Loyola University Chicago School of Law, JD 2023
On March 11, the U.S. Department of Labor (“DOL”) announced plans to rescind two final rules that the Biden Administration said would have significantly weakened protections for workers under the Fair Labor Standards Act(“FLSA”).
The two final rules, which covered independent contractor status under the Fair Labor Standards Act and joint employer status under FLSA, were adopted by former President Donald Trump’s DOL on Jan. 7, 2021, and March 20, 2020, respectively. The independent contractor rule had been set to take effect on March 8. The joint employer rule, which took effect on March 16, 2020, was largely vacated by the U.S. District Court for the Southern District of New York on Sept. 8, 2020, after the court found it was contrary to FLSA.
New administration takes aim at labor rules it says weaken protections for workers
“The Wage and Hour Division’s mission is to protect and respect the rights of workers. Rescinding these rules would strengthen protections for workers, including the essential front-line workers who have done so much during these challenging times,” said Wage and Hour Division Principal Deputy Administrator Jessica Looman in a March 11 press release.
“While legitimate independent contractors are an important part of our economy, the misclassification of employees as independent contractors denies workers access to critical benefits and protections the law provides,” Looman said. “Additionally, removing a standard for joint employment that may be unduly narrow would protect more workers’ wages and improve their well-being and economic security.”
On March 12, the DOL published notice of the new administration’s proposals to withdraw the final rules already adopted by the previous administration.
Proposal to withdraw independent contractor status rule
The Trump Administration’s new independent contractor rule sought to make the economic reality test used to determine whether a worker is an independent contractor more precise and predictable for workers and businesses. The rule had been set to take effect March 8 before the DOL delayed the effective date to May 7, 2021, under President Biden’s directive to freeze new regulations until they could be reviewed. Now, the agency wants to rescind the rule entirely.
Under the final rule, the DOL reaffirmed an economic reality test to resolve whether someone was an independent contractor in business for him- or herself or an employee economically dependent on an employer for work. But the agency identified two core factors that it considered most probative in analyzing whether a worker is economically dependent, including the nature and degree of control over the work and opportunity for profit based on initiative or investment undertaken by the worker. Additionally, the agency identified three other factors that could weigh on the determination, including amount of skill required, permanence, and whether the work is part of an integrated production unit.
“This rule brings long-needed clarity for American workers and employers,” then-U.S. Secretary of Labor Eugene Scalia said in a Jan. 6 press release. “Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act, while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.”
But many labor unions, including the Transport Workers Union of America, opposed the rule.
In a Jan. 6 press release, TWU International President John Samuelsen said the rule misclassified thousands of union workers and independent contactors.
“The rule issued by Trump’s Department of Labor will destroy jobs and hurt middle class families,” Samuelson said. “This rule would allow employers to unilaterally deny minimum wage, overtime, and other wage protections [for workers]. Allowing this rule to take effect would cost our economy hundreds of thousands of good union jobs – especially in the transportation sector.”
The U.S. Chamber of Commerce, which “enthusiastically supported” the Trump Administration’s independent contactor rule, opposed extending its effective date. The Chamber’s vice president for workplace policy, Marc Freeman, said in a Feb. 24 letter to DOL that “the [Jan. 7] regulation sets out a very balanced analysis that respects the interests of all parties.”
But the Biden Administration sided with labor unions’ calls to rescind the rule. In a March 11 DOL press release, the new administration said that the independent contractor rule should be withdrawn for three reasons:
- The rule adopted a new “economic reality” test to determine whether a worker is an employee or an independent contractor under the FLSA.
- Courts and the department have not used the new economic reality test, and FLSA text or longstanding case law does not support the test.
- The rule would narrow or minimize other factors considered by courts traditionally; making the economic test less likely to establish that a worker is an employee under the FLSA.
Because independent contractors are not covered by FLSA’s minimum wage or overtime pay requirements, if the Trump Administration’s independent contractor rule is withdrawn, more workers may be covered by FLSA’s wage and hours provisions.
Public comments may be made through the Federal eRulemaking Portal at www.regulations.gov until April 12.