DOL plans to rescind independent contractor, joint employer final rules
On March 11, 2021, the U.S. Department of Labor (DOL) announced its plan to rescind two final rules under the Fair Labor Standards Act (FLSA).
Both the independent contractor and the joint employer rules are being pulled and reviewed under the new administration.
Independent Contractor
The DOL is proposing the withdrawal of the independent contractor final rule for several reasons, including:
- The rule adopted a new “economic reality” test to determine whether a worker is an employee or an independent contractor under the FLSA.
- Courts and the DOL have not used the new economic reality test, and FLSA text or longstanding case law does not support the test.
- The rule would narrow or minimize other factors considered by courts traditionally; making the economic test less likely to establish that a worker is an employee under the FLSA.
Initially, the independent contractor final rule was published in the Federal Register January 7, 2021, with an original effective date of March 8, 2021. However, on January 20, President Biden put a freeze on final rules so they could be reviewed.
Between February 5-24, 2021, the DOL sought public comment about the final rule (1,512 comments were received). On March 4, the DOL announced the final rule’s effective date was going to be May 7, 2021. But that is no longer appears to be the case.
Among its provisions, the FLSA requires covered employers to pay employees at least the federal minimum wage for every hour worked and overtime premium pay of at least one and one-half times their regular rate of pay for every hour worked over 40 in a workweek. An independent contractor has no FLSA protections.
Joint Employer
The DOL is proposing to rescind its joint employer final rule, which took effect on March 16, 2020.
Initially, the final rule had a four-factor test for determining joint employer status in situations where an employee performs work for one employer that simultaneously benefits another person.
The test looked at whether the potential joint employer:
- hires or fires the employee;
- supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
- determines the employee’s rate and method of payment; and
- maintains the employee’s employment records.
In February 2020, 17 states and the District of Columbia filed a lawsuit in the U.S. District Court for the Southern District of New York against the department, arguing that the joint employer rule violated the Administrative Procedure Act.
The court vacated the majority of the joint employer rule on September 8, 2020, stating that the rule was contrary to the FLSA and was “arbitrary and capricious” due to its failure to explain why the department had deviated from all prior guidance or consider the effect of the rule on workers.
The DOL seeks public comments on the proposals to rescind the independent contractor and joint employer rules. The comment periods end on April 12, 2021.
Currently, employers don’t have to make any changes, but they should keep an eye on new developments with these provisions. Stay tuned!