Independent Contractor, Joint Employment Rules on the Chopping Block

Author: Michael Cardman, XpertHR Legal Editor

March 11, 2021

The US Department of Labor (DOL) will propose withdrawing two of the Trump administration's signature Fair Labor Standards Act (FLSA) rules - one on independent contractors and another on joint employment.

The DOL is not currently planning any new regulations to replace them. As a result, the framework for determining which workers are independent contractors rather than employees under the FLSA would remain the same, since the Trump administration's independent contractor rule has not yet taken effect.

The status quo would be mostly intact on the joint employment front as well, since a federal judge already struck down most of the Trump administration's joint employment rule last fall.

A DOL spokesperson did not return a request for comment about whether there is any new guidance in the works to replace what is being withdrawn. But the notices suggest the agency is considering new guidance somewhere down the line. For instance, the DOL said rescinding the joint employment guidance would provide "an additional opportunity to consider legal and policy issues relating to FLSA joint employment."

"Rescinding these rules would strengthen protections for workers, including the essential front-line workers who have done so much during these challenging times," DOL Wage and Hour Division Principal Deputy Administrator Jessica Looman said in a statement. "While legitimate independent contractors are an important part of our economy, the misclassification of employees as independent contractors denies workers access to critical benefits and protections the law provides. Additionally, removing a standard for joint employment that may be unduly narrow would protect more workers' wages and improve their well-being and economic security."

Independent Contractor Rule

The independent contractor rule, which was to take effect May 7, would have affirmatively stated that an independent contractor is not an employee under the FLSA. It would have established five criteria to determine whether a worker is an employee or an independent contractor under the FLSA.

The DOL said its reasons for withdrawing the Trump administration's rule are:

  • It has never been used by any court or by the DOL, and it is not supported by the FLSA's text or by case law;
  • It will cause confusion or lead to inconsistent outcomes rather than provide clarity or certainty, as intended;
  • It did not fully consider the likely costs to workers; and
  • Withdrawal would not be disruptive because the rule has not yet taken effect.

Joint Employment

The joint employment rule, which took effect almost a year ago today, is used for determining joint employer status when an employee performs work for an employer that simultaneously benefits another individual or entity.

Last year, a federal district court vacated part of the rule used for determining whether two employers that simultaneously benefit from an employee's work are joint employers. Known as the "vertical joint employment rule," the short-lived rule had made it easier for businesses to avoid liability for wage and hour violations made by staffing agencies, subcontractors and others.

However, the court left intact the DOL's "horizontal joint employment rule" for determining joint employment when one employer employs a worker for one set of hours in a workweek, and another employer employs the same worker for a separate set of hours in the same workweek.

The DOL appealed the district court's decision to the 2nd Circuit Court of Appeals.

Now, the Biden administration is proposing to rescind the rule entirely on the grounds that:

  • The vertical joint employment test conflicts with the analyses and tests applied by every court to have considered joint employer questions before the rule was issued, as well as the DOL's previous approach to enforcement;
  • The rule failed to fully take into account and explain its departures from earlier guidance; and
  • The vertical joint employment test has not been widely adopted by the courts, with at least three courts rejecting it and only two courts adopting it.

Next Steps

Notices of Proposed Rulemaking (NPRMs) are expected to be published in the Federal Register on March 12. Employers will have until April 12 to submit comments online under Regulatory Information Number (RIN) 1235-AA34 (for the independent contractor rule) and 1235-AA26 (for the joint employment rule) or to mail written comments to:

Division of Regulations, Legislation and Interpretation

Wage and Hour Division, US Department of Labor, Room S-3502

200 Constitution Avenue, N.W.

Washington, DC 20210

Written submissions must include the name of the agency and the Regulatory Information Number.

After the comment periods end, the DOL will respond to comments and possibly make revisions before publishing final rules. These final rules will include a formal effective date.