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Rollout of DOL Gig-Worker Rule Designed to Tie Biden’s Hands

Dec. 15, 2020, 10:31 AM

The U.S. Labor Department plans to release by Christmas a final regulation to ease employers’ use of independent contractors and then schedule it to take effect two months later, a timeline that could set up a clash between the Biden administration and the business lobby.

The Trump administration has informed industry stakeholders about its plans, including the decision to allow for a 60-day window before the rule takes effect rather than accelerating the implementation date so that it would fall before Inauguration Day, four sources with knowledge of the matter told Bloomberg Law.

That will put the onus on the incoming Biden administration to make crucial decisions about the fate of a rule coveted by business groups and Republicans but opposed by worker advocates and Democrats.

The issue of worker classification has taken on greater significance amid the rise of the gig economy, where independent contractors are central to the business models of leading companies such as Uber Technologies Inc., Lyft Inc., and Instacart.

President-elect Joe Biden‘s DOL leaders would have the authority to suspend the rule along with any other Trump administration regulation that hasn’t taken effect before the transfer of power on Jan. 20. But the business lobby is already gearing up for litigation to defend the outgoing administration’s regulation, which would have major consequences in the gig economy and several other industries.

Management lawyers are preparing legal arguments in response to the likelihood that new Democratic leadership at DOL would freeze the rule immediately, according to the sources, who spoke on condition of anonymity to share private conversations. If Biden’s DOL doesn’t lift a presumed delay on the rule, industry groups would ask a court to compel it to do so.

Employer-Friendly Test

The Labor Department’s pre-Christmas target date for release of the final rule could be delayed by review from the White House Office of Information and Regulatory Affairs—a required step before DOL can unveil the finished product. The DOL hadn’t transmitted the final rule to OIRA as of Monday evening, according to the OIRA website.

First proposed in September, the rule would adopt a shorter, simpler test for when employers may legally classify workers as independent contractors rather than employees who are covered by federal minimum wage and overtime law.

The DOL’s Wage and Hour Division has been fast-tracking the rule-drafting and public-comment process in an effort to solidify the regulation before President Donald Trump leaves office. The rule would give employers a persuasive tool to fend off expensive class actions accusing them of improperly classifying workers as independent contractors.

Labor Secretary Eugene Scalia said Monday the rule is designed to “recognize and respect” workers who wish to be independent contractors, not employees. “We’re looking to finalize it sometime soon,” he said during a webinar hosted by the American Enterprise Institute.

A DOL spokesperson, when questioned about the department’s plan, said: “The Department is working to complete its deregulatory agenda in support of the American workforce. We will not offer further comment while proposals are in the rule making process.”

Complications for Biden

A projected implementation date in late February would spare the Biden administration from inheriting a rule that has already taken effect, but freezing it is the easy part.

From there, the process would get much trickier for Biden’s DOL leaders, who’ll be striving to fulfill the president-elect’s campaign pledge to combat employers misclassifying employees as contractors to lower their labor costs. The department would then weigh how long to halt the regulation, whether to solicit public input on that decision, and how quickly a new, more worker-protective rule could be crafted to take its place.

DOL lawyers would likely need to consider case law that has emerged during Trump’s presidency in which courts viewed skeptically agencies that suspended Obama-era rules without seeking public comment on the decision to delay the regulation, according to a 2018 article by Georgetown University administrative law professor Lisa Heinzerling.

If Biden chooses to freeze the rule for an extended period, it could make his Labor Department vulnerable to an industry lawsuit alleging that it violated the Administrative Procedure Act by not allowing the Trump rule to take effect, three of the sources briefed on the plans said.

Some supporters of the incoming administration were confident Biden’s team would be able to find a legal workaround.

“I am sure that the Biden administration understands how damaging this proposed regulation is and I’m equally sure they will be scrupulous about finding the legally appropriate ways to rescind it,” said Judy Conti, government affairs director at the worker advocacy organization National Employment Law Project.

Biden’s Other Options

The Biden Labor Department would have other options at its disposal, depending on how the situation plays out.

Trump’s rule has a distinct chance of getting sued by a coalition of Democratic state attorneys general that has already argued against the proposal’s legality. If blue states convince a judge to vacate the rule, as they did with a DOL standard on joint employment, that would block it from taking effect regardless of a Biden administration move to freeze it.

The DOL could then issue a new proposed rule that would apply a broader interpretation of workers who must be classified as employees rather than independent contractors—without needing to worry about the legality of delaying the Trump rule indefinitely.

If finalized as proposed, the Trump rule would consider five factors to determine whether a worker is economically dependent on an employer and therefore an employee.

Two core factors would be given far greater weight: the nature and degree of the employer’s control over the work and the worker’s opportunity for profit or loss based on personal initiative or investment.

The three additional factors are “guideposts,” the proposal states, which could be useful in an analysis when the two core factors are conflicting. Those three criteria are the amount of skill required in the work, the degree of permanence in the work relationship, and whether the work is part of an integrated unit of production.

—With assistance from Paige Smith

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; Meghashyam Mali at mmali@bloombergindustry.com

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