Labor Agency’s Gig Worker Flip-Flopping Weakens Rules in Court

The Labor Department’s ever-shifting standards for defining independent contractors, combined with US Supreme Court precedent weakening agency authority, will likely diminish the impact of new Trump rulemaking on gig worker litigation.

Last week, the DOL proposed rescinding a Biden-era rule that made it harder to classify workers as contractors not entitled to wage and other employment protections. If finalized, it would largely mark the return to a more business-friendly regulation from the first Trump administration, which itself overrode Obama-era guidance on the hotly contested issue.

“This proposed rule is just the next point in an endless game of regulatory ping pong,” said Richard Reibstein, a partner at Troutman Pepper Locke LLP.

DOL rulemaking can be considered in Fair Labor Standards Act litigation to prove or disprove that a worker was misclassified as an independent contractor. Over the past decade, drivers have filed these types of cases across the country against gig economy giants like Uber Technologies Inc. and Lyft Inc.

But the amount of weight courts give to new agency rules in those lawsuits remains to be seen following the high court’s landmark 2024 Loper Bright v. Raimondo decision, which overturned the requirement that judges defer to agency interpretations of ambiguous laws.

Weighing the Factors

Most federal appeals courts already have precedent applying some variation of an “economic realities test” to determine if a worker is an employee or a contractor. The test generally requires analysis of multiple factors, such as the specialized skills needed for the job, and the duration and exclusivity of the working relationship.

In November, for example, the US Court of Appeals for the Eleventh Circuit revived a lawsuit from insurance claims adjusters after concluding a lower court improperly applied its six-factor economic realities test. The workers presented substantial evidence of an employment relationship, including the fact that they couldn’t pick up outside work, were heavily controlled by the two insurance firms, and had relatively permanent relationships with them, the circuit panel ruled.

The major difference between the Trump and Biden-era rules focuses on the amount of factors that can be considered in deciding worker classification.

The Biden rule equally considered a non-exhaustive list of six different factors, including degree of a worker’s control over the job; the worker’s opportunity for profit or loss; and investments by the worker and the employer.

But the first Trump rule—and now the new proposal—focused on two factors: the level of control, and the opportunity for profit or loss. The DOL’s latest rulemaking also floated shrinking this emphasis down to just level of control.

If the degree-of-control factor indicates employment, the analysis could stop. If it’s neutral or indicates contractor status, then the analysis could continue to other factors, the agency said.

Judicial Deference

Paul DeCamp, an employer-side attorney with Epstein Becker & Green P.C. and former Wage and Hour Administrator under President George W. Bush, said courts may factor in the rulemaking but will first consider the text of the statute and prevailing circuit court precedent.

“When you have a case where all the factors are pointing in one direction or another, it doesn’t matter what test you use,” he said. “But it’s those interesting cases where some factors point one way and some the other, where we’ll see courts grapple with this rule. It might be an important data point but it won’t be the end of the story.”

If the new Trump rule is challenged, it will be the first time that standard will be tested in court. Biden’s DOL stayed the implementation of the 2021 rule until it could rescind and issue a new one.

Allan Bloom, a partner at Proskauer Rose LLP, said the newly-proposed rule was clearly developed carefully due to its likelihood of being examined by a judge under Loper Bright.

“You can see Loper Bright all over this,” he said, pointing to the length of the 146-page proposal with heavy judicial citations. “More than ever you can see the preamble anchoring the analysis to Supreme Court cases which is really smart.”

If the Trump rule is finalized—and survives potential attempts to block it—it could at the very least provide a safe harbor for employers in private litigation.

If a company makes an employment determination based on a final DOL rule, they can escape legal liability and penalties for wage and hour violations under the Portal-to-Portal Act of 1947.

“That’s huge,” said Bloom. “Even if the rule is eventually reversed, which we’re seeing more and more in this regulatory back-and-forth, it’s helpful to give employers that certainty.”