Trump-era DOL rules face rescission
The United States Department of Labor (DOL) took its first steps to rescinding the independent contractor and joint employer rules issued under the Trump Administration. On March 11, 2021, the DOL issued two notices of proposed rulemaking seeking public comments on its plans to rescind these rules.
In its first notice of proposed rulemaking, the DOL indicated its intent to withdraw the independent contractor rule issued on Jan. 7, 2021, which had an effective date of March 8, 2021. By this rule, the DOL had adopted an “economic realities test” to be used to determine whether a worker was an employee or an independent contractor. President Biden supports a different, more restrictive test which, if used, would find that more workers are employees, not independent contractors. When issuing its rulemaking notice, the DOL explained that the “economic realities test” has not been consistently used by courts or the DOL and concluded that its use is not supported by the plain language of the Fair Labor Standards Act (FLSA).
Under the economic realities test, two core factors are considered: (1) the nature of the work and the degree of control the hiring entity has over the work performed; and (2) the worker’s opportunity for profit or loss based on their own initiative and investment. Three other factors also are considered: (1) the skill required to perform the work; (2) how permanent the working relationship is between the worker and the hiring entity; and (3) whether the work being performed is integral to production.
Proposed more restrictive test for classifying independent contractors
President Biden has indicated support for California’s “AB5 test,” which requires workers meet three factors to be properly classified as independent contractors: (1) the workers must be free from the control and direction of the hiring entity; (2) the workers must perform work that is outside the usual course of the hiring entity’s business; and (3) the workers must customarily be engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.
Early in the Biden administration, the DOL had proposed delaying regulations for the final rule until May 7, 2021. Now the DOL has invited public comment until April 12, 2021, regarding its proposed action to rescind the less restrictive “economic reality test” independent contractor rule.
Changes: joint employment rule
In its second notice of proposed rulemaking, the DOL seeks to rescind a Trump-era regulation on joint employer relationships under the FLSA, which took effect on March 16, 2020. However, in Feb. 2020, 17 states and the District of Columbia had filed suit against the DOL in the U.S. District Court for the Southern District of New York to enjoin the rule, arguing that its passage violated the Administrative Procedure Act. In early Sept. 2020, the court agreed and vacated large portions of the joint employment rule, concluding that it was contrary to the FLSA and that its passage was “arbitrary and capricious” because it failed to explain why the DOL had deviated from prior guidance or to consider the effect on workers.
To find a joint employer relationship, the rule currently mandates a four-factor balancing test that asks whether the alleged employer: (1) hires or fires employees; (2) supervises and controls employees’ work schedules or conditions of employment to a substantial degree; (3) determines the employees’ rates and methods of payment; and (4) maintains employees’ employment records. The DOL is seeking public comment until April 12, 2021, to determine whether to rescind the joint employer rule.
Under the Biden administration, the DOL has signaled its intention to withdraw these final rules, but seeks public comments at www.regulations.gov
, before taking its action. For more information about these rules or this DOL action, contact one of Chuhak & Tecson’s Employment attorneys
Client Alert authored by Jeralyn H. Baran (312 855 4613), Principal and leader of Chuhak & Tecson’s Employment practice.
This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.