the worker is dependent on the employer for work or is in business for him or herself. In doing so, courts have looked to . . . six factors . . . as useful guideposts while acknowledging that those factors are not exhaustive and should not be applied mechanically.

Ride-share companies, delivery companies, and other gig workers had supported the Trump regulations, and they are likely to be affected by this withdrawal. But it should be remembered that the Trump regulations never actually went into effect because President Biden was sworn in on January 20, and his administration promptly put the regulations on “hold” before withdrawing them completely.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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