The US Department of Labor has announced proposals to eliminate two of the previous administration’s signature rules, the joint employer rule and the independent contractor rule.
First, the US Department of Labor (DOL) has proposed rescinding the joint employer rule issued in January 2020, which adopted a modified four-part test to determine joint employment status and emphasized that economic dependence was not relevant for determining joint-employer status.
The joint employer rule took effect on March 16, 2020, but was immediately challenged in federal court under the Administrative Procedures Act by a coalition of attorneys general from 17 states and the District of Columbia. The district court vacated most of the rule and the Trump administration appealed that decision. The DOL, alongside business group intervenors, are parties to this challenge, which is currently pending in the US Court of Appeals for the Second Circuit. The US Department of Justice and the DOL will now have to decide on next steps in the appeal, which might include a request to hold the stay in abeyance pending this rulemaking.
Second, the DOL has proposed eliminating the independent contractor rule, which was finalized January 7, 2021. The independent contractor rule was originally scheduled to take effect on March 8, but the DOL proposed and then finalized a delay of the effective date to May 7, 2021. The rule identifies a new, simplified test for determining whether a worker is an employee or an independent contractor.
The DOL’s proposal reaffirms its position that the longstanding Fair Labor Standards Act “economic realities” test controls, and spells out in great detail the DOL’s prior interpretations, Supreme Court precedent, and federal court decisions analyzing the “totality of the circumstances” by applying multifactor tests. This level of detail may signify the DOL’s interest in returning to the 2015 Administrator’s Interpretation.
Of note, both of the proposals reference President Joseph Biden’s instructions regarding “modernizing regulatory review” issued on January 20, 2021, to agencies and the Office of Information and Regulatory Affairs in the Office of Management and Budget. The memorandum instructed agencies to “take into account the distributional consequences of regulations” when calculating the likely costs, transfers, and benefits of a rule. The DOL questions whether the two rules took these consequences into account, signaling that such costs will be considered in any future rulemaking or interpretation of joint employers and employees/independent contractors.
The DOL has sought comment on both proposals. Commenters have 30 days to submit their comments, making comments due April 11, 2020, if the proposals are published on the scheduled date of March 12. Employers should consult counsel and consider submitting comments regarding the proposed rescissions.
These early moves reiterate that independent contractor and joint employment issues are a top priority of the DOL under President Biden. Employers should therefore continue to review how their employees are classified and remain diligent over the use of contingent workers, vendors, franchises, and other business partners.