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The rule was slated to take effect on March 8. However, the Biden administration asked federal agencies to freeze pending regulations to give new leaders time to review them. The final rule, which was considered a more employer-friendly interpretation of employee status under the Fair Labor Standards Act than what was applied during the Obama administration, adopted an “economic reality” test for determining which workers qualify as independent contractors or employees. The rule primarily considered two “core factors” and three “guidepost factors” for determining if the worker is economically dependent.
The two “core factors” are 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. These factors, the previous administration asserted, help determine if a worker is economically dependent on someone else’s business or is in business for themselves.
The three other factors that would have served as additional guideposts in the analysis are:
- 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.
In its release, the DOL said it was withdrawing the rule because it was “in tension” with the Fair Labor Standards Act’s (FLSA) text and purpose, as well as relevant judicial precedent. The department also contended 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.
“The DOL independent contractor rule had the promise of providing clarity to both employers and independent contractors in determining a worker’s employment status,” said Deirdre Macbeth, content director, regulatory at WorldatWork. “It is unfortunate the DOL decided to withdraw the rule but, as anticipated, the agency appears to be marching toward a more employee-friendly guidance on this issue.”
Additionally, the DOL said the rule would have narrowed the facts and considerations comprising the analysis whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.
“Withdrawing the independent contractor rule will help preserve essential workers’ rights,” the DOL wrote in the release. “In addition to preserving access to the FLSA’s wage and hour protections, the department anticipates that withdrawing the independent contractor rule will also avoid other disruptive economic effects that would have been harmful to workers had the rule gone into effect.”
About the Author
Brett Christie is the managing editor of Workspan Daily.