From JDSupra, Todd Lebowitz discusses the “Breaking News” that the United States Department of Labor rescinded the independent contractor rule that the Trump Administration promulgated in the last few days of its administration. Todd writes:
Remember when TV news was on at 6 p.m. and 11 p.m. and that was it? Every once in a while, there would be a Breaking News! alert, and it was always something really important. They wouldn’t interrupt Diff’rent Strokes for just anything. (Bonus points if you remembered there was an apostrophe in the title instead of the first ‘e.’)
But now, with 24-hour news on a dozen stations, everything is Breaking News! – even this story about a New Mexico man who went grocery shopping, then returned to his car to find 15,000 bees in the back seat. (Man walks back into store, returns jar of honey.)
The Breaking News! you’re reading about today is the Department of Labor’s (DOL) latest announcement, rescinding its proposed rule for determining independent contractor status under the Fair Labor Standards Act (FLSA).
But dig a bit deeper, and you’ll see that nothing happened, and nothing changed.
For more than 70 years, the test for determining whether someone is an employee under the FLSA has been the Economic Realities Test. It’s a multi-factor test that examines the economic realities of the relationship. The factors are generally well-understood, but they are described a bit differently from court to court. The DOL’s Fact Sheet #13 lists seven factors. Other courts list six. Others list five. Some courts combine factors, and other courts change the meaning of some factors.
In September 2020, the Trump DOL sought to introduce some clarity. The Wage and Hour Division observed that, regardless of how the factors are listed, two core factors have historically carried the most weight when courts apply the Economic Realities Test. The core factors are (1) the nature and degree of the individual’s control over the work; and (2) the individual’s opportunity for profit or loss.
The DOL proposed this rule to inform the business community that this is how courts tend to apply the test. The proposed rule didn’t change the factors and didn’t change the test.
The proposed rule never went into effect. It was supposed to take effect in March 2021. Then the Biden administration delayed its effective date to May. Then the Biden DOL indicated it did not want the rule to go into effect at all, but it would accept public comments before making that announcement official.
Then yesterday, the Breaking News! du jour was that the September 2020 proposed rule – which didn’t change the test, didn’t change the factors, and never went into effect – was now officially not going to take effect.
So, Breaking News! Nothing has changed.
The Economic Realities Test is still the test for determining whether a worker is an employee or an independent contractor under the FLSA, and the precise factors are still spelled out a bit differently by different courts. There is still no precise formula for weighing the FLSA factors, and a worker’s status can still be different under the FLSA than it is under the National Labor Relations Act, the Internal Revenue Code or a myriad of state laws.
With or without yesterday’s Breaking News!, businesses need to be mindful of the trend toward making it harder to sustain independent contractor relationships. There are steps that companies can take to proactively limit risk, but once a misclassification claim is brought, it may be too late.
Kind of like how the New Mexico man felt when he realized he had left his back window open.