The Biden DOL Seeks to Overturn Employer-Friendly Final Rules on Independent Contractor and Joint Employment Status

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Continuing its retreat from the Trump administration’s pro-business positions on certain issues under the Fair Labor Standards Act, the U.S. Department of Labor has announced its intention to withdraw its recently-issued regulations on independent contractor status and to rescind its joint employment regulations.

The Independent Contractor Rule. A worker who is an independent contractor is generally not protected by employment laws, and companies are not required to provide them with employment benefits (including health insurance, leave, or retirement benefits) or pay employment taxes and contributions (including workers’ compensation and unemployment insurance). The misclassification of employees as independent contractors – enabling companies to avoid these obligations – has become a particularly hot area of employment litigation in recent years.

Adding to the confusion, the standard for the determination of independent contractor varies across laws, agencies, and courts at both the federal and state level. As discussed in our January 6, 2021 E-lert, just prior to the change in administration, the Trump DOL joined this fray by issuing a Final Rule that adopted an “economic realities” test. This test, which newly set forth two “core” factors and three additional factors for the analysis, made it easier to achieve independent contractor status under the FLSA. It was scheduled to take effect in March 2021.

Upon assuming office on January 20, 2021, President Biden issued an Executive Order that, in part, directed agencies to consider a 60-day or longer postponement of the effective date of regulations that had been published in the Federal Register but not yet taken effect. On March 4, 2021, the DOL delayed the effective date of the Final Rule to May 7. It then announced this proposed rescission of the regulation on March 11, 2021, asserting that the statutory language of the FLSA and longstanding case law do not support the new test set forth in the Final Rule.

The public may submit comments on the DOL’s proposal here until April 12, 2021. Following the comment period, the DOL will consider the comments and issue a Final Rule, which we expect to effectuate the proposed rescission. We also anticipate that the DOL will return to its prior guidance that applies a more restrictive test heavily favoring employee status.

Joint Employment Status. Another significant topic of interest is when separate companies will be deemed joint employers of a single employee. Under the FLSA, several entities may be the joint employers of a single employee as long as they are “not completely disassociated” with respect to the employment of the employee. These joint employers are then jointly and severally liable for the employee’s wages.

In 2016, the DOL under the Obama administration issued an Administrator Interpretation (AI) in which it adopted an expansive “economic realities” test to assess joint employer status. This test heavily favored the finding of such status. The Trump DOL, however, withdrew the AI in June 2017, and issued a new Final Rule in January 2020, as we discussed in our January 13, 2020 E-lert. This rule made findings of joint employer status to be less likely, including in franchise situations. The rule was challenged in court, and on September 8, 2020, a federal judge vacated a significant portion of the rule, as we covered in our September 10, 2020 E-lert.

Thus, even before the DOL’s current proposal to rescind the rule, it was largely already not in effect. Nonetheless, the DOL now wishes to formally remove these regulations. The public may submit comments on the DOL’s proposal here until April 12, 2021. As with the independent contractor rule above, we expect the DOL to implement this proposed rescission and to return to the more expansive Obama-era standard.