On March 11, 2021, the U.S. Department of Labor (“DOL” or “the Department”) announced proposals to roll back two Trump administration regulations under the Fair Labor Standards Act (“FLSA” or “the Act”). These proposals are scheduled to be published in the Federal Register on March 12, 2021; interested stakeholders will have until April 12, 2021, to submit comments on these proposals.
Independent Contractor Status under the FLSA
The Department is proposing to withdraw its January 2021 final rule setting forth, for the first time by way of notice and comment rulemaking, the DOL’s standard for determining whether a given worker is an employee covered under the FLSA, or an independent contractor (and thus outside of the FLSA’s coverage). FLSA-covered employees are required to be paid a minimum wage, are entitled to overtime pay at one-and-a-half times their regular rate of pay for work beyond 40 hours in a week, and are subject to certain recordkeeping requirements. These provisions are inapplicable to independent contractors.
The final rule codified the use of an “economic reality” test for determining employee status under the Act, focusing on two “core factors” – the degree of control over the work performed, and the worker’s opportunity for profit or loss. The rule was originally slated to go into effect on March 8, 2021. Shortly after the new administration took office, the Department proposed to delay the effective date of the rule for 60 days, and on March 2, 2021, published a final rule pushing its effective date to May 7, 2021. The DOL will now determine whether the final independent contractor rule should be rescinded entirely; the proposal to withdraw the rule does not indicate whether or what analysis the Department might adopt to replace it.
Joint Employment under the FLSA
The Department has also proposed rescission of its January 2020 final rule setting forth the standard for joint-employer status under the Act. That rule established a four-factor balancing test for determining joint-employer status under the FLSA. Under the rule, the determination of whether a second company is a joint employer of another business’s worker examines whether the putative joint employer:
- Hires or fires the employee;
- Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- Determines the employee’s rate and method of payment; and
- Maintains the employee’s employment records.
The final rule made clear that no single factor is dispositive in determining joint-employer status, and the weight of each of the factors may vary based on the facts of each case.
In February 2020, a coalition of state attorneys general filed suit in the U.S. District Court for the Southern District of New York, claiming that the final rule was arbitrary and capricious, and violated the Administrative Procedure Act. In September 2020, the court found in favor of the plaintiffs, and vacated most of the final rule on a nationwide basis. That decision is currently on appeal to the Second Circuit Court of Appeals; with the change in administration, it is unclear whether the DOL will vigorously pursue the appeal, or, particularly in light of the proposed rescission, ask that it be stayed.1 As with the independent contractor rule discussed above, the Department is proposing only to rescind the existing rule; it has not indicated what if any analysis it would substitute in its place.
The proposed revocation of these rules indicates that the Biden DOL is likely to aggressively regulate and, where possible, reverse policy decisions made by the prior administration. Littler’s WPI will keep readers apprised of relevant developments as they occur.