A federal district court has vacated the U.S. Department of Labor’s (DOL) withdrawal of regulations outlining when a worker is an independent contractor under the Fair Labor Standards Act (FLSA). In Coalition for Workforce Innovation v. Walsh, No. 1:21-cv-00130-MAC (E.D. Tex. Mar. 14, 2022), the court concluded that the DOL’s initial delay and later withdrawal of the regulations did not meet federal administrative procedural requirements. The regulations went into effect on their original effective date, which was March 8, 2021, and remain in effect today.
In January 2021, the DOL issued these final regulations with an effective date of March 8, 2021. The White House issued a memorandum shortly after that, requesting that agency heads postpone the date of all final regulations that had not yet gone into effect for additional review. Following this memo, the DOL delayed implementing the rule until May 7, 2021. On May 6, 2021, the DOL withdrew the regulations. The pending lawsuit ensued over the DOL’s withdrawal of the regulations.
FLSA addresses minimum wage and overtime requirements, among other issues, for employees, but not independent contractors. Under FLSA, status as an employee or independent contractor primarily turns on whether workers economically depend on an employer for work or are in business for themselves. The two core factors for this determination include the nature and degree of the workers’ control over their work and their potential for profit or loss based on initiative, investment, or both. The regulations specify other factors that might influence this determination but are unlikely to outweigh the two core factors if they indicate one classification. This determination can include considering additional factors beyond those listed in the regulation only if they indicate whether workers are in business for themselves.
Although employers should watch for further developments in this case, FLSA has only limited relevance to employee benefit plans. Most rules under these plans determine employee status under ERISA or the Code, along with common law standards, rather than FLSA.