Just two weeks before President Biden took office, the DOL issued a new rule to be utilized in determining whether to classify workers as independent contractors or as employees under the Fair Labor Standards Act (“FLSA”). On May 5, 2021, the U.S. Department of Labor (“DOL”) revoked the Trump-era test. The test was revoked due to its apparent inconsistency with the FLSA. This withdrawal has been anticipated since President Biden assumed office. The DOL is expected to publish a Final Rule in the Federal Register within the coming days.
The now debunked rule previously provided a 5-factor “economic reality” test for determining whether workers are independent contractors or employees. The two “core factors” of the test included the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. These factors focused on the worker’s control over the work and earnings based upon individual initiative or investment, making it easier for them to be classified as independent contractors.
When announcing the withdrawal, the DOL stated, “Upon further review and consideration of the rule and having considered the public comments, the department does not believe that the independent contractor rule is fully aligned with the FLSA’s text or purpose or with decades of case law describing and applying the multifactor economic realities test”.
Even though the Trump Administration issued the rule on January 7, 2021, intending for it to take effect on March 8, 2021, it never saw the light of day. Under President Biden, the DOL delayed the effective date until May 7, 2021, and withdrew the rule in its entirety the day before it was to go into effect.
In withdrawing the rule promulgated under the Trump Administration, the DOL specifically said it “is not creating a new test, but is instead leaving in place the current economic realities test, which allows for determinations that some workers are independent contractors.” While not issuing a new test in this repeal, it is widely expected that the Biden Administration will eventually issue a new rule for evaluating independent contractor status.
However, in the meantime, the prior test will return as the governing standard on whether an individual is considered an employee or independent contractor. When evaluating the “economic realities” test, courts have traditionally analyzed a number of factors, including:
- the nature and degree of control over the work;
- the degree of permanence of relationship;
- the worker’s investment in facilities, equipment, or helpers;
- the amount of skill, initiative, judgment, and foresight required for the work;
- the opportunity for profit/loss; and
- the extent of the integration of worker’s services into the employer’s business.
These six factors are subject to a balancing test and analyzed under the totality of the circumstances.
In any case, at this point, employers should not make any major changes and should continue to comply with any applicable state and local laws regarding worker classification, which may not be identical to the economic realities test.