Back to (Economic) Realities – Trump-Era Independent Contractor Rule Withdrawn

It’s too little too late for the Trump administration’s independent contractor rule, which was withdrawn by the U.S. Department of Labor (“DOL”) yesterday before it ever went into effect. The rule was issued weeks before President Biden took office and was set to go into effect on March 8, 2021. Shortly after being sworn in, President Biden extended the effective date to March 21, 2021, as part of a regulatory freeze pending review. The effective date was further extended to May 6, 2021, at which point it was withdrawn.

The Trump-era rule would have revised the DOL’s test for determining when workers are considered employees vs. independent contractors under the Fair Labor Standards Act (“FLSA”). Courts have traditionally used the “economic realities” test, which analyzes a number of factors, including:

  • the nature and degree of control over the work;
  • the degree of permanence of relationship;
  • the worker’s investment in facilities, equipment, or helpers;
  • the amount of skill, initiative, judgment, and foresight required for the work;
  • the opportunity for profit/loss; and
  • the extent of the integration of worker’s services into the employer’s business.

The Trump-era rule would have revised this analysis to focus on two primary factors: (1) the nature and degree of control over the work; and (2) opportunity for profit/loss. This rule would have heavily de-emphasized the other factors, and thus, narrowed the circumstances in which a worker would be considered an employee protected by the FLSA. In withdrawing the rule, the DOL explained that a focus on these two “core” factors was in conflict with the FLSA’s text and purpose, as well as judicial precedent. U.S. Secretary of Labor Marty Walsh, one of Boston’s own, commented that the revised rule would have eroded the FLSA protections that workers have traditionally enjoyed.

In light of this withdrawal, employers need not change how they classify their workers. This is especially true in Massachusetts, where the more employee-friendly test in M.G.L. c. 149, § 148B applies. Under this test, a worker may only be classified as an independent contractor if: (1) the work is performed without the direction and control of the employer; (2) the work is outside the usual course of the employer’s business; and (3) the worker has his or her own independent business or trade performing the particular kind of work.

This withdrawal comes after the DOL recently delayed the effective date of portions of a Trump-era rule related to tipping to December 31, 2021. Questions remain whether the Trump-era joint employer rule, which went into effect on March 16, 2021, will be rescinded. At the very least, employers can expect further significant changes in the federal employment laws under the Biden administration.

We will continue to monitor these updates. Employers with questions about how to classify their workers or otherwise comply with any federal or state employment laws should contact one of Conn Kavanaugh’s experienced employment lawyers.

CATHERINE M. DIVITA

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