Now that the Department of Labor has withdrawn the last-minute independent contractor rule put in place by the former administration, employers should not expect a new independent-contractor rule anytime soon.
DOL published the final rule on Jan. 7, shortly before the transition of the former administration with that of the current. Just days prior to the rule’s publication, the incoming administration specifically mentioned the independent contractor rule as one of its predecessor's “midnight regulations” that would be halted.
Historically, the Department of Labor has looked at several factors to consider whether a worker is an independent contractor or employee, including the broad-brush legal term "the totality of the circumstances."
The withdrawn independent contractor rule would have put into play five economic-reality factors to make determinations as to whether a worker is an employee or an independent contractor. Two of those factors – the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss – would have been the two primary factors for determining a worker’s classification and carried greater weight than the other factors, such as the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production.?
Jessica Looman, principal deputy administrator for the DOL Wage and Hour Division, recently stated: "We are going back to the decades-old analysis, and we really feel that this is the space where we can best protect workers..."
Technology workers are driving a re-assessment of the independent contractor analysis. As Ms. Looman further stated, "When it comes to digital workers ... we want to make sure that we continue to look at their needs, how they are interacting with their individual employers and whether or not they have the protections of the Fair Labor Standards Act."In withdrawing the Jan. 7 rule, the Department of Labor stated that "The rule's prioritization of two 'core factors' for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship...".
President Joe Biden has stated he supports an "ABC" test like California's independent-contractor rule. California generally requires all three (3) of the following factors to be met for a worker to be properly classified as an independent contractor: (1) The worker is free from the control and direction of the hiring entity in connection with the performance of the work; (2) The worker performs tasks that are outside the usual course of the hiring entity's business; and (3) The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity. Some other states that apply this type of test include New Jersey, Massachusetts, and Illinois.
While we will continue to track this issue and report on any new changes. However, we do not anticipate them happening anytime soon.