In mid-March, a federal court revived President Trump’s “Independent Contractor” rule. Later that month, President Biden’s nominee for U.S. Department of Labor Wage and Hour Division Administrator – David Weil – failed to obtain Senate approval. While these developments may seem entirely unrelated and received little attention in the press, both are important developments in the ongoing saga of how federal law treats independent contractors.
The federal Fair Labor Standards Act (FLSA) requires most employers to pay most employees at least the federal minimum wage and an overtime premium when employees work more than 40 hours in a workweek. However, by its terms, the FLSA applies only to “employees” – not “independent contractors.” Before last year, the U.S. Department of Labor had never issued regulations distinguishing “employees” from “independent contractors” for purposes of the FLSA. The lack of guidance required federal courts to develop varying tests with different factors to determine when a worker was an “employee” or an “independent contractor.” Even when the courts agreed on which factors were relevant, they often weighed those factors differently. The result was widespread uncertainty about the status of workers and the obligations of businesses under the FLSA.
During the waning days of the Trump administration, the Department of Labor issued regulations clarifying what factors were relevant in determining whether a worker was an “independent contractor” under the FLSA. Known as the “Independent Contractor Rule”, the regulations made clear that the central inquiry should be the “economic dependence” of the worker on the business, which was determined by the “economic reality” of the relationship. The rule identified the factors to be considered in determining a worker’s employment status and specified the weight to be given those factors. In short, the weightiest “core” factors to be considered were:
- The nature and degree of control over the work; and
- The worker’s opportunity for profit or loss based on initiative and investment.
Three additional influential factors for consideration were:
- The amount of skill required for the work;
- The degree of permanence of the working relationship between the individual and the potential employer; and
- Whether the work is part of an integrated unit of production.
The Independent Contractor Rule became final on January 6, 2021 and was scheduled to take effect March 8, 2021.
However, as discussed in our August 2021 post, President Biden’s Department of Labor moved quickly after his inauguration to delay and then repeal the Independent Contractor Rule. Business groups and organizations challenged the Biden administration’s delay and repeal, arguing that it had failed to follow the administrative procedures required to do so. On March 14, 2022, a federal judge in Texas agreed, and just like that, in the words of the federal court: “the Independent Contractor Rule…became effective March 8, 2021…and remains in effect.” Thus, as of the writing of this article, the Independent Contractor Rule is now in effect. No appeal has yet been filed by the Department of Labor.
While the court’s ruling was welcome news to some businesses, many despaired that President Biden’s Department of Labor would simply try again – this time in compliance with administrative procedures – to either repeal the Independent Contractor Rule again or develop its own test to determine independent contractor status. That concern seemed justified by President Biden’s nomination of David Weil to be the Department of Labor’s Wage and Hour Division Administrator. Weil had previously served in the same role under President Obama from 2014 to 2017. In 2015, Weil issued an “administrator’s interpretation” that made clear he believed most workers should be classified as “employees” rather than “independent contractors.” Even after leaving his position as Administrator, Weil continued his vocal opposition to the classification of workers as “independent contractors.” If returned to his old post, there was little doubt that Weil would move to undo the Independent Contractor Rule and push for a new rule narrowing the scope of who could be considered an “independent contractor” under the FLSA. But Weil never got the chance.
Weil’s strong opposition to classifying workers as “independent contractors” contributed to an unusually strong and surprisingly broad opposition to his nomination in the Senate. Initially nominated in June 2021, opposition senators prevented a vote on Weil’s nomination, requiring President Biden to re-nominate him again in January of this year. Weil’s nomination was finally put to a vote in late March, but it failed 47-53, with three Democrats joining Senate Republicans in voting down his nomination. Multiple Senators cited Weil’s outspoken opposition to “independent contractor” status as a factor in their vote in opposition. The Biden administration must now cast about for a new nominee, who may be unable to obtain Senate approval before the November mid-term elections.
While the Department of Labor’s Wage and Hour Division can (and has) promulgated new regulations without a Senate-confirmed Administrator, the absence of one at the helm makes major policy initiatives – like re-defining independent contractor status – a more difficult task. More importantly, it is unlikely that President Biden will nominate another outspoken critic of independent contractor status for the Administrator position given the consolidated opposition demonstrated against Weil.
While the federal government’s next move on “independent contractor” classification remains uncertain, some states have moved strongly against it. California, for example, significantly narrowed the circumstances under which a worker could be considered an independent contractor under its law first through the courts, then through legislation. So even if businesses using independent contractors find relief in the revival of the Independent Contractor Rule, the classification of employees as independent contractors under state laws remains challenging. Given the significance this issue for both businesses and workers, it is certain that the independent contractor saga will continue.
The St. Louis employment attorneys at McMahon Berger have been representing employers across the country in labor and employment matters for over sixty years and are available to discuss these issues and others. As always, the foregoing is for informational purposes only and does not constitute legal advice regarding any particular situation as every situation must be evaluated on its own facts. The choice of a lawyer is an important decision and should not be based solely on advertisements.