Yesterday, the Department of Labor reported its decision to withdraw a rule, announced on January 6, 2021, distinguishing between employees and independent contractors under the FLSA.
Here’s a link to the Department’s announcement.
The Rule, which we covered in a previous Alert:
- Adopted an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee);
- Identified two “core factors” — the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment — as the most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself;
- And, identified three other factors — the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production — that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification.
The rule was set to go into effect on March 8, 2021. But, on March 12, 2021, the Department issued a notice of proposed rulemaking to withdraw the Rule. Here’s a link to that notice. And, after reviewing about 1,000 comments that the Department received in response, it decided to finalize the withdrawal.
Several reasons, according to the Department, support that decision. Among them:
- The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent;
- The rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship;
- The rule would have narrowed the facts and considerations comprising the analysis whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections;
- Withdrawing the independent contractor rule will help preserve essential workers’ rights under the FLSA;
- And, the Department anticipates that withdrawing the independent contractor rule will avoid other disruptive economic effects that would have been harmful to workers had the rule gone into effect.
The withdrawal is effective beginning today.