Business Groups Get Trump Independent Contractor Rule Reinstated

The Biden Labor Department violated the Administrative Procedure Act by delaying, then withdrawing, a Trump-era rule that made it easier for businesses to classify workers as independent contractors, a federal judge in Texas said.

Judge Marcia A. Crone invalidated the DOL’s actions and reinstated the Trump rule, siding with the Coalition for Workforce Innovation, which represents gig-economy companies like Uber Technologies Inc. and Lyft Inc.

The Coalition sued the DOL, Secretary Marty Walsh, and another agency official on behalf of its members, whose business models largely depend on their ability to classify their workforce as contractors rather than employees entitled to certain wages and benefits. Three groups representing builders, contractors, and financial services firms, later joined the lawsuit.

The Trump administration issued its independent contractor rule Jan. 6, 2021, and it was set to take effect in March 2021. After President Joe Biden took office later in January, the DOL froze the Trump-era rule, issued its own rule postponing the effective date, and ultimately promulgated a final rule withdrawing it altogether.

But the U.S. Labor Department didn’t provide the public with a “meaningful” opportunity to comment on the “delay” rule, the court said. The notice-and-comment period for the was only 19 days, which is too short, and the agency improperly limited the “scope of comments,” it said.

The “withdrawal” rule is arbitrary and capricious because the agency failed to consider alternatives to rescinding the Trump rule, like making changes to the existing policy, the court said in granting summary judgment in favor of the groups.

The Trump rule was meant to"clarify” the Fair Labor Standards Act’s worker classification test, which requires courts to determine the “economic reality” of the employment relationship based on five or six factors.

Trump’s DOL concluded that federal courts applied the test inconsistently, and devised the rule to set a uniform standard by assigning greater weight to two “core” factors, the court said.

But Biden’s DOL failed to consider “the lack of clarity of the economic realities test and the need for regulatory certainty” when it revoked the Trump rule without exploring any alternatives, the court said.

The order was entered Monday in the U.S. District Court for the Eastern District of Texas.

Littler Mendelson PC represents the Coalition and other groups. The U.S. Department of Justice represents the agency and its officials.

The case is Coalition for Workforce Innovation v. Walsh, E.D. Tex., No. 1:21-cv-00130, 3/14/22.