It has been a rough year for workers, but recent developments in worker classification suggest better days are ahead. On May 5, 2021, the Department of Labor (“DOL”) rescinded Trump-era guidelines regarding independent contractor classification under the Fair Labor Standards Act (“FLSA”). The withdrawal came days before the Trump Administration’s “Independent Contractor Rule” would have gone into effect, essentially preserving the status quo with respect to federal independent contractor classification guidelines.
The
FLSA does not cover independent contractors. As a result, they are not
guaranteed minimum wage, overtime pay, unemployment insurance, workers’
compensation, and other vital protections. Given its dramatic implications, worker
classification remains a hot-button political issue. Courts commonly apply the
“economic realities” approach to assess worker classification, a multi-factor
balancing test that evaluates whether a worker depends on their employer to
make a living as a matter of economic reality. If the “totality of the
circumstances” indicate that more factors than not show that worker is
economically dependent on their employer, several federal circuit courts
nationwide held that they are classified as an employee.
The Trump Administration
adopted a pro-business position on worker classification
in 2017. In keeping with this position, the DOL issued a final “Independent
Contractor Rule” (Rule) on January 6, 2021. Bryan Schwartz Law blogged about
this Rule previously. Although the Rule
purported to reaffirm the extant “economic realities” test, in practice it
abandoned longstanding judicial precedent in favor of a more business-friendly
standard. The new guidelines would have made it easier for employers to
classify workers as independent contractors by reducing the considerations
traditionally included in the analysis. Instead of the multi-factor balancing
test applied by courts for decades, the Rule prioritized two main factors, the
worker’s level of control and opportunity for profit, above all other
considerations. If analysis of these main factors proved inconclusive, the Rule
then required employers to weigh three additional factors: (1) the level of
skill required for the work, (2) the permanence of the working relationship between
the worker and the employer, and (3) whether the work is integral to the
employer’s overall business operation. This approach ultimately would have reduced
the number of workers classified as employees under the FLSA, thereby depriving
them of federal protections.
After
the Trump Administration’s exit, the Biden Administration instructed its DOL to
withdraw the “Independent Contractor Rule.” The DOL offered three reasons
to rescind the Rule: first, that it conflicted with the text, purpose, and
judicial precedent interpreting the FLSA; second, that its hierarchy of main
and guiding factors contravened the balancing approach used in the economic
realities test; and third, that it restricted “the totality of the
circumstances” traditionally analyzed when determining worker classification.
Workers’ rights advocates hope more administrative and legislative actions will follow. As part of his 2020 presidential campaign, Biden promised aggressive FLSA enforcement to crack down on employers who misclassify their workers as independent contractors. In addition, Biden committed to designing a federal standard for worker classification modeled after the “ABC test.” California’s AB-5 legislation is one such example of this test. To qualify as an independent contractor under the ABC test, that worker must (a) be free from the control and direction of the hiring entity, (b) perform work outside the usual course of the hiring entity’s business, and (c) engage in an independently established trade, occupation, or business. That worker may be classified as an independent contractor only if they satisfy all three prongs.
If
you believe you have been misclassified as an independent contractor, contact Bryan Schwartz Law.
