Last week the U.S. Department of Labor officially repealed the Trump rules on independent contractor status. Going back to the Obama Administration, the Trump rules loosened up a very strict or narrow definition of independent contractor that virtually had eliminated most forms of independent contractor status.
The Democrats have long fought for a more restrictive definition of independent contractor. Said alternatively, the Democrats have long fought for a more expansive definition of employee. The purpose of their fight is stated in several ways. To bring more workers under the protection of the Fair Labor Standards Act (FLSA). Though not directly impacted by the DOL’s action to repeal these regulations, more workers being employees brings more workers within the purview of the National Labor Relations Act (NLRA). That purpose is right next to the purpose of bringing more employees under the umbrella of employment that in turn makes it easier to collect all the employment taxes employers are responsible for that small independent contractors find more difficult to pay.
Specifically, the DOL rule that was repealed stated a five-factor standard commonly referred to the “economic reality test”. The rule was designed to determine whether a worker engaged as an independent contractor should really be considered a company employee or if they are truly an independent contactor who is in business for themselves. The Trump-era rule focused on an individual entrepreneur’s control over the work and the opportunity for profit or loss.
The Trump-era rule intended to accommodate persons that would prefer independent contractor work. By way of example, these are the thousands Uber and Lyft drivers as well as other workers. Gig workers that are common today but probably were not envisioned by Congress when passing the FLSA over 80 years ago.
The Biden Administration will now fight off some employer lawsuits and will likely attempt to re-instate a standard called the ABC Test that narrows the definition of independent contractor. The ABC test presumes a worker is an employee unless that person is free from control, performs work outside its [the business it is performing work for] line of business and operates as an independent firm. The ABC test is not new. It resulted from a long history of court rulings. However, as stated above, this rule comes out of a more traditional form of employment that does not align well with today’s app or gig driven business world where workers can report directly from a phone or computer app to where the work and paycheck is.
The withdrawal of this rule is one small step to move a large segment of the workforce toward a more static state whereby workers can then be subject to legislation such as the Protecting the Right to Organize Act (PRO), and it’s much easier to organize employees than it is to organize individuals that are independent contractors that come and go.”
The DOL stated its formal reasoning for its rules withdrawal as:
- independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.
- 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.
- The rule would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections. - USDOL News Release (5/5/2021)
Keeping with this Administration’s pro-worker position, U.S. Secretary of Labor Marty Walsh stated, “By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect.”
Employers that use independent contractors have been advised and continue to be advised to review and monitor contracts with both directly engaged independent contractors as well as temporary labor contracted through third party service providers to ensure compliance with current regulation.
Sources: DOL Repeals Trump-Era Independent Contractor Rule. Law 360 (4/5/2021); U.S. Department of Labor to Withdraw Independent Contractor Rule. New Release US DOL (5/5/2021)