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The Modern Workplace

Biden Administration Halts Trump-Era Independent Contractor Rule
Biden Administration Halts Trump-Era Independent Contractor Rule
As we predicted in a blog post earlier this year, the Biden administration has placed a 60-day hold on the U.S. Department of Labors (DOL) final rule on determining when a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) which was expected to take effect March 8, 2021. The Biden Administration issued a memorandum to various executive agencies, including the DOL, asking that they: (1) not propose or issue any rules until a department or agency head appointed or designated by the Biden Administration reviews and approves the rule; (2) withdraw any rules previously sent to the Office of the Federal Register for publication that have not yet been published; and (3) consider postponing the effective date of any published rules that have not yet taken effect by sixty days.

This development effectively means that employers are still subject to the FLSA contractor test used prior to the DOLs Trump-era final rule. Under that test, multiple factors need to be assessed when considering whether a worker qualifies as an independent contractor, including:
  1. The extent to which the services rendered by the worker are an integral part of the employer's business.
  2. The permanency of the relationship.
  3. The amount of the workers investment in facilities and equipment.
  4. The nature and degree of control by the employer.
  5. The workers opportunities for profit and loss.
  6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the worker.
  7. The degree of independent business organization and operation.
We can, however, theorize how the Biden Administration will move forward on the independent contractor issue. While not certain, we predict that the Biden Administration will ask the DOL to revisit the Trump-era final rule and shift course. President Biden has previously expressed support for a nationwide ABC test, which employers in some states such as California, Illinois and New Jersey already use. The ABC Test, if adopted by the DOL, would make it much harder to classify workers as independent contractors under the FLSA. For example, under California's version of the more-stringent test, all three of the following factors must be met for a worker to be considered an independent contractor:
  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. The worker performs tasks that are outside the usual course of the hiring entity's business.
  3. The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

Moving towards a nationwide ABC Test would be a significant shift for numerous employers and would likely require a review of existing independent contractor arrangements to ensure compliance. Alternatively, the DOL might leave in place the current pre-Trump administration rule or adopt some other approach.

We will continue to monitor any legislative or executive changes on the classification front and update accordingly.

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