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Biden Axes Trump Gig-Worker Rule, Favoring ‘Employee’ Model (4)

May 5, 2021, 12:48 PM; Updated: May 5, 2021, 8:27 PM

The Biden administration canceled a signature Trump-era rule that would’ve eased businesses’ ability to legally consider workers as independent contractors, a rollback the U.S. Labor Department said was necessary to broadly extend wage protections while cracking down on employer abuses.

A final rule, issued Wednesday, rescinded the regulation that would’ve helped preserve the workforce model of gig-economy companies such as Uber Technologies Inc. and Instacart. The Biden agency hasn’t replaced it with a new interpretation of when workers can function as independent contractors, but the administration’s top wage regulator made clear the DOL will be targeting companies for failing to treat workers as employees who are afforded minimum wage and overtime protections.

In deciding questions of employee status, the Biden administration will now rely on a longstanding multi-factor test established by judicial precedent, Jessica Looman told reporters in a call arranged by the agency. That often-complicated analysis would have been narrowed by the Trump administration’s regulation, which was published two weeks before former President Donald Trump left office but never took effect.

The withdrawal of the Trump regulation, set for May 6, culminates a process that began when President Joe Biden took office and froze his predecessor’s rulemaking. But Looman went further by articulating how the department will handle enforcement efforts on the issue of classifying workers as independent contractors, which represents an existential question for gig economy companies but has ramifications for multiple other economic sectors.

Uber shares closed down 3.4% today, and Lyft closed down 6.3%.

“Misclassification of employees as independent contractors presents one of the most serious problems facing workers today,” said Looman, principal deputy administrator of DOL’s Wage and Hour Division. “We are committed to continuing to combat misclassification, and we’re particularly focused in sectors where we know workers are vulnerable and violations are rampant.”

The Trump regulation was supported by gig companies, whose workforce models depend on the use of independent contractors, and many prominent business groups. Employers praised the Trump model, which considered two guiding factors when considering classification questions, for providing clarity on a frequently-litigated issue that has led to an inconsistent patchwork of court rulings.

But Trump’s simplified test for determining employee status “would have, frankly, resulted in more workers potentially being classified as independent contractors instead of employees, which means that they would not have had the protections of the Fair Labor Standards Act,” Looman said.

7 Factors, Not 2

She cited DOL guidance from 2008 that outlined a seven-factor “economic realities” test rooted in case law. Those seven factors will be applied “in every case” where worker classification is considered by the department, she said. That includes an examination of whether the work performed is “an integral part” of the business, and the worker’s “degree of independent business organization and operation.”

Looman declined to reveal whether ride-share or delivery companies in the gig economy would be slated for closer scrutiny, after Labor Secretary Marty Walsh told Reuters last week that gig workers should be treated as employees “in a lot of cases.”

When it comes to digital workers and app-based workers, “we want to make sure that we continue to look at their needs and how they are interacting with their individual employer and whether or not they have the protections under the Fair Labor Standards Act,” Looman said in response to a question about gig work.

“So we don’t anticipate that this is going to change that dramatically, but I do want to echo that we are going to continue to look at the misclassification of workers as independent contractors and address that where we find it,” she added.

The Coalition for Workforce Innovation Wednesday blasted the agency move.

“The rescinded rule was a needed update to the complicated economic realities test for independent workers,” the group said in a statement. “The rule reflected a modern view of the workforce and economy. The path sought by this Administration is to move backwards on behalf of political stakeholders rather than pushing forward and listening to the actual workers who are impacted by this policy.”

A Walsh statement Wednesday didn’t address gig workers, specifically. “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,” he said.

The department wasn’t swayed by industry arguments to allow the Trump rule to take effect. Instead, it concluded that the rule must be withdrawn because it defied U.S. Supreme Court and appellate court decisions that called for regulators to apply the broadest possible interpretation of the term “employee.”

The Trump DOL regulation would have allowed companies to use an updated economic realities test to settle classification questions. It included five factors, but two were given far greater weight: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on personal initiative or investment.

Looman rejected that logic, and said the department must review the totality of the circumstances to adopt a more balanced view of the entire employer-worker relationship.

The Trump regulation’s assessment of a worker’s opportunity for profit or loss focused solely on the worker’s investment, such as a construction worker who purchases tools, but failed to consider the relation to the employer’s investment, such as a construction company that purchases all necessary building supplies, she said.

Looman, who will guide the Wage and Hour Division until Biden announces a pick to lead the subagency and the nominee can win Senate confirmation, also didn’t foreclose the possibility that the department could release new guidance or a regulation on employee status under the FLSA.

A business lobby lawsuit, filed in March, asks a federal judge in Texas to invalidate the decision to delay the Trump independent contractor rule. The litigation, which is pending, was meant to block the Biden administration from withdrawing the regulation.

(Updated with closing shares for Uber and Lyft in fifth paragraph. )

To contact the reporter on this story: Ben Penn in Washington at bpenn@bloomberglaw.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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