DOL Withdraws Trump-Era Independent Contractor Rule

Obermayer Rebmann Maxwell & Hippel LLP

Obermayer Rebmann Maxwell & Hippel LLP

President Joe Biden’s campaign advocated for workers’ rights and sought to prevent the misclassification of employees as independent contractors.  In accordance with his platform, on May 5, 2021, the Biden Administration Department of Labor (“DOL”) officially withdrew the “Independent Contractor Rule” proposed during the Trump Administration.  The Trump-era rule would have made it somewhat easier for employers to classify workers as independent contractors under the Fair Labor Standards Act (FLSA).  The final rule issued by the Trump Administration DOL on January 7, 2021, advocated for the adoption of the economic realities test: “The ultimate inquiry is whether, as a matter of economic reality, the worker is dependent on a particular individual, business, or organization for work (and is thus an employee) or is in business for him- or herself (and is thus an independent contractor).”  Specifically, the proposed rule prioritized two “core factors”: (1) the nature and degree of the worker’s control over the work; and (2) the worker’s opportunity for profit or loss.  The proposed rule was scheduled to take effect on March 8, 2021; however, the DOL under President Biden extended the effective date to May 7, 2021, then withdrew it before it became effective. 

In making this determination, the DOL found that the proposed rule conflicted with the text and purpose of the FLSA, as well as relevant legal precedent. 

Specifically, the DOL explained that the rule’s prioritization of the two “core factors” would have narrowed the facts and considerations for determining whether a worker is an employee or independent contractor and, thus, would result in workers losing FLSA protections.  Labor Secretary Marty Walsh, who has long been an advocate for unions and workers’ rights, supports the withdrawal of the independent contractor rule:

“By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect.  Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors.  We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”

Although the independent contractor rule would have only impacted a worker’s status under the FLSA, numerous state and federal laws rely on the definitions contained in the Act. 

President Biden has also supported a broader adoption of the “ABC test” to distinguish independent contractors and employees under multiple labor, employment, and tax laws.  The Biden campaign has cited California as a model for establishing a clear and simple mechanism for distinguishing between employees and independent contractors.  The DOL’s decision to withdraw the independent contractor rule references California’s difficult-to-satisfy ABC test, noting that consideration of the adoption of the ABC test is outside the scope of this rulemaking.  However, as the DOL and other federal agencies continue to move in an employee-friendly direction under the Biden Administration, HR Legalist will continue to monitor and provide updates.

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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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