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 On May 5, 2021, the Department of Labor (“DOL”) rescinded Trump-era guidelines regarding independent contractor classification under the Fair Labor Standards Act (“FLSA”).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.