White House Delays Independent Contractor Rule

The Biden administration has pressed "pause" on the rollout of the new worker classification rule. So what comes next?

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UPDATE (January 28, 2021)— On the day of the presidential inauguration, the newly-minted Biden administration released a memorandum requesting the halt of all non-emergency rule-making and regulatory activity issued under the previous administration. As a result, the recently finalized rule for clarifying the status of a worker as an independent contractor or employee has been delayed, likely indefinitely.

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This delay was expected and a normal part of the natural transition of power between two presidential administrations. The regulatory freeze requests that executive agencies:

  • Wait to propose or issue any rules until a department or agency head appointed by President Biden has the opportunity to review and approve the rule;
  • Withdraw immediately any rules that have been sent to the Office of the Federal Register but not published in the Federal Register;
  • Consider postponing by 60 days the effective date of any such rules already sent to OFR for publication (or otherwise issued) but which have not yet taken effect, “for the purpose of reviewing any questions of fact, law, and policy the rules may raise.”

Some institutions, like the National Association of Home Builders, remain hopeful that the new independent contractor rule will still see the light of day.

“NAHB believes the final independent contractor rule represents a positive step forward that would provide more clarity for employers to determine whether a worker is an independent contractor or an employee under the Fair Labor Standards Act,” the association said in a statement.

Other sources, including the National Law Review and Lexology, view the delaying of the rule as confirmation it will be withdrawn. President Biden has made his stance on worker classification clear. As part of his “Empower Workers” platform, Biden says he intends to “aggressively pursue employers who violate labor laws, participate in wage theft, or cheat on their taxes by intentionally misclassifying employees as independent contractors.”

Under the “Empower Workers” plan, the Biden administration’s version of an independent contractor classification rule will likely resemble the “ABC Test” used for worker classification in California.

According to the plan statement on joebiden.com, “States like California have already paved the way by adopting a clearer, simpler, and stronger three-prong ‘ABC test’ to distinguish employees from independent contractors. The ABC test will mean many more workers will get the legal protections and benefits they rightfully should receive.”

DoL Finalizes Independent Contractor Classification Rule

January 14, 2021— Last week the U.S. Department of Labor announced a final rule for clarifying whether a worker is an independent contractor or an employee. The rule, which comes at the end of a long legal process, is meant to simplify and streamline the procedure of classifying workers.

“This rule brings long-needed clarity for American workers and employers,” said U.S. Secretary of Labor Eugene Scalia. “Sharpening the test to determine who is an independent contractor under the Fair Labor Standards Act makes it easier to identify employees covered by the Act, while recognizing and respecting the entrepreneurial spirit of workers who choose to pursue the freedom associated with being an independent contractor.”

The question of whether a worker is an employee or an independent contractor has grown increasingly important over the last few years. The answer carries ramifications not just for the construction industry, which relies on efficient and productive relationships between contractors and independent subcontractors, but also for rapidly growing gig-economy industries like ride-sharing and food delivery services. Those workforces are made up almost entirely of independent contractors.

The final rule provides context for an “economic realities test” used to clarify a worker’s status. This test is based around five main factors to determine whether a worker is in business for him or herself, or if they are economically dependent on their employer for work.

Two “core factors” are meant to provide the most weight in the determination. They are:

  • The nature and control of one’s work;
  • The worker’s opportunity for profit or loss based on initiative and/or investment.

The rule also provides three other factors as “additional guideposts” in the determination, especially if the two core factors are inconclusive. Those factors 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.

The rule also provides six examples of those factors being applied, and clarifies that “the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.”

According to DoL Wage and Hour Division Administrator Cheryl Stanton, “Streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility. The rule we announced today continues our work to simplify the compliance landscape for businesses and to improve conditions for workers. The real-life examples included in the rule provide even greater clarity for the workforce.”

The final rule was published in the Federal Registrar on January 7 and is scheduled to go into effect March 8. However, it is widely expected the rule will be opposed by the incoming Biden administration, due to concerns that it gives employers too much power and enables corporations to take advantage of worker classification.