May 07, 2021
The DOL officially rescinded the previous administration’s rule that clarified the status of independent contractors, reverting back to a less clear standard that narrows the contractor classification. Employers are required to track hours and pay overtime to any workers who do not qualify for independent contractor status.
Seven factor economic realities test: The DOL did not replace the withdrawn rule with its own regulation—yet—but cited guidance from 2008 that outlined a seven-factor test based on “economic realities” that will be applied in every misclassification case going forward. The multifactor test has been established through case law, although the number of factors often differs depending on jurisdiction. The Trump rule would have pared the test down to five factors, with the most weight given to just two: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss.
Reverting back to a seven-factor test allows the DOL to “review the totality of the circumstances to adopt a more balanced view of the entire employer-worker relationship,” said Jessica Looman, the acting Wage and Hour chief. “By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” said Secretary of Labor Marty Walsh.
The expanded test includes whether the work performed is “an integral part” of the business—a factor often utilized to classify workers as employees unless they perform work outside the scope of an employer’s normal course of business. The Trump rule would have eliminated consideration of such a factor. In contrast, the so-called ABC rule adopted by some states would virtually eliminate independent contractor status for any worker who is not performing work outside that scope.
Outlook: The withdrawal of the Trump contractor rule has been in the works since the first day of the Biden administration—the implementation of the rule was originally delayed mere hours after Biden took office—and is already under legal challenge from the business community. It is possible that the Biden DOL will issue its own independent contractor rule, which could be very similar to the ABC rule. However, a DOL spokesperson said that the Department is not planning a new rule at this time. Even in the absence of a new rule, employers should be wary of how they utilize independent contractors, as the Biden DOL has made misclassification a particular point of regulatory and enforcement emphasis.