Federal Court Reinstates Trump-Era Independent Contractor Rule

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As discussed here, in January 2021, in the waning days of the Trump administration, the U.S. Department of Labor issued a Final Rule setting forth for the first time a standard for differentiating employees and independent contractors under the Fair Labor Standards Act.  The scheduled effective date of the new rule was March 8, 2021.

Shortly after the Biden administration took office, the Department first delayed the effective date of the rule and then issued a new Final Rule withdrawing the Trump-era standard, as discussed here.

Various business groups filed suit in federal court in Texas challenging the Biden administration’s actions.  Earlier this week, in Coalition for Workforce Innovation v. Walsh, Judge Marcia Crone of the U.S. District Court for the Eastern District of Texas, a George W. Bush appointee, issued a 41-page ruling addressing the parties’ cross-motions for summary judgment.  In short, the court invalidated the Biden administration’s actions and reinstated the Trump-era rule.  The court made two key determinations:

First, the court concluded that the Department’s rulemaking to delay the effective date of the Trump-era Final Rule violated the Administrative Procedure Act (the “APA”) in three respects:

  1. by providing only a 19-day notice-and-comment period, rather than the 30-day period the courts have recognized as the minimum under the APA, without adequate grounds;
  2. by limiting the content of responses to the binary question of whether or not to delay the effective date, thereby unduly limiting the scope of comments; and
  3. by making the delay effective immediately upon the issuance of the Final Rule implementing the delay, rather than allowing the 30-day waiting period set forth in the APA, without good cause.

Second, the court held that the Department’s rulemaking to withdraw the Trump-era Final Rule was arbitrary and capricious under the APA because it restricted comments to the question of whether or not to withdraw the Trump-era rule, rather than allowing the public to propose other alternatives such as modifying the standard set forth in that rule.  The court concluded that “[b]y refusing to consider alternatives to the total withdrawal of the Independent Contractor Rule, the DOL failed to ‘consider important aspects of the problem before [it]’—the lack of clarity of the economic realities test and the need for regulatory certainty.”  (Slip Op. at 38 (citation omitted).)

Based on these rulings, the court vacated the Biden administration’s rulemakings and determined that the Trump-era rule “became effective as of March 8, 2021, the rule’s original effective date, and remains in effect.”  (Slip Op. at 40-41.)

An appeal by the Department to the U.S. Court of Appeals for the Fifth Circuit seems likely.  Alternatively, or in conjunction with an appeal, the Department may elect to engage in further rulemaking.  Stay tuned for further developments in this litigation and associated rulemaking and, of course, keep an eye on the evolving approaches to the independent contractor issue under state law.

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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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