Independent contractors are not entitled to the protections of the federal Fair Labor Standards Act (“FLSA”) that employees are such as the minimum wage, overtime, etc. Employers often prefer to utilize independent contractors to avoid those FLSA wage expenses, as well as the costs of employee benefits. President Trump’s Department of Labor (“DOL”) had proposed to assist employers with a broader definition of independent contractor, but this week on Wednesday, May 5, 2021, President Biden’s DOL withdrew that proposed rule. President Biden’s DOL explained that it did not believe the broader draft rule was consistent with the FLSA and the case law under that applies the multifactor economic realities test. The new rule sought to focus the economic realities test on the worker’s control over the work and the opportunity for profit or loss. The current DOL Secretary stated that some workers are properly classified as independent contractors under current law but that the proposed rule would deprive FLSA protections from too large a category of workers. New York also focuses on control in determining if a worker is an independent contractor but not as broadly as the withdrawn proposed rule.
The proposed rule does have at least one hope of survival: business groups have filed a lawsuit claiming that President Biden acted improperly when he initially postponed the proposed rule’s original effective date of March 8, 2021 in order to consider whether to withdraw it. The business groups allege that the Administrative Procedure Act applies and was not followed so the proposed rule took effect on March 8. There is no indication yet when that case will be decided. Assuming the proposed rule remains withdrawn, it will be interesting to see if the current DOL and/or Congress pursues implementing the ABC test for independent contractor determination, which is the most employee-friendly of the tests in common use. The ABC rule only finds an independent contractor exists if the worker is free from company control, performs work outside the company’s line of business, and operates as an independent business. President Biden discussed implementing this during his campaign. Interestingly, the COVID relief bills under both President Trump and President Biden largely avoided the distinction and provided enhanced unemployment benefits to nearly all workers. We will keep an eye on this important issue.