DOL Withdraws Trump Administration Independent Contractor Test

From SESCO Management Consultants

The U.S. Department of Labor (DOL) has eliminated a Trump administration end-of-term rule for determining whether workers should be classified as independent contractors or employees under the Fair Labor Standards Act (FLSA). The former administration rolled out the rule in January 2021, and though it went through the full rulemaking process, it never took effect.

Current Economic Realities Test

As it stands, the DOL’s current guidance on the factors considered under the economic realities test, last updated in July 2008, remains in place. These factors include:

  • The extent to which the services rendered are an integral part of the principal’s business;
  • The permanency of the relationship;
  • The amount of the alleged contractor’s investment in facilities and equipment;
  • The nature and degree of control by the principal;
  • The alleged contractor’s opportunities for profit and loss;
  • The amount of initiative, judgment or foresight in open market competition with others required for the success of the claimed independent contractor; and
  • The degree of independent business organization and operation.

Withdrawal and Dispute

On March 12, 2021, DOL proposed to withdraw the rule prior to its effect, an action that met opposition from business groups. On March 26, 2021, business groups challenged the proposed withdrawal in court, arguing that the DOL failed to provide a meaningful notice and comment period in violation of the Administrative Procedure Act. This case, however, remains in its early stages.

Possible Alternatives and Consequences for Employers

Since his inauguration and in his campaign, President Biden has signaled that he intends to make worker-friendly policies a priority in his administration. Biden has stated that he supports an “ABC Test” for independent contractors, similar to the oneCalifornia adopted in 2018,imposing a fairly restrictive standard for a person to qualify as an independent contractor.

Regardless of the test used, the Biden-era DOL, under Secretary Marty Walsh, likely will favor classification of workers as employees, rather than as independent contractors. For example, as recently as April 30, 2021, Walsh stated that, in many cases,gig workers should be classified as employees. Employers that utilize independent contractors should consider evaluating whether these individuals are appropriately classified, recognizing that this is a point of focus for the Biden-era DOL.

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