September 19, 2021

Volume XI, Number 262

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U.S. Department of Labor Announces Withdrawal of Trump-Era Independent Contractor Rule

On May 5, 2021, the U.S. Department of Labor (“DOL”) announced it is officially withdrawing, effective May 6, 2021, the rule promulgated under the Trump administration addressing the standard to determine whether an individual is properly classified as an employee or an independent contractor under the Fair Labor Standards Act (“FLSA”).  The rule, which was rolled out two weeks before the end of President Trump’s term, was initially scheduled to take effect on March 8, 2021 but was delayed by President Biden until May 7, 2021.

Had the rule become effective, it would have revised the DOL’s test for determining worker status under the FLSA to focus on two “core factors” (the worker’s control and opportunity for profit and loss) and three other “guidepost” factors.  In withdrawing the rule, the DOL stated, among other things, that:  it believed the rule was inconsistent with the FLSA’s text and purpose; the rule’s emphasis of two “core factors” for determining employee status would have undermined the longstanding balancing approach of the economic realities test; and it would have resulted in workers losing FLSA protections since it would have narrowed the facts and circumstances comprising the analysis of whether a worker is an employee or an independent contractor.

The DOL has not proposed a new independent contractor rule, relying instead upon the economic realities test to determine worker status under the FLSA.  Derived from the U.S. Supreme Court’s decisions in United States v. Silk, 331 U.S. 704 (1947) and Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), the economic realities test balances several factors, including:

  1. The employer’s versus the individual’s degree of control over the work;

  2. The individual’s opportunity for profit or loss;

  3. The individual’s investment in facilities and equipment;

  4. The permanency of the relationship between the parties;

  5. The skill or expertise required by the individual; and

  6. Whether the work is “part of an integrated unit of production.”

As a result of the withdrawal of the proposed rule, there is still no bright-line rule for weighing the FLSA factors.  Further, a worker’s classification may be different under the FLSA than it is under various state laws, the National Labor Relations Act and/or the Internal Revenue Code.  Employers should continue to take steps to ensure proper classification of their workers, and remain cognizant of and comply with applicable state and local laws, which may be different than federal law.  

Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XI, Number 130
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About this Author

Jamie Moelis Labor & Employment Attorney Sheppard Mullin New York, NY
Associate

Jamie Moelis is an associate in the Labor and Employment Practice Group in the firm's New York office. 

Areas of Practice

Jamie’s practice focuses on representing employers in a wide array of labor and employment subject areas including: wage/hours claims, the defense of single plaintiff and class action discrimination, sexual harassment, hostile work environment, retaliation, wrongful termination, and related claims. Jamie also regularly advises and counsels clients on various employment practices, such as new hire issues, employee handbooks, leaves of...

212-653-8191
Kevin J. Smith, Labor Law Lawyer, Sheppard Mullin Law Firm
Special Counsel

Kevin Smith is a special counsel in the Labor and Employment and Litigation Practice Groups in the firm's New York office.

Areas of Practice

Mr. Smith acts as trial and litigation counsel for all types of civil litigation, including employment, commercial, securities, and class action litigation before arbitral forums, state and federal courts, and local administrative and regulatory agencies.

In the labor and employment arena, Mr. Smith routinely represents management in discrimination, harassment, retaliation, whistleblower and compensation disputes...

212-634-3052
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