DOL Overturning Independent Contractor and Joint Employer Rules
As you may recall, in early January 2021, the U.S. Department of Labor (DOL) issued what it called a “final rule” on the classification of independent contractors. However, as expected, this rule—which was scheduled to go into effect in May 2021—is now in question. The DOL announced proposals on March 11 to rescind that rule, as well as the joint employer relationships rule under the Fair Labor Standards Act (FLSA). These rules were largely seen as employer-friendly, and by overturning them, the DOL under the Biden administration intends to provide more employee protections.
Independent Contractor Rule
The independent contractor rule sought to implement an economic reality test to determine if a worker was an employee or an independent contractor. That test included two core factors: 1) the nature and degree of control the worker has over his or her work, and 2) what opportunity for profit or loss the worker has based on his or her initiative, investment, or both. Three other factors served as additional guidelines: 1) how much skill the work requires, 2) how permanent or consistent the professional relationship is between the worker and the potential employer, and 3) and whether work provided is part of an “integrated unit of production.”
The DOL now states that neither longstanding case law nor FLSA text supports the use of such a test.
Joint Employer Rule
The joint employment rule took effect in March 2020. This rule incorporates a test for determining if two employers can be considered jointly responsible for a single employee in terms of FLSA compliance. Many employers had issues with the rule and had requested clarity. In a subsequent lawsuit, filed by the District of Columbia and 17 states in the U.S. District Court for the Southern District of New York, the court stated that the rule was not in keeping with the FLSA, and much of it was vacated.
The DOL’s Position
According to Principal Deputy Administrator Jessica Looman of the DOL Wage and Hour Division, “Rescinding these rules would strengthen protections for workers, including the essential front-line workers who have done so much during these challenging times. 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. 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.”
Stakeholders are invited to comment on the proposal to rescind these rules through April 12, 2021.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.