More-Limited Definition of Independent Contractor May Be Imminent

Allen Smith, J.D. By Allen Smith, J.D. April 30, 2021
a worker sawing off a block of wood

​The U.S. Department of Labor (DOL) may be on the verge of narrowing the definition of who is an independent contractor. Secretary of Labor Marty Walsh recently said many gig workers should be classified as employees, and the DOL's upcoming final rule repealing the Trump administration's independent-contractor rule was recently sent to the White House for approval. The definition of independent contractor is significant, partly since the Fair Labor Standards Act's (FLSA's) minimum-wage and overtime provisions don't apply to independent contractors.

We've gathered articles on independent contractors from SHRM Online and other trusted media outlets.

Labor Secretary's Statement

Walsh said the DOL would have conversations with companies that employ gig workers to make sure their workers have access to consistent wages, sick time, health care and "all of the things that an average employee in America can access." He added that gig-worker companies "are making profits and revenue, and I'm not [going to] begrudge anyone for that because that's what we're about in America … but we also want to make sure that success trickles down to the worker."


Repeal of Trump Gig-Contractor Rule

The DOL sent to the White House for approval a final rule to eliminate a Trump-era rule that would have eased businesses' ability to classify workers as independent contractors, according to an April 29 notice. A rule being sent to the White House is typically the last step before an agency can release it to the public. The Biden administration hasn't said whether it will replace the Trump-era rule, which never took effect, with its own interpretation of employee status under the FLSA.


Economic-Reality Test

The Trump administration's independent-contractor rule emphasized an economic-reality test to determine whether an individual is in business for himself or herself—an independent contractor—or is economically dependent on a business for work. Someone in the latter category would be an employee covered by the FLSA. Under the Trump administration's final rule, two core factors were integral to determining whether someone is an independent contractor:

  • The nature and degree of control over work.
  • The worker's opportunity for profit or loss based on initiative and investment.

Three other factors that may serve as additional guideposts in the analysis are:

  • The amount of skill required for the work.
  • The degree of permanence of the working relationship between the worker and the potential employer.
  • Whether the work is part of an integrated unit of production.

On President Joe Biden's first day in office, his chief of staff asked all federal agencies to freeze proposed regulations and those with pending effective dates.

(SHRM Online) and (SHRM Online)

'Significant and Complex Issues'

The DOL sought public comment on whether to delay the Trump administration's independent-contractor rule. The department received more than 1,500 comments, and the majority of commenters did not support the proposed delay. However, the DOL said "allowing more time for consideration of [the rule] is reasonable given the significant and complex issues [the rule] raises, including whether [the rule] is consistent with the statutory intent to broadly cover workers as employees as well as the costs and benefits of the rule, including its effect on workers."

(Jackson Lewis)

Gig-Economy Critic May Be Appointed DOL Wage and Hour Chief

David Weil, administrator of DOL's Wage and Hour Division under the Obama administration and a supporter of government crackdowns on gig-economy companies, may be returning as the Biden administrator's top wage regulator. Walsh reportedly wants Weil to return to the DOL Wage and Hour administrator position. If nominated and confirmed by the Senate, Weil would assume a central role in the question of how to approach the gig economy's growing workforce.


9th Circuit Gig-Economy Ruling

On April 28, the 9th U.S. Circuit Court of Appeals upheld California Assembly Bill 5's "ABC" test for classifying truckers as either employees or independent contractors. The appeals court rejected the argument that the ABC test was contrary to the precedent set by the Federal Aviation Administration Authorization Act of 1994. The ABC test made it more difficult to show that a worker is an independent contractor.

(FleetOwner) and (SHRM Online)



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