Trump-Era Independent Contractor Rule Withdrawn
By: Aaron Chaet
On May 5, 2021, the U.S. Department of Labor (“DOL”) issued a Final Rule withdrawing the DOL’s January 7, 2021 Final Rule regarding the classification of independent contractors under the Fair Labor Standards Act (“FLSA”).FN1
The January 7, 2021 Final Rule, titled “Independent Contractor Status Under the Fair Labor Standards Act,” established “an economic realities test that improved on prior articulations that the Rule viewed as ‘unclear and unwieldy.’”FN2 The January 7, 2021 Final Rule identified five economic realities factors to guide the proper classification of employees and independent contractors. These included: (1) the nature and degree of control over the work; (2) the worker’s opportunity for profit or loss; (3) the amount of skill required for the work; (4) the degree of permanence of the working relationship between the worker and the employer; and (5) whether the work is part of an integrated unit of production. FN3
The DOL withdrew the January 7, 2021 Final Rule because it determined that the factors were too restrictive and went beyond the scope of the FLSA by excluding workers that the DOL deemed would ordinarily fit the criteria of an employee.FN4
Currently, the DOL has no plans to replace the now withdrawn January 7, 2021 Final Rule regarding independent contractor status. As a result, employers will have to rely on various courts’ decisions regarding the classifications, including the U.S. Supreme Court’s decision in United States v. Silk, 331 U.S. 704 (1974), which identified six factors it deemed relevant to the classification of a worker: (1) the nature and degree of control by the employer; (2) the worker’s opportunity for profit or loss; (3) the worker’s investment in equipment or materials required for his or her task; (4) whether the service rendered requires an essential skill; (5) the degree of permanence of the working relationship; and (6) the degree to which the services rendered are an integral part of the employer’s business.
Takeaway
Companies can no longer rely upon the economic realities test and the five factors identified in the January 7, 2021 Final Rule. Rather, it is recommended that companies evaluate a workers’ status under the factors identified in United States v. Silk as well as other federal court decisions. Companies concerned about workers’ classifications should contact the attorneys at Campbell Litigation, P.C. for a proper evaluation.
FN1 – Final Rule, Wage and Hour Division, Department of Labor, 86 FR 24303 (May 6, 2021)
FN2 – Independent Contractor Status Under the Fair Labor Standards Act, Final Rule, Wage and Hour Division, Department of Labor, 86 FR 1168 (Jan. 7, 2021)
FN3 – Id.
FN4 – See FN1.