As we predicted, the Biden administration signed an order immediately after taking charge of the White House halting the advancement of the Department of Labor’s new independent contractor rule. Now for the next step: the Assistant to the President and Chief of Staff just published a memorandum titled, “Regulatory Freeze Pending Review,” proposing to postpone the rule by 60 days to allow the new administration to review it. The effective date of the proposed rule, which would make it far easier to classify workers as independent contractors if it ever takes effect, should now be pushed from March 8, 2021 to May 7, 2021 – and the new Department of Labor would solicit public comments through February 24. What do gig economy companies and other businesses using contractor labor need to know about the February 3 action?
As reported by The Wall Street Journal, regulatory freezes are commonly imposed by new and incoming presidential administrations. Usually, the freezes are imposed to allow the new leadership some time to review the proposal, open a new 30-day comment period, and consider pending petitions for reconsideration involving such rules. This is the case with this and other pending regulations.
Biden’s Spells Out the Halt: A-B-C
It is no surprise that the Biden administration seeks to halt these pending regulations, given the connection with worker classification. The halted proposed regulation was set to establish an “economic reality test” to determine whether workers are employees or independent contractors. The rule would help companies seeking the opportunity to classify workers as independent contractors by creating a more flexible test. However, Biden expressed during his campaign his admiration for California’s “clear, simple, and strong” three-prong “ABC test” to distinguish employees from independent contractors. He also promised to work with Congress to establish a federal standard modeled on the ABC test for all labor, employment, and tax laws (which could become federal law under the resurrected PRO Act).
As reported by Bloomberg, the published memo doesn’t specifically address regulations from independent agencies such as the EEOC or the National Labor Relations Board. And, as a result, some regulatory experts are split on whether those agencies should, or will, comply. However, given that the incoming head of the Department of Labor is a staunch union and worker advocate personally selected by President Biden, it seems likely that the DOL will pursue a more worker-friendly version of this legal standard. We’ll wait to see whether the frozen rule will stand (doubtful), modified in some way (possible), or rescinded and replaced by a newly proposed rule more along the lines of California’s ABC test, effecting a completely opposite take from the Trump administration (probable).
Public comments will be submitted for the next several weeks – through February 24 – and we’ll report back with any new developments as the process unfolds.