Jane Waterman-Joyce

The Biden Administration’s rush to withdraw a Trump-era rule standardizing the test for determining whether a worker is an independent contractor overlooked key administrative requirements for the process, causing a federal district court to reinstate the Trump-era rule.

An essential part of hiring workers is knowing when those individuals are employees, with the rights and protections so associated, and when workers may be classified as independent contractors. The federal government uses an assessment known as the “economic realities” test to determine employee or independent contractor status under the Federal Labor Standards Act (“FLSA”). However, for years courts have disagreed on what factors comprised the “economic realities” test and what weight to give each factor.

On January 6, 2021, Department of Labor (“DOL”) under the Trump administration attempted to give an employer more certainty on this question when it issued the Independent Contractor Rule, which standardized application of the “economic realities” test nationwide.

This Independent Contractor Rule consolidated the economic realities test into five factors:

1) The degree and nature of control exerted over the work; 2) The individual’s opportunity for profit or loss; 3) The amount of skill required for the work; 4) The degree of permanence in the relationship between the individual and the potential employer; and, 5) Whether the work performed is part of an integrated unit of production.

Additionally, the rule identified the first two factors as the factors which should typically carry the greatest weight.

As it did with many Trump-era rules, upon taking office, the Biden administration swiftly rescinded the Independent Contractor Rule, first by issuing a “Delay Rule,” which pushed back the effective date of the Independent Contractor Rule, and then by issuing a “Withdrawal Rule,” repealing the Independent Contractor Rule in its entirety.

However, the administration’s efforts to take quick action doomed the effort to overturn the Independent Contractor Rule.

In a March 15, 2022 decision, Judge Marcia A. Crone reinstated the Independent Contractor Rule. The Court explained that, because the Biden administration issued the Delay and Withdrawal Rules without appropriate notice and comment periods, and failed to consider alternatives prior to withdrawing the Independent Contractor Rule, the Delay and Withdrawal Rules violated the Administrative Procedure Act and are invalid.

As a result, the Independent Contractor Rule is back in effect (at least for now). Employers should consider its five factors when classifying individuals under the FLSA, paying special attention to the first two factors.