May 11, 2021
The U.S. Department of Labor (the “DOL”) last Wednesday announced an end to the short-lived Trump-era rule on the classification of workers as independent contractors. This rule would have decreased the number of workers entitlement to coverage under the Fair Labor Standards Act (the “FLSA”). The rule, which was originally scheduled to go into effect on March 8th, was previously postponed by the DOL before being completely withdrawn on May 5th.
The Trump Administration’s rule was to use a new variant of the existing “economic realities test” to measure five-factors to discern whether an individual was an employee. At its core, the new test considered whether a worker relied on an employer for work or if the worker was an independent contractor who was in business for him/herself. The key elements of the test looked at (i) the individual’s control over the work and (ii) the risk/opportunity the individual had to experience profit or loss. These two factors carried the greatest weight in the five-factor test. Further, only if these two initial factors were in conflict was any consideration to be given to the three other “guidepost” factors: (iii) the degree of skill required to perform the work, (iv) the permanency of the working relationship, and (v) whether the work is part of an integrated unit of production.
In deciding to discard the Trump rule, the DOL stated the rule was inconsistent with the purpose and text of the FLSA and long standing judicial precedent. Furthermore, its implementation would result in many employees losing existing protections under the FLSA.
Many pro-worker scholars and advocates believe that multifactor tests like Trump’s 5-part economic realities test give employers too much room to play games. These scholars advocate for a simple straight forward test to be implemented similar to California’s ABC test.
According to the California Department of Labor, under California’s ABC test, a worker is considered an employee and not an independent contractor, unless the hiring entity satisfies all three of the following conditions:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the [terms of the] contract for the performance of the work and in fact;
- The worker performs work that is outside the usual course of the hiring entity’s business; and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.
As we have opined many times, the proper classification of independent contractors is at or near the top of President Biden’s pro-worker agenda. He has previously come out in support of a national ABC test, similar to California’s, even including it in his election platform.
Due to the withdrawal of President’s Trump rule, for the time being, the existing “economic realities standard” remains in place. However, it is clear to legal onlookers that President Biden, with help from his newly appointed Labor Commissioner, Marty Walsh, intends to reposition the DOL back to the standards of former President Barack Obama’s Administration with the goal of classifying more and more workers as employees. His ultimate path to this is most likely through the implementation of a national ABC test. We will keep you posted as this matter evolves.
Brody and Associates regularly advises management on complying with the latest state and federal employment laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.454.0560.
