Q: Do Trump-era FLSA regulations governing independent contractor classification and joint employer status (still) apply?
A: The U.S. Department of Labor (USDOL) announced its decision to reverse a Trump-era rule governing the employee/independent contractor distinction under the Fair Labor Standards Act (FLSA) that was scheduled to go into effect on March 8. The decision comes on the heels of another recent announcement by the Biden administration that requested public comment about its intention to rescind the Trump-era regulations governing joint employment under the FLSA, which went into effect in March 2020. Both reversals have significant implications for whether a company is considered an employer under the FLSA and thus subject to minimum wage, overtime, and recordkeeping requirements under the statute.
Joint Employment Rule To Be Rescinded
Last year, the Trump administration revised the FLSA’s joint employer rules (29 C.F.R. Part 791) to create a unified rule that harmonized an inconsistency that had developed after various federal circuit courts applied different tests for whether an employee is jointly employed by more than one employer. However, in September 2020, a federal district court in New York held that the revised joint employer rules violated the Administrative Procedures Act (APA). See Troutman Pepper’s discussion of that decision here. The court’s decision was pending an appeal in the Second Circuit at the time the Biden administration solicited public comments as to its intention to rescind the earlier rule.
The USDOL now proposes to return to its earlier joint employer rules, citing the concerns noted by the federal court’s decision. In particular, the USDOL noted that it shared the court’s concerns that the joint employer rules were unreasonably narrow and approximated a “control test” to determine an employment relationship at common law. Per the USDOL, this “control test” is inconsistent with the FLSA because the statute’s definition of “employ” (i.e., “to suffer or permit to work”) has been noted in case law to be among the broadest definitions anywhere in the federal statutes and stretches the meaning of “employee” under the FLSA to cover areas that would not be covered by a strict application of traditional agency law. In particular, the USDOL criticized the Trump-era rule as not giving proper regard to the employee’s economic dependence on the potential joint employer (i.e., the “economic realities”).
While not noted as a reason motivating the regulatory change, by returning to the old joint employer rules, the FLSA will realign with regulatory tests for joint employment under the Family and Medical Leave Act of 1993 (FMLA). Prior to the Trump administration’s decision to update the joint employer regulations under the FLSA, both the FMLA and FLSA had relied upon the same multifactor tests.
Independent Contractor Rule Rescinded
During the waning weeks of the Trump administration, the USDOL announced a revised independent contractor rule, scheduled to go into effect on March 8. However, following President Biden’s inauguration, the USDOL promptly delayed the effective date of the rule, with that delay now upgraded to a permanent cancellation.
Consistent with its objections to the joint employer regulations, the Biden administration’s disagreement with the independent contractor test centers around the test’s emphasis on “control” and “opportunity for profit or loss” as “core” factors to be weighed above other factors. In particular, the Biden administration took issue with the Trump-era’s proposal to narrow the import of a factor that considers “whether the worker’s work is an integral part” of the employer’s business. USDOL also expressed disagreement with the Trump administration’s decision to assign greater significance to whether the actual practice of the parties indicates an exercise of control instead of whether there is a right or authority to control (regardless of its exercise).
For employers, the key takeaway is that the USDOL is rewinding the tape on regulatory reforms put forth under the prior administration. Employers who had begun to assess their FLSA compliance under the revised joint employer rules, for example, should be careful to reassess compliance based upon the rules in place prior to the Trump administration’s changes.