As we previously reported here and here, in January 2021 the U.S. Department of Labor (DOL) proposed a business-friendly final rule concerning the classification of workers as independent contractors under the Fair Labor Standards Act (FLSA). The final rule, which was scheduled to take effect in March 2021 (but never did), reaffirmed the use of the so-called “economic reality test” to distinguish between independent contractors and employees under the federal wage/hour law. In essence, the rule was intended to provide a more uniform approach to worker classification.
Shortly after taking office, however, President Biden postponed the effective date of the final rule and suggested it should be repealed. The Biden administration has now followed through on that plan, with the DOL blocking the rule entirely earlier today. In a press release announcing the rule’s withdrawal, the DOL stated: “Upon further review and consideration of the rule and having considered the public comments, the [DOL] does not believe that the Independent Contractor Rule is fully aligned with the FLSA’s text or purpose, or with decades of case law describing and applying the multifactor economic realities test.”
This is a clear and obvious sign that, as he has routinely stated, President Biden intends to broaden the definition of “employee” under the FLSA as well as other federal statutes, making it more difficult for businesses to classify workers as independent contractors. In fact, the current administration has stated that, in other contexts, it prefers the “ABC” test for independent contractor status. That test was recently codified in California and is used in other states, such as New Jersey and Massachusetts. The ABC test imposes a higher burden on businesses classifying workers as independent contractors than the economic realities test. Under the test, the vast majority of workers will likely be considered employees, rather than independent contractors. This test has been proposed as the governing test under the National Labor Relations Act as part of the PRO Act recently passed by the U.S. House of Representatives, which faces an uphill battle in the Senate.
Employers should keep watch on these developments and carefully evaluate worker classification as employees or independent contractors. If you have any questions or concerns about these developments, or how they affect your company, Reed Smith’s experienced Labor & Employment Group is available to speak with you.