Trump-Era Independent Contractor Rule Reinstated

By Teri Brown posted 04-22-2022 10:35 AM


The Independent Contractor (IC) Rule was reinstated in March of 2022 retroactive to March 8, 2021, and remains in effect today. A federal judge in March 2022 found the Department of Labor (DOL) violated the Administrative Procedure Act (APA) twice: Once in February 2021 with the delay of the effective date to May 2021 and again in May 2021 when it withdrew the rule in its entirety.

The IC Rule set forth clarifies the relevant factors the DOL will use in determining whether workers are independent contractors or employees under the Fair Labor Standards Act (FLSA), entitling them to minimum wage and overtime pay, to name a couple.

Prior to the IC Rule adoption, most courts and the DOL considered seven economic factors in analyzing work relationships. These seven factors were subject to an exhaustive analysis based on decades of cases dealing with the test, which resulted in clarification by the IC Rules identification of two core factors:

  • The nature and degree of control over the work.

  • The worker's opportunity for profit or loss.

Additionally, three nonexhaustive guidepost factors were set forth for consideration if the core factors aren't clear in determining or point in different directions:

  • The amount of specialized training or skill required for the work that the potential employer does not provide.

  • The degree of permanence of the working relationship focusing on the continuity and duration of the relationship and weighing toward independent contractor status if the relationship is definite in duration or sporadic.

  • Whether the work performed is "part of an integrated unit of production."

It is unclear whether the DOL will appeal this decision or engage in new rulemaking to propose a new independent contractor standard.

President Biden has said he supports an "ABC" test like that in California. All three of the following factors must be met for a worker to be properly classified as an independent contractor in California, with some exceptions:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work.

  • The worker performs tasks that are outside the usual course of the hiring entity's business.

  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed for the hiring entity.

Illinois, Massachusetts, and New Jersey apply a similarly stringent test. Check your state laws as well.

If you haven't reviewed those you have classified as independent contractors — now is the time. Employers need to keep in mind a couple of things: The distinction between an employee and an independent contractor is neither simple nor clear and involves a detailed analysis. State and federal agencies aggressively pursue companies that misclassify workers as independent contractors.