The Department of Labor (DOL) has proposed to put the final nail in the coffin on two Trump era rules under the Fair Labor Standards Act (FLSA) that were favorable to employers. On March 12, 2021, the DOL’s Wage and Hour Division published in the Federal Register both a proposed rule to rescind the Trump administration’s rule on joint employer status under the FLSA and a proposed rule to withdraw the Trump administration’s rule on independent contractor status under the FLSA. In both cases, the DOL is seeking public comments for 30 days (until April 11, 2021). Neither of these proposed rules comes as a surprise to those keeping tabs on the Biden administration’s agenda, but the DOL has not proposed any new guidance, leaving employers wondering what comes next.
Proposed Rescission of Trump Administration’s Joint Employer Rule
The Trump administration’s employer-friendly joint employer rule (which we blogged about here and here) incorporated a narrow definition of “joint employer,” limiting the circumstances under which multiple companies could be deemed to “employ” the same workers (and consequently minimizing companies’ joint employer liability).
According to the DOL’s proposal to rescind the joint employer rule, the rule’s required analysis for vertical employment (where an employee works one set of hours for an employer that simultaneously benefits another individual or entity) differs from the analyses applied by every court that considered joint employer questions before the rule’s issuance, and the DOL’s prior enforcement approach. The DOL’s stated “benefits of rescinding the rule” include that removing a joint employment standard narrower than the standard applied by courts and the DOL would (1) strengthen wage and hour protections for vulnerable workers, (2) enable more workers to collect back wages they are already entitled to under the FLSA, and (3) improve the economic security of workers in low-wage industries where FLSA violations are widespread and where many employees are immigrants and people of color. According to the DOL, rescission of the rule will allow the DOL to ensure that guidance is lawful and clear.
Proposed Withdrawal of Trump Administration’s Independent Contractor Rule
The worker classification rule issued under the Trump DOL also took a business-friendly approach (see our blogs here and here). The rule focused on whether workers depend economically on another business–making them more likely to be an employee of that business, and entitled to the minimum wage and overtime under the FLSA–or are economically independent, making them true independent contractors.
In its proposal to withdraw the Trump administration’s independent contractor rule, the DOL voiced its concern that though one of the rule’s primary purposes would be to clarify how to distinguish between employees and independent contractors under the FLSA, the rule’s introduction of several new concepts not previously applied by the courts or the DOL-including providing greater weight to certain of the factors in the economic realities test than others- would cause confusion and lead to inconsistent outcomes. In addition, the DOL stated withdrawal of the rule will allow the DOL an additional opportunity to consider legal and policy issues relating to the FLSA and independent contractors.
Because the DOL is not proposing any regulatory guidance to replace either rule, any commenter feedback addressing replacement guidance will be considered outside of the scope of the comment request.
This is likely just the beginning of what we expect to be widespread change in the labor and employment landscape under the Biden administration (see more here). Employers should consult with counsel to determine next steps, including the possibility of conducting a joint employer audit or worker classification audit to evaluate potential risk. For assistance with the possible impact of this development on your business, contact your Baker McKenzie employment attorney.