Last week, the Trump-era independent contractor classification rule was officially eradicated by the U.S. Department of Labor, ("DOL") due to its apparent inconsistency with the Fair Labor Standards Act ("FLSA"). The rule, which we previously covered here, provided a 5-factor "economic reality" test for determining whether workers are independent contractors or employees. The two "core factors" of the test included the nature and degree of the worker's control over the work and the worker's opportunity for profit or loss. These factors focused on the worker's control over the work and earnings based upon individual initiative or investment, making it easier for them to be classified as independent contractors.
Even though the Trump Administration issued the rule on January 7, 2021, intending for it to take effect on March 8, 2021, it never saw the light of day. The new Biden-administered DOL initially delayed the effective date until May 7, 2021, and on the eve of the new effective date, withdrew the rule in its entirety. Labor Secretary Marty Walsh, while acknowledging that classifying workers as independent contractors may be appropriate under some circumstances, stated that the five-factor test isn't the right approach. After considering public comments, the DOL announced that the independent contractor rule was not "fully aligned with the FLSA's text or purpose, or with decades of case law describing and applying the multifactor economic realities test."
For the second time in two years, the U.S. House of Representatives recently passed the Protecting the Right to Organize Act, which would apply California's ABC test to labor organizing. Although it faces an uphill battle in the Senate, employers should prepare for a ramp up enforcement of worker misclassifications under the new administration's DOL, which will likely support efforts to establish a standard for independent contractors modeled after the employee-friendly ABC test.
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