Independent Contractors Rule Change Withdrawn by Department of Labor

Just two weeks before the end of the Trump administration, a rule was passed under the Fair Labor Standards Act (FLSA) that would have changed the guidelines employers use when classifying their workers as employees or independent contractors. It was to go into effect in March of 2021. When the Biden administration took over, the new Department of Labor delayed implementation of the law, and then officially rescinded it on May 6, 2021.

If the rule had been enacted, it would have made it easier for employers to label their workers as independent contractors. Employers are not required to offer benefits to independent contractors, even when they work full-time.

What Determines Whether a Worker is an Employee or an Independent Contractor?

In order to determine which workers are employees and which are independent contractors, the U.S. Department of Labor set forth an “economic realities test” which takes into account several factors, including:

• The level of control that the worker (and the employer) has over the work
• The worker’s opportunity for profit or loss
• Whether the worker’s work is “part of an integrated unit of production”
• The level of skill and expertise needed to perform the job
• The permanency of the relationship between the employer and the worker
• The worker’s level of investment in facilities and work equipment

What Was the Proposed Rule Change?

The Trump administration’s new rule would have condensed the economic realities test to two main factors:

• The level of control that the worker has over the work
• The worker’s opportunity for profit or loss

Under the new rule, three other factors, similar to the ones already established by the Fair Labor Standards Act, would have become secondary considerations and would no longer be core determining factors. These rules include:

• The skill required to do the work
• The permanence of the working relationship
• Whether the work is part of an integrated unit of production

The new rule would make it easier for employers to classify full-time workers as independent contractors, and fewer workers would be protected by the Fair Labor Standards Act.

Why Was the Proposed New Rule Withdrawn?

The rule was withdrawn by the Biden Department of Labor for numerous reasons. First, the new Department of Labor stated that it believed that the new rule was incompatible with the purpose of the Fair Labor Standards Act, which provided more balanced guidelines for employers to look to when classifying their workers.

They also stated that the two “core factor” rule would have undermined the economic realities test by reducing the guidelines to just two factors. It would effectively make it easier for employers to classify employees as independent contractors rather than as employees, which would deny them benefits.

In the new Department of Labor’s opinion, narrowing the guidelines for classification would lead to many workers being robbed of rights they were entitled to under the Fair Labor Standards Act.

Fighting for Employee’s Rights

At Vaughn Law Firm, our Georgia employment law attorneys stand up for the rights of employees every day. If you believe you have been unfairly misclassified by your employer, have been denied benefits to which you are entitled, or have faced any other type of unjust discrimination in the workplace, we are here for you.

Whether you are involved in a payroll dispute or negotiating severance pay or dealing with a contract dispute, our attorneys have years of experience handling all types of work-related claims. Get in touch with one of our attorneys today for a consultation by calling 1-877-212-8089 or contacting us online. We have offices in Decatur, Georgia, and Washington, D.C. to best serve you.