Situation Report | May 10, 2021
The Biden Administration has announced the withdrawal — effective May 6 — of the Trump-era Independent Contractor Rule which would have adopted a new legal standard for determining “employee” and “independent contractor” status under the Fair Labor Standards Act (FLSA).
This classification standard determines whether an individual is entitled to FLSA-covered benefits like minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, but employees are.
The Department of Labor (DOL) says it believes that the rule is “inconsistent” with the FLSA’s “text and purpose, and would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.”
The original rule, which was supposed to take effect on March 8, had been delayed. It would have established a new “economic realities” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee). The new test would have included two “core factors” that would have carried greater weight than any other factor in an employee versus independent contractor analysis. Those two “core factors” are: “the nature and degree of control over the work” and “the worker’s opportunity for profit or loss based on initiative and/or investment.”
The now-withdrawn rule also identified several other factors and “guideposts” as to whether a worker is economically dependent on someone else’s business or is in business for him or herself: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production.
These changes, now withdrawn, were seen as creating an easier threshold for classifying a worker as an “independent contractor.”
“The rule’s prioritization of two ‘core factors’ for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship,” according to DOL’s announcement withdrawing the rule.