The U.S. Department of Labor announced the withdrawal of the “Independent Contractor Rule,” clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA), effective May 6.
In withdrawing the rule, the Labor Department said that the independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.
The Labor Department said, the rule’s prioritization of two “core factors” for determining employee status under the FLSA would have “undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.”
The agency also said that the rule “would have narrowed the facts and considerations comprising the analysis whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.”
President-elect Biden campaigned in part on a commitment to restoring the Obama Administration’s wage-hour misclassification agenda. This would entail a more rigid test for qualifying workers as independent contractors than what President Trump’s Labor Department issued.
The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime compensation at not less than one-and-one-half times their regular rate of pay for every hour over 40 in a workweek. FLSA protections do not apply to independent contractors.
The rule issued under President Trump considered five factors to determine whether a worker is economically dependent on an employer, and therefore an employee rather than a contractor. It:
- Reaffirmed an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
- Identified and explained two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself.
- Identified three other factors that could serve as additional guideposts in the analysis, particularly when the two core factors did not point to the same classification, including the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer and whether the work is part of an integrated unit of production, among others.
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