On May 5, 2021, the US Department of Labor (DOL) announced the withdrawal of the previous administration’s independent contractor rule, effective May 6, 2021. The DOL has not proposed any regulatory guidance to replace the rule, leaving employers with no clear guidance on worker classification under the FLSA.
The withdrawal is no surprise. The DOL proposed the withdrawal on March 12, 2021 (see our previous blog, here). Labor Secretary Marty Walsh reportedly stated in a Reuters interview on April 29, 2021 that he believes “in a lot of cases” gig workers should be classified as employees–aligning with President Biden’s worker-friendly agenda and campaign pledge to establish a classification test modeled on the California’s three-prong ABC test through passage of certain provisions of the Protecting the Right to Organize Act of 2019 (PRO Act) (read more about the PRO Act here).
The DOL highlighted several reasons for the withdrawal in its announcement:
- The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent
- The rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship
- The rule would have narrowed the facts and considerations comprising the analysis whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections
To discuss how this development could impact your business, and for assistance with worker classification decisions–including potentially evaluating risk through a worker classification audit–contact your Baker McKenzie employment attorney.