DOL Plans to Roll Back Joint Employer & Independent Contractor Rules

On March 11, 2021, the U.S. Department of Labor (DOL) announced proposals to rescind the Independent Contractor Final Rule and the Joint Employer Rule, stating that the rules would “significantly weaken protections afforded to American workers under the Fair Labor Standards Act.”

Independent Contractor Status Under the FLSA

The Independent Contractor Final Rule, issued on January 7, 2021, established new standards for employers in determining whether a worker is an employee or independent contractor under the FLSA. 

The rule adopted a new “economic reality” test that identified two core factors for determining employment status: 

  1. The nature and degree of the worker’s control over the work, and 
  2. The worker’s opportunity for profit or loss based on initiative and/or investment.

Noting that independent contractors have no FLSA protections, the DOL stated that the agency and the courts have not used this test, and it is not supported by either FLSA language or case law. The DOL also said that the rule would minimize other factors courts traditionally consider, making it less likely that the economic test would establish whether a worker is an employee under the FLSA. 

President Biden has pledged to work with Congress on establishing a federal standard for independent contractor classification based on the ABC test used by California and several other states to determine worker status:

  1. The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  2. The worker performs work that is outside the usual course of the hiring entity’s business; and
  3. The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed for the company.

An employer would need to establish all three of the above factors in order for a worker to be classified as an independent contractor.

Joint Employer Rule Under the FLSA

The Joint Employer Rule, which took effect on March 16, 2020, established a four-factor balancing test for determining joint employer status when a potential joint employer benefits from work by another employer’s employee(s). The balancing test assesses whether the potential joint employer:

  1. Hires or fires the employee;
  2. Supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
  3. Determines the employee’s rate and method of payment; and
  4. Maintains the employee’s employment records.

The final rule provided that no single factor is dispositive in determining joint employer status, and the appropriate weight given each factor will vary depending on the circumstances.  

A New York federal court invalidated substantial portions of the rule in September 2020, deciding in favor of a coalition of state attorneys general that filed suit against the DOL on the grounds that the Joint Employer Rule violated the Administrative Procedure Act. 

HBL has experience in all areas of benefits and employment law, offering a comprehensive solution to all your business benefits and HR/employment legal compliance needs. We help ensure you are in compliance with the complex requirements of ERISA and the IRS code, as well as those laws that impact you and your employees. Together, we reduce your exposure to potential legal or financial penalties. Learn more by calling 678-439-6236.

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HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.
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