Independent Contractor Rule Rescinded

The Biden administration has rescinded an independent contractor rule that would have made it easier for businesses to misclassify employees.

Independent Contractor Rule Regulated Status

On May 5, 2021, the U.S. Department of Labor issued a final rule rescinding the regulation on independent contractor status under the Fair Labor Standards Act (FLSA). In so doing, the principal deputy administrator of the Department’s Wage and Hour Division, Jessica Looman, made clear that the agency would be targeting companies for failure to treat workers as employees who are afforded minimum wage and overtime protections.

In determining questions of employee status, the Biden administration will rely on a longstanding multi-factor test established by judicial precedent. That analysis would have been narrowed by the Trump administration’s independent contractor rule, which was published two weeks before Trump left office but which never took effect.

Looman articulated how the Department of Labor will handle enforcement efforts on the issue of classifying workers as independent contractors, which impacts gig economy companies along with multiple other economic sectors.

“Misclassification of employees as independent contractors presents one of the most serious problems facing workers today,” said Looman. “We are committed to continuing to combat misclassification, and we’re particularly focused in sectors where we know workers are vulnerable and violations are rampant.”

The Trump independent contractor rule used two guiding factors when considering classification questions. But according to Looman, the simplified test “would have, frankly, resulted in more workers potentially being classified as independent contractors instead of employees, which means that they would not have had the protections of the Fair Labor Standards Act.”

Seven-Factor “Economic Realities” Test

Looman cited Department of Labor guidance from 2008 outlining a seven-factor “economic realities” test rooted in case law. These seven factors will be applied “in every case” where worker classification is considered by the agency. They include an examination of whether the work performed is “an integral part” of the business and of the worker’s “degree of independent business organization and operation.”

Looman declined to reveal whether rideshare or delivery companies would be slated for closer scrutiny. Labor Secretary Marty Walsh had previously stated that gig workers should be treated as employees “in a lot of cases.”

In terms of digital and app-based workers, Looman said that the Department of Labor wants to “make sure that we continue to look at their needs and how they are interacting with their individual employer and whether or not they have the protections under the Fair Labor Standards Act. So we don’t anticipate that this is going to change that dramatically, but I do want to echo that we are going to continue to look at the misclassification of workers as independent contractors and address that where we find it.”

“By withdrawing the independent contractor rule,” said Walsh, “we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect.”

The Department determined that the independent contractor rule must be withdrawn because it defied U.S. Supreme Court and appellate court decisions calling for regulators to apply the broadest possible interpretation of the term “employee.”

The Trump independent contractor rule would have allowed companies to use an updated economic realities test for classification questions. It included five total factors, but two factors in particular were given far greater weight: the nature and degree of the worker’s control and the worker’s opportunity for profit or loss based upon personal investment or initiative. Looman said that the Department must review the totality of the circumstances to adopt a balanced view of the employer-worker relationship as a whole.

For example, the Trump independent contractor rule would have assessed a worker’s opportunity for profit or loss based solely upon the worker’s investment, such as a construction worker who purchases tools. However, it failed to consider the relation to the employer’s investment, such as a construction company that purchases all necessary building supplies.

Looman also did not rule out the possibility that the Department of Labor could release new guidance on employee status under the FLSA.

Lawyers Helping Injured Workers

If someone is injured in the workplace, he or she may not automatically be entitled to receive workers’ compensation benefits, particularly when the proper classification of the worker is in doubt. If workers cannot prove that they are actually employees, they might not qualify for the benefits they deserve. For this reason, many injured workers seek out the assistance of the dedicated workers’ compensation attorneys at GWC Injury Lawyers LLC.

With more than $2 billion recovered in verdicts and settlements, GWC is one of the leading Workers’ Compensation and Personal Injury law firms in Illinois. Our Chicago workers’ compensation lawyers have been helping injured workers in practically every profession for more than four decades. GWC has the experience, the determination, the resources, and the reputation of success necessary to get you and your family the justice you deserve.

If you have been hurt on the job, contact GWC today to schedule a free, no-obligation case evaluation with one of our attorneys. You may call our office at (312) 464-1234 or click here to chat with a representative at any time.