Employers who have been following the Department of Labor’s (DOL) guidance on independent contractors may feel that they are sitting on a playground seesaw.
As we previously reported this past January, in the waning days of the Trump administration, the DOL issued a final rule (the Rule) on Independent Contractor Status under the Fair Labor Standards Act (FLSA). The Rule modified the DOL’s test for classifying workers as employees or independent contractors for purposes of the FLSA, making the test broader and friendlier to employers. Specifically, the agency adopted a five-factor test but emphasized two factors as most important: (1) the nature and degree of the individual’s control over the work, and (2) the opportunity for profit or loss.
At the time, we cautioned that employers’ sense of joy over the Rule might be short-lived, given the incoming administration’s stated commitment to roll back Trump-era actions that it perceived as negatively impacting workers; such caution was well-advised. On May 5, 2021, the DOL announced a new final rule, withdrawing the January 2021 Rule. The withdrawal takes effect on May 6, 2021.
According to the Biden administration’s DOL, it is withdrawing the Rule because it is inconsistent with the FLSA’s purpose and text, and because no court has yet followed the Rule’s approach when analyzing whether a worker is an employee or an independent contractor under the FLSA. Also, because the Rule allows more workers to be classified as independent contractors and thereby reduces the number of workers protected by the FLSA, the withdrawal is in accordance with President Biden’s agenda to expand protections for employees.
The DOL has not put forth any new guidance with respect to independent contractor classification, meaning that for the time being employers should look to prior DOL guidance with respect to independent contractor classification, including is the DOL’s Fact Sheet 13: Employment Relationships Under the Fair Labor Standards Act (FLSA). That guidance provides a seven-factor test, which is less forgiving in terms of classification issues and does not identify any factor or factors as carrying more weight than the others.
We will keep you updated on further changes with respect to this ever-evolving area of law.