DOL Finalizes New Rule Regarding Independent Contractor Status, But Its Future Is In JeopardyClient Alert
On January 6, 2021, the Department of Labor announced its final rule regarding independent contractor status under the Fair Labor Standards Act. As described in a prior BMD client alert, this new rule was fast-tracked by the Trump administration after its proposal in September 2020. The new rule is set to take effect on March 8, 2021, and contains several key developments related to the "economic reality" test used to determine whether an individual is an independent contractor or an employee under the FLSA.
The new rule represents a more employer-friendly approach, intended to be more precise and predictable than the existing multifactor balancing test.
- This new approach to the economic reality test considers whether a worker is in business for themselves or is economically dependent on the putative employer by looking at five distinct factors.
- Two core factors are given greater weight in determining whether or not the worker is economically dependent: the nature and degree of the worker's control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment.
- Three other factors may also contribute to the analysis, including the amount of skill required for the work, the degree of permanence of the working relationship, and whether the work is part of an integrated unit of production.
- The final rule prioritizes analysis of actual practices over what is theoretically possible in determining whether a worker is an employee or an independent contractor.
However, this rule is likely in immediate jeopardy as Democrats are set to control all three branches of government in the coming weeks. The United States Department of Labor is a cabinet-level department and the appointees to lead those departments will not face the check of a Republican controlled Senate. Although the DOL moved quickly enough to finalize the rule before Biden takes office, because the rule’s effective date falls after the transition, the new administration may be able to delay the effective date of the rule by up to 60 days. During this postponement, the Biden administration could seek to propose a new rule or repeal the Trump administration rule through the administrative rule-making process.
In addition, the results of the senatorial elections in Georgia have great significance for recently finalized rules. The Congressional Review Act gives Congress the power to halt rules shortly after they become final, through a congressional resolution of disapproval. Because Democrats will soon control the House, Senate, and Presidency, they will likely have a window of opportunity to nix the DOL’s newly finalized independent contractor rule.
The BMD Employment and Labor Law Practice Group will keep you updated as further developments arise, and we are available to assist if you have questions regarding independent contractor status under the FLSA.