What I’m about to share with you today will never become a Hollywood blockbuster. Actually, it’s so dull that I would sell it over the counter as a holistic sleep aid if I could bottle it.
Ambien’s got nothing on wage-and-hour minutiae.
Early last year, after President Biden won the election (but before he took office), the U.S. Department of Labor published a proposed wage-and-hour rule. The proposal would have assisted workers and companies in determining whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (Fair Labor Standards Act employee). It was an “economic reality” test.
Specifically, the DOL identified two “core factors” that are most probative on this issue: (1) The nature and degree of control over the work; and (2) The worker’s opportunity for profit or loss based on initiative and/or investment.
Additionally, the DOL identified three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The 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 DOL also provided a series of examples to show how these rules applied in real life. One involved a gig economy worker whom the DOL considered an independent contractor.
But soon after President Biden took office, the DOL delayed the Independent Contractor Rule’s effective date until May 7, 2021. About a month later, the DOL proposed withdrawing the Trump Era rule altogether. And two months after that, on May 5, 2021, the DOL announced a final rule removing the Independent Contractor Rule.
Then a bunch of employer groups sued the DOL, claiming that it improperly rescinded the rule. Specifically, they argued that the DOL had violated the Administrative Procedure Act and was arbitrary and capricious because the public didn’t have enough time to comment on its withdrawal. Even then, the public could only weigh in on whether to delay the effective date. The plaintiffs also claimed that the DOL should have delayed issuing the final rule withdrawing the Independent Contractor Rule.
Hey, wake up! You’re going to miss the ironic twist.
You see, in February 2020, a bunch of plaintiffs sued the DOL, arguing that the Trump-Era Rule violated the APA. The court agreed and vacated most of it as contrary to the FLSA. It was “arbitrary and capricious” due to its failure to explain why the DOL had deviated from all prior guidance or considered the rule’s effect on workers.
Fast forward now to earlier this week, when a federal judge reinstated the Trump-Era Rule because the Biden Rule violated the APA too.
S0, it’s back to the “economic reality” test for now. Of course, the Biden DOL may appeal the lower court ruling or repeat the rulemaking process to withdraw the Trump DOL rule. Try not to let the suspense get to you.
Seriously though, many states have more restrictive tests that favor an employee-employer relationship. So, your mileage might vary anyway. Plus, no federal rule is going to save you from misclassification if your business asserts too much control over your so-called independent contractors. Just remember which agency — the Biden DOL — oversees enforcing the FLSA.