Defining whether a worker is an independent contractor (IC) or an employee got a little more confusing over the past week with a federal court reimplementing a Trump administration rule that the Biden administration thought it had killed.
In a decision handed down March 14 in the Eastern District of Texas, U.S. District Judge Marcia Crone said the Biden administration had not followed proper procedure in killing the Trump administration rule on IC status under the Fair Labor Standards Act (FLSA). As a result, the Trump rule, which was seen as being more favorable to allowing a company to classify a worker as an IC rather than an employee, will be implemented retroactively to March 8.
The case was brought by the Coalition for Workforce Innovation, Associated Builders and Contractors of Southeast Texas, Associated Builders and Contractors Inc., and the Financial Services Institute.
The Biden administration has not yet proposed its own version of the rule, which would be administered by the Department of Labor. But when it took office, it quickly killed the Trump administration’s proposed rule, which was formally announced in the last weeks of the Trump era and which was to go into effect in early March.
Crone’s decision focuses mostly on the rules governing the ability of a government to withdraw a federal rule. But the end result is that the Biden administration handled the withdrawal of the rule in violation of the law, and the Trump administration rule defining independent contractor status is now the law of the land.
It creates an odd situation in which the Biden administration’s Department of Labor will be expected to enforce a rule on independent contractor status that it attempted to kill and that presumably will be withdrawn ultimately in favor of its own rule.
Even though the reinstated Trump rule might not be around too long, “it matters,” according to Gerald Maatman, a partner with the law firm of Seyfarth Shaw who specializes in labor relations.
“Courts often rely on the DOL’s interpretation of regulations in deciding issues under the FLSA,” Maatman said in an email to FreightWaves. “The DOL also brings lawsuits against employers where it espouses these views and positions. Hence, the new position is important.”
Greg Feary, of the trucking-focused law firm of Scopelitis Garvin Light Hanson & Feary, concurred. “The Biden DOL will have little choice but to apply the Trump rule or face opposition (subjecting the U.S. DOL actions to reversal) in any final determination of employment status,” he said in an email to FreightWaves.
But Feary added that a new Biden administration rule could be built on the foundations of the ABC test, which is the basis for California’s AB5. That test makes it far more difficult to define a worker as an independent contractor, but Feary also said he believes imposition of an ABC test might require congressional action.
If employers were considering ignoring the Trump rule because it is likely to have a short shelf life, Maatman argued against it.
“While employers can argue that the ‘new’ Biden rule could not be followed, courts may disagree,” he said. “The issue is not academic at all. Plaintiffs’ lawyers, the DOL and some courts are apt to view the new Biden positions as reflective of what the law ought to be.”
Maatman said it would likely take three to six months for the Biden administration to properly withdraw the Trump administration rule and implement its own.
Feary said the court’s decision should spur quicker action by the Biden administration. “The DOL will initially probably follow the court decision to properly rescind the Trump rule and if the DOL does not appeal the decision, it is likely a pragmatic decision to simply initiate a proper rescission rulemaking procedure.”
Although much of Judge Crone’s decision centers on the rules regarding withdrawing a rule, and how she said the Biden administration violated them, she also found that the Biden administration did not consider alternatives to withdrawing the rule.
“The court finds that the DOL failed to consider potential alternatives to rescinding the independent contractor rule,” she said.
In making that finding, Crone also summed up her view of what was in the Trump administration rule that the Biden administration was trying to kill. It followed a school of IC definition law known as the “economic realities test.”
Courts that apply that test look at six factors, Crone said: “the degree of control exercised by the alleged employer over the worker; the worker’s opportunity for profit or loss; the worker’s investment in the business; the permanence of the working relationship; the degree of skill required to perform the work; and the extent to which the work is an integral part of the alleged employers’ business.”
Conventional wisdom is that a court using the economic realities test is more likely to find that a worker is an IC rather than an employee.
The court-ordered imposition of the Trump administration rule — it can’t really be called a reimposition, because it never was implemented — comes as the full Senate has yet to vote on the nomination of David Weil to be the head of the DOL’s Wage and Hour Division. Weil’s nomination was approved by the Senate Committee on Health, Education, Labor and Pensions in January in a party line vote.
Weil had been head of the Wage and Hour Division in the Obama administration. In that role, he promulgated the role on IC status that the Trump rule pushed aside. The Biden administration rule to replace Trump’s was expected to look very similar, if not identical, to the Weil rule from the Obama years.
“It is more likely that Weil ends up with the chief of DOL Wage and Hour post and he issues his guidance memos on IC and joint employment (which he had issued in the final days of the Obama admin),” Feary said.