In a move that had been widely expected, the Department of Labor has delayed implementation of the rule clarifying independent contractor status under federal law until May 7.
The rule was to go into effect March 8. The new federal contractor rule under the Fair Labor Standards Act, which would not supersede all state laws like California’s AB5, was published in the Federal Register Jan. 7, in the waning days of the Trump administration.
But the Biden administration immediately moved on Inauguration Day to suspend the implementation of several proposed rules. In early February, it announced a notice of proposed rulemaking about extending the implementation of the independent contractor rule to May 7. That shift then led to the Wage and Hour division of the DOL withdrawing other late Trump administration letters of guidance on other issues regarding independent contractors, with the uncertainty over the broader federal rule cited as a reason for the delay.
What needs to be watched now is what the Biden administration will come back with on the contents of its new rule. The rule that was proposed in January was seen as being more favorable to employers seeking to keep some of its labor force classified as independent contractors.
The DOL, in making its announcement, captured who was on the side of the divide. For example, comments favoring the delay were submitted by such groups as the American Federation of State, County and Municipal Employees, the Leadership Conference on Civil and Human Rights and the Service Employees International Union. The comments from those groups came from “many” that “noted that the January 2021 rule will have a $3.3 billion cost to workers each year and will cause the most harm to workers of color in low-paying jobs in industries … to which independent contractor misclassification is common.”
The reference to “many” suggests a standard submission campaign in which verbatim comments are sent to the DOL.
“The department agrees with these commenters that allowing more time for consideration of the January 2021 rule is reasonable given the significant and complex issues the rule raises,” the DOL said.
Commenters in favor of keeping the March 8 implementation of the rule were described as “numerous businesses, trade associations [and] individuals who identified themselves as freelancers or independent contractors.” One of the groups mentioned by DOL was the Harbor Trucking Association, which represents drayage companies in the Southern California port area.
The proposed rule was viewed as being more favorably disposed toward classifying a worker as an independent contractor for several reasons. As Greg Feary of the Scopelitis law firm told FreightWaves when the rule was first announced, that favorability came in part because the guidelines set by the federal government in defining an independent contractor allowed for less than a perfect score. If a relationship didn’t meet one of the criteria but met the others, then a worker could still be considered an independent contractor. By contrast, flunking one part of the ABC test under Callifornia’s AB5 law, or one of the standards in the business-to-business exception in AB5, would kill any effort to keep a worker classified as independent.
The now-delayed rule also gave greater weight to the question of “control” and “profit or loss.” The question of how much control an employer has over a contractor, and whether that contractor can earn greater profits by his or her own particular efforts, are recurring issues in the legal cases over independent contractor status.