Department of Labor Withdraws Trump-Era Independent Contractor Rule
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On May 5, 2021, the U.S. Department of Labor (DOL) announced that it would be withdrawing a Trump-era rule for determining whether to classify workers as employees who are entitled to the Fair Labor Standard’s Act’s (FLSA) wage protections or independent contractors who are not.
05.12.21
The Trump-era independent contractor rule would have made it easier to classify workers as independent contractors under the FLSA. The rule, which was finalized in January 2021, had been scheduled to become operative on March 8. However, it never went into effect, as the DOL pushed back the effective date under President Biden’s administration, then announced that the rule would be withdrawn, effective as of May 6, 2021.
The Trump-era rule had prioritized two “core factors” of the “economic realities” test under the FLSA to determine whether a worker is an employee or independent contractor: the degree of control over the work and the individual’s earnings opportunity based on initiative or investment. The remaining factors under the test were deemphasized.
The DOL’s repeal of the rule means that it most likely will return to considering each of the following factors under the economic realities test in determining whether a worker should be classified as an independent contractor, as it did prior to the Trump administration:
- The extent to which the work performed is an integral part of the employer’s business.
- The worker’s opportunity for profit or loss depending on his or her managerial skill.
- The extent of the relative investments of the employer and the worker.
- Whether the work performed requires special skills and initiative.
- The permanency of the relationship.
- The degree of control exercised or retained by the employee.
Given the foregoing, because the Trump-era rule never went into effect, employers should continue to classify individuals as employees or independent contractors based on consideration of the factors listed above.
Author Lee D. Moylan, partner is chair of the labor & employment practice at Klehr Harrison.