Labor Department withdraws independent contractor rule

Published May 6, 2021 - HR Dive
Katie Clarey, Editor

Dive Brief:

• Two days before its effective date, the U.S. Department of Labor May 5 withdrew a rule that was set to implement an "economic reality" test to determine whether a worker is an employee or independent contractor.
• The Labor Department had already delayed the rule, which was originally set to take effect 60 days after the Trump administration first published it Jan. 6.
• The department said it withdrew the rule because it was inconsistent with the text and purpose of the Fair Labor Standards Act and would have had "a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent." DOL said the rule elevated two factors ・the nature and degree of workers' control over their work and the opportunity for profit or loss ・in its proposed test, a decision that ran against the position of the U.S. Supreme Court and federal courts of appeal that "no single factor in the analysis is dispositive and that the totality-of-the-circumstances must be considered" in determining a worker's status.

Dive Insight:

The independent contractor rule came as good news to employers when it was first proposed in September 2020. Eugene Scalia, secretary of the Labor Department at the time, hailed the rule as needed simplicity.・/span>

"Unlike AB-5, our rule doesn't propose radical changes in who's classified as an employee or independent contractor," Scalia wrote in an opinion piece for Fox Business. "Instead, our rule aims to simplify, clarify and harmonize principles the federal courts have espoused for decades when determining what workers are 'employees' covered by the minimum wage and overtime pay requirements of the FLSA."

This is not the first time the Biden administration has reeled in Trump-era actions on worker classification. In February, DOL withdrew a 2019 opinion letter that determined a virtual marketplace company's workers were correctly deemed independent contractors.

It remains to be seen whether the Biden administration will attempt to replace the rule it withdrew. The agency generally uses a multi-factor test derived from a Supreme Court opinion.

It's also worth noting that states have taken up this issue in recent years. California, a state known for its worker-friendly legislation, passed its own independent contractor test - the ABC test - that assumes workers are employees.