Employers Use Courts to ‘Raise the Cost’ on DOL Rule Reversal

The business lobby is using a Texas legal challenge to frustrate the Biden administration’s agenda for the gig economy and throw up burdensome roadblocks for the U.S. Labor Department as it moves to nix a Trump-era rule on independent contractors.

The case filed in late March by the Coalition for Workforce Innovation—with members including Uber Technologies Inc., Lyft, and Postmates—claims the administration violated the Administrative Procedure Act with a decision to put off the rule, which makes it easier for businesses to classify workers as independent contractors.

“These are legal skirmishes designed to kind of raise the cost of changing the rule,” said Richard Revesz, an administrative law professor at New York University.

The issue has wide ramifications for gig-economy workers and businesses, as the lawsuit could stall DOL’s plans to eventually re-interpret the law to determine many of these independently contracted workers actually employees entitled to wage protections.

The group of businesses also wants the judge to invalidate DOL’s March 11 proposal to rescind that Trump rule.

“I think on the merits they have a weak case,” said Catherine Ruckelshaus, general counsel of the National Employment Law Project. Even if the judge were to block the delay and the withdrawal, “practically speaking, the Department of Labor can just go through an additional notice and comment period with a new” measure to repeal the Trump rule, she added.

The lawsuit helps small businesses and all Americans “benefit from the statutory protections the Administrative Procedure Act provides in rulemaking,” said Karen Harned, who heads the legal center at the National Federation of Independent Business.

“The APA is critical for surfacing issues that will be problematic or helpful for the regulated community and provides procedural safeguards to ensure the voices of those who will be impacted by a rule are heard before it becomes effective,” added Harned, whose organization isn’t involved in the rule-delay lawsuit but has criticized the Biden administration for rolling back the Trump independent contractor rule.

‘Political Persuasion’

The question remains how and when DOL would replace the withdrawn rule. The administration supports policies that would make it difficult for companies—including firms like Uber and Instacart—to continue relying on independently contracted workers who aren’t eligible for workplace protections such as minimum wages and overtime.

The White House can work with DOL to further this strategy while the Trump rule is pending in many ways, including by relying on new enforcement directives to target gig companies for wrongly classifying workers as independent contractors.

But to the industry associations on a mission to preserve the reduced costs of independent contracting, suing Biden on technical grounds sends a message that the new president can’t easily eliminate what was arguably the most significant step DOL took to help businesses under Trump.

“The Department has little reason to delay it other than it doesn’t align with their political persuasion,” said Evan Armstrong, vice president of workforce at Retail Industry Leaders Association, a member of a coalition that’s suing DOL. “That isn’t a justifiable reason for delaying the implementation of a final rule.”

Trump-era Case Law

Courts have long recognized that new presidential administrations have the right to freeze their predecessors’ rules if they haven’t taken effect. White House chiefs of staff from both parties traditionally issue a day-one memo ordering agencies to do just that, as was the case on Jan. 20 with Biden’s chief, Ronald Klain.

But judges during Trump’s presidency started applying stricter scrutiny to lengthy rule delays. Attorneys for the business groups cite several of those recent decisions against Trump agencies in their complaint.

“It’s possible that courts could be more skeptical of even short-term delays as a result of procedural short-cuts taken in the Trump administration,” said Bridget Dooling, a research professor at the George Washington University Regulatory Studies Center.

Revesz, the New York University law professor, said the cases agencies lost under Trump stand in stark contrast to the independent contractor rule delay because it was only for 60 days, DOL solicited public input, and offered a reason for the delay.

“There’s a lot of case law saying comment periods shorter than 30 days are appropriate under certain circumstances, and that is usually measured by the importance of the action,” Revesz said.

New Rule, New Lawsuit

The management attorneys from Littler Mendelson filing the suit are experienced at bringing the Labor Department to court over rules employers oppose and even succeeded in striking down several critical Obama-era labor regulations.

In one instance, Littler’s Maury Baskin, an attorney on the rule-delay suit, persuaded Judge Marcia A. Crone of the U.S. District Court for the Eastern District of Texas to set aside most of a DOL rule implementing Obama’s Fair Pay and Safe Workplaces executive order for federal contractors. Crone is the same judge assigned to rule on the independent contractor rule delay.

“I think the fact of the matter is Littler Mendelson has unlimited resources to file as many cases as possible and to make as many small cuts on workers rights as possible,” said Adam Pulver, an attorney with the left-leaning Public Citizen who formerly litigated cases at DOL.

Once the delay is settled, any new regulation that determines far more workers are employees not contractors may also return to a Texas courthouse.

“The next question would be, with the issuance of a new rule, was that rule arbitrary and capricious? Did it lack the legal fiber that’s necessary in order to be able to justify whatever that new rule is?” said Michael Lotito, a Littler Mendelson shareholder. “That’s a new battle for a new day.”