As expected, the Biden administration has formally withdrawn a Trump administration definition of independent contractors that otherwise would have gone into effect later this week.
The Department of Labor published a 77-page document reviewing the reasons for its decision, while giving a few small clues about what might be in a Biden administration rule defining independent contractors, or at the least, its approach toward independent contractors.
The Trump administration rule on independent contractors was announced in early January, slated for an early March adoption. Within days after the Biden administration took office, it delayed the rule to May 7. The rule has now been ended before it ever had the force of law.
“Economic realities” is the guideline that the Department of Labor and its Wage and Hour Division have long used to determine whether a worker is an employee or independent contractor, according to the DOL’s withdrawal document. The realities test would look at such factors as “the nature and degree of the employer’s control … the permanency of the worker’s relationship with the employer; the worker’s investment in facilities, equipment or helpers; the amount of skill; the worker’s opportunities for profit or loss; the extent of the integration of the worker’s services into the employer’s business.”
But the test had not been a pass/fail exercise. A worker who in one of those categories could be described more as an employee than a contractor wasn’t automatically considered an employee.
But the Trump rule, while acknowledging the economic realities test, put two of them above the others. The core factors, as they were called, was the question of control over work; the second was the ability to profit “based on his or her exercise of initiative … or his or her management of investment or capital expenditures.”
The elevation of these standards to be “probative,” dominating all other considerations, “has not been used by any court or by [the Wage and Hour Division], and the Department questioned whether the rule is fully aligned with the [Fair Labor Standards Act]’s text and purpose or case law describing the economic realities test.”
The Trump rule, and the economic realities test that preceded it, would be used in a variety of ways: in litigation by either the DOL or its Wage and Hour Division, or in private litigation to show an employer had misclassified workers and failed to provide them with government-mandated benefits such as a minimum wage. It was generally seen as being written in such a way that a dispute would more likely end up with a ruling that a worker was an independent contractor, not an employee.
With the Trump administration rule now on the shelf, the question is what comes next. Of the more than 1,000 comments submitted to the DOL on the question of withdrawing the Trump rule, concern over federal implementation of an ABC test, and its impact on independent contractor status, was raised.
The DOL quoted a commenter who said the department “seems to take the position that independent contractors only exist to the extent that they are simply misclassified employees.”
“Some of these commenters worried that withdrawal would mean adopting a test similar to the ABC test that generally applies under California state wage laws,” the DOL document said.
In response, the DOL said, the agency “recognizes and has always recognized that there are bona fide independent contractors that do not fall under the FLSA.”
The Trump rule is being withdrawn, the DOL said, but the Biden DOL “is not creating a new test, but is instead leaving in place the current economic realities test, which allows for determinations that some workers are independent contractors.”
But in a slight reveal of where the DOL under the Biden administration might be headed, the review of its action noted the results of a survey by CWI said that said while 45% of the survey’s respondents favored being an independent contractor, “the same survey finds that 53% of workers prefer being a full-time employee with benefits.”
It also said the survey showed that a lack of affordable child care was the “workers’ largest obstacle to full-time employment.”
“These findings suggest that even this minority of workers who prefer being an independent contractor to full time employment are motivated in part by temporary pressures created by the COVID-10 pandemic,” the report said.
Employment attorneys do not expect that the withdrawal of the Trump rule is going to mean that the economic realities test will again be dominant, setting policy without guidance from the Biden administration. Instead, a new rule is expected.