On March 11, 2021, the U.S. Department of Labor announced plans to rescind two final rules which were promulgated under the prior administration: (1) the Independent Contractor Rule, which sets forth the standard under which a worker may be considered an independent contractor or employee under the Fair Labor Standards Act (FLSA); and (2) the Joint Employer Rule, which provides guidance for determining joint employer status when an employee performs work for his or her employer that simultaneously benefits another individual or entity.
Regarding the Independent Contractor Rule, the Notice of Proposed Rulemaking (NPRM) cites several reasons for the proposed withdrawal:
- The rule adopted a new "economic reality" test to determine whether a worker is an employee or an independent contractor under the FLSA;
- Courts and the DOL have not used the new economic reality test, and FLSA text and longstanding case law do not support the test; and
- The rule would narrow or minimize other factors traditionally considered by courts, making the economic test less likely to establish that a worker is an employee under the FLSA.
Regarding the Joint Employer Rule, the NPRM proposes to rescind a current regulation on joint employer relationships under the FLSA that took effect a year ago on March 16, 2020. In September 2020, the U.S. District Court for the Southern District of New York vacated the majority of the Joint Employer Rule, finding that it was contrary to the FLSA and was "arbitrary and capricious" due to its failure to explain why the department had deviated from all prior guidance or consider the effect of the rule on workers. An appeal of that decision is pending before the Second Circuit Court of Appeals.
The DOL’s stated goal in proposing the withdrawal of the two rules was to provide additional protection to American workers, and the proposals would have the effect of making it harder for an employer to classify a worker as an independent contractor instead of an employee under federal law, and to keep in place a broader standard for workers to establish joint employer liability.
We anticipate further course-correcting by the current administration in addressing regulatory changes by the DOL under the Trump administration, and will be monitoring these issues for further updates. There is a 30-day public comment period for these two proposed rulemaking notices.
For California employers, bear in mind that the FLSA is a federal law that establishes the federal rules for minimum wage, overtime pay, and other regulations affecting California workers, separate from those under California labor laws, and employees may choose to pursue claims under applicable federal or state laws.