The U.S. Labor Department proposed eliminating a signature Trump administration rule that would have made it easier for businesses to classify workers as independent contractors instead of employees under federal wage law.
In a step that would hurt gig-economy companies such as
New Biden-appointed Labor Department leadership cited concerns that the prior rulemaking was inconsistent with U.S. Supreme Court precedent and the purpose of the Fair Labor Standards Act, while questioning whether it took into account the economic harm independent contracting has on workers.
While the reasons cited in the withdrawal offer strong signals that the Biden administration will restore the Obama-era’s stricter approach to worker misclassification, the agency punted on replacing the rule with an affirmative policy of its own on how to interpret worker status for purposes of the FLSA. That move gives DOL options on whether to devise a new regulation or take a faster route of publishing guidance that doesn’t require public input.
Trump’s rule, which drew heavy backing from corporations and congressional Republicans, would’ve adopted a new test to simplify companies’ legal justification for categorizing workers as independent contractors, rather than employees who are entitled to minimum wage and overtime pay. It would’ve been a boon for gig-economy companies by giving them a tool to defeat or avoid expensive class actions accusing them of misclassifying drivers and other task-performing service workers as independent contractors.
The department’s Wage and Hour Division for 30 days starting Friday will seek comments on its proposal to repeal the Trump rule.
In justifying the withdrawal, the agency took issue with a number of elements in the Trump rule, including its elevation of two primary factors above all others in determining worker status.
The agency “questions whether a rule that could increase the number of independent contractors effectuates the FLSA’s purpose, recognized repeatedly by the Supreme Court, to broadly provide employees with its protections,” DOL stated in the proposal to remove the rule.
The Trump rule considered five factors overall to determine whether a worker is economically dependent on an employer, and therefore an employee—not a contractor.
Formulating an updated economic reality test, DOL gave greatest weight to two core factors: 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.
But Biden’s DOL flagged concerns that this shortened analysis is inconsistent with mandates from federal courts that the totality of the circumstances should be considered when reviewing a worker’s status.