As we previously discussed, in early January 2021, the U.S. Department of Labor issued a Final Rule regarding independent contractor status under the Fair Labor Standards Act. On May 5, 2021, in line with the policy goals of the new administration, the Department issued a Final Rule withdrawing the January Final Rule. The withdrawal went into effect on May 6, 2021, upon the publication in the Federal Register (86 FR 24303). The January independent contractor rule was originally to go into effect in March, before the Department issued a notice of proposed rulemaking proposing to withdraw the rule. The January rule identified “the nature and degree of control over the work” and “the worker’s opportunity for profit or loss based on imitative and/or investment” as two “core factors” that would have been the most probative to determine whether a worker was an independent contractor. The rule also identified three additional factors and would have provided that “the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.”
According to the Department’s press release, the withdrawal was intended to help “preserve essential workers’ rights.” The Department cited as reasons for the withdrawal the independent contractor rule’s “tension” with the FLSA’s text and purpose, as well as judicial precedent, to argue that the rule’s emphasis on two “core factors” “undermined” the more holistic analysis of the employment relationship provided by the economic realities test. The Department contended that the January rule would lead to workers losing statutory protections.
While it is clear that the Department under Secretary of Labor Martin Walsh rejects the worker classification approach of the previous administration, it remains to be seen how the Department will address this issue in the coming months and years, whether through regulations, subregulatory compliance assistance materials, amicus briefs, or enforcement proceedings.