On May 5, 2021, the United States Department of Labor (DOL) withdrew the Independent Contractor Rule which had been adopted by the Trump Administration which would have made it easier for employers to categorize individuals as independent contractors as opposed to employees.
Overview
The Fair Labor Standards Act (FLSA) requires all employers to pay non-exempt employees at least the federal minimum wage for every hour worked in a non overtime work week. In an overtime work week, with respect to all hours worked in excess of 40 hours in a work week, covered employers must pay a non exempt employees at least one and a half times the employee’s regular rate.
The Supreme Court has repeatedly emphasized that the test to be applied to determine whether an individual is an employee or independent contractor under the FLSA is one of “economic reality.” Under this test, the technical label of a worker as an employee or an independent contractor does not drive the analysis. Rather, it is the economic realities of the relationship between the worker and the employer that are determinative.
The Trump Administration’s Independent Contractor Rule
On January 7, 2021 (the “January Rule”), the DOL published a final rule, with an effective date of March 8, 2021, which provided a new generally applicable interpretation of employer and independent contractor status under the FLSA. This rule would have applied an economic dependence test under which the worker is considered an employee if that worker is economically dependent on the employer for work, and as an independent contractor if that worker is in business for himself or herself.
Under the January rule, five economic factors would have been considered, two of which were designated as “core factors” that would have carried greater weight in this analysis. The first core factor was the nature, degree, and control of the work which the employer would have over the work performed. The second core factor was the worker’s opportunity for profit and loss.
