DOL Withdraws Trump Independent Contractor Rule
On May 6, 2021, the U.S. Department of Labor (“DOL”) officially withdrew an independent contractor rule promulgated in the waning days of the Trump Administration that would have favored app-based gig economy companies like Uber, Lyft, and DoorDash. The Trump rule, which was set to take effect on May 7, 2021, would have narrowed the employee versus independent contractor analysis for purposes of the federal wage and hour law, the Fair Labor Standards Act (“FLSA”), thereby making it easier for gig companies and other businesses to classify their workers as independent contractors rather than employees.
Unlike state wage and hour laws, which apply to private sector employers and only somewhat to public sector employers, the FLSA creates an underlying standard setting a minimum applicable to both private and public sector employers alike.
The Trump rule would have established that a worker is only an employee if that worker is economically dependent on the employer for work, and would have prioritized two factors in particular: the nature and degree of control the potential employer has over the worker’s work, and the worker’s opportunity for profit or loss based on their own initiative. As U.S. Labor Secretary Marty Walsh explained, the DOL withdrew the Trump rule “to stop the erosion of worker protections” and to “ensure[] that employees are recognized clearly and correctly whey they are, in fact, employees . . . .” The DOL’s final rule went into more detail, among other things, criticizing the Trump rule as “in tension with the [FLSA]’s text and purpose” and inconsistent with judicial precedent, including U.S. Supreme Court decisions. In particular, the DOL noted that the Trump rule’s elevation of just two factors of the longstanding economic realities test conflicted with FLSA’s broad definition of “employ” and risked “excluding and misclassifying workers whose FLSA employment status is established under other facts. . . .” The DOL also noted that the Trump rule’s standard had never been used by any court or the DOL, and would complicate rather than simplify the employee versus independent contractor analysis.
The Trump rule had not yet taken effect, so the DOL’s withdrawal of the rule actually only maintains the status quo. In particular, it preserves the longstanding and flexible economic realities test, under which the independent contractor analysis depends on the totality of the circumstances, with no factor given more weight than another. The test—derived from a pair of U.S. Supreme Court decisions from 1947, United States v. Silk, 331 U.S. 704 (1947) and Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947)—establishes that a worker is an employee rather than an independent contractor of a business if, given the economic realities of the relationship, the worker depends on the business for work. The test considers the entire relationship between the parties, including the following six factors: (1) the degree of the employer’s right to control the manner in which the worker performs their work; (2) the worker’s opportunity for profit or loss depending on their skill; (3) the worker’s investment in equipment or materials required for the job; (4) the skill or expertise required by the worker; (5) the permanency of the relationship between the parties; and (6) whether the work is an integral part of the employer’s business.
If you have any questions about the DOL’s final rule and the issues it raises, please contact your labor law counsel.
Author: Andrea Matsuoka
