DOL Proposes Withdrawal of New Joint Employer and Independent Contractor Regulations

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During the final year of the Trump administration, the Department of Labor proposed two new regulations interpreting the Fair Labor Standards Act. First, effective March 16, 2020, DOL adopted a new test to determine when companies are “joint employers” under the FLSA based on whether the company exercises substantial control over the terms and conditions of the employee’s work. Second, on January 7, 2021 DOL published a final rule adopting an “economic reality” test to determine whether a worker is an independent contractor rather than an employee. Both regulations were viewed as employer-friendly because companies could more easily classify workers as independent contractors and avoid joint employer status.

On March 11, 2021, DOL issued a notice of proposed rulemaking to withdraw both the joint employer and independent contractor rules. The proposed withdrawal is open for public comment until April 12, 2021. After that, DOL must decide whether to issue new regulations or simply revert to the circuit-specific tests that controlled prior to the new regulations.

The withdrawal decision adds additional uncertainty to important employment law issues that have already experienced upheaval over the last year. For now, employers should be very cautious about relying on regulation and instead revisit controlling federal court decisions. In the Fourth Circuit (which includes North Carolina, South Carolina and Virginia), the question of joint employment will be governed by Salinas v. Commercial Interiors, Inc. while independent contractor status will be governed by Butler v. Drive Automotive Industries of America Inc.

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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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