New DOL Independent Contractor Rule Goes Into Effect, While NLRB Joint Employer Rule Vacated at the Eleventh Hour

From JDSupra, Morgan Harrison, Emily Jewell, and Megan Mitchell discuss the new independent contractor rule which went into effect on March 11, 2024 and the joint employer rule which as vacated just before it was scheduled to take effect on March 11, 2024. Morgan, Emily, and Megan write:

On March 11, 2024, after many months of anticipation, the Department of Labor’s (“DOL”) final rule on independent contractor status went into effect. Meanwhile, on March 8, 2024, a revised joint employer rule announced by the National Labor Relations Board (“NLRB”) in October 2023 was stayed at the eleventh hour, with a federal district court vacating the rule and ensuring that, at least for the time being, the existing joint employer standard announced in 2020 remains the applicable standard.

The “New” DOL Independent Contractor Test

As many employers are aware, the DOL historically applied a “totality-of-the-circumstances” test, which considered several factors to determine whether a worker should be classified as an employee or an independent contractor. While these factors were broadly organized into six criteria, the DOL’s inquiry focused on determining the “economic realities” of the worker’s situation.

In 2021, however, weeks before the end of the Trump administration, the DOL streamlined the test (the “2021 Rule”). The 2021 Rule examined independent contractor status based on two “core factors”: (1) the nature and degree of the individual’s control over the work; and (2) the individual’s opportunity for profit or loss. It was widely believed that workers were more likely to be deemed independent contractors under this test than under the prior “economic realities” standard.

In 2022, the DOL announced its plan to return to a totality-of-the-circumstances test focused on the “economic realities” of the worker’s circumstances, with a final rule announced on January 9, 2024. In the midst of ongoing legal challenges, the rule went into effect on March 11, 2024.

AGG previously analyzed the DOL’s final rule here. Employers should also remember that some states and federal courts use other independent contractor standards. This alert only addresses developments from the DOL.

NLRB’s Joint Employer Rule

Similarly, in 2020, the NLRB changed course on its joint employer standard, announcing that an employer will be considered a “joint employer” of another employer’s employees only if the employer possesses and exercises substantial direct and immediate control over one or more essential terms and conditions of employment of the other company’s employees (the “2020 Rule”).

The 2020 Rule specified eight essential terms and conditions of employment: wages, benefits, hours of work, hiring, discharge, discipline, supervision, and direction.1 A joint employer must “possess and exercise such substantial direct and immediate control over one or more essential terms or conditions” such that the employer “meaningfully affects matters relating to the employment relationship.”2 Indirect control or contractually reserved and unexercised authority over one or more terms or conditions may be considered in the joint employer analysis, but only to the extent it provides evidence of “direct and immediate control over a particular essential term and condition of employment.”3

Then, under the Biden administration, the NLRB announced a new rule in October 2023 (the “2023 Rule”), which would lower the threshold for the amount of “control” required for a company to be deemed a “joint employer.” Specifically, the 2023 Rule considers whether an alleged joint employer has “authority to control [the] essential terms and conditions of employment, whether or not such control is exercised, and without regard to whether any such exercise of control is direct or indirect.”4 (emphasis in original.)

After previously staying the 2023 Rule until March 11, 2024, the U.S. District Court for the Eastern District of Texas vacated it on March 8, 2024. In its decision, the court reasoned that, contrary to the NLRB’s contentions, the 2023 Rule “sweep[s] beyond common-law limits” and is “likely to promote labor strife rather than peace.”5

As a result of the court’s ruling, the 2020 Rule remains in effect.

However, NLRB Chairman Lauren McFerran stated that the Board is “reviewing the decision and actively considering next steps in this case.”6 From a practical standpoint, this means that employers should continue to review any contractual arrangements they have with subcontractors and third parties, review the classification of their workforce, and monitor for any developments in the case.

[1] 29 C.F.R. § 103.40(a) (2020).

[2] Id.

[3] Id.

[4] NLRB Fact Sheet: Joint-Employer Standard Final Rule (2023).

[5] Chamber of Com. of the U.S. v. NLRB, No. 6:23-cv-00553, 2024 WL 1045231, at *15 (E.D. Tex. Mar. 8, 2024).

[6] NLRB’s Joint-Employer Rule Vacated by U.S. District Judge, NLRB (Mar. 9, 2024), https://www.nlrb.gov/news-outreach/news-story/nlrbs-joint-employer-rule-vacated-by-us-district-judge.

Source: March 2024 Employment Updates: New DOL Independent Contractor Rule Goes Into Effect, While NLRB Joint Employer Rule Vacated at the Eleventh Hour | Arnall Golden Gregory LLP – JDSupra

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