Court reinstates independent contractor rule

A U.S. district court invalidated the Department of Labor’s decision to withdraw a rule that made it easier for workers to be classified as independent contractors.

Judge Marcia A. Crone for the Eastern District of Texas ruled on Monday, March 14, that the current administration’s attempts to delay the Trump-era worker classification rule violated the Administrative Procedure Act.

The court’s decision means that the Trump administration’s independent contractor rule became effective March 8, 2021, and remains in effect.

How we got here

On Jan. 7, 2021, the U.S. Department of Labor’s Wage and Hour Division published a final rule regarding a worker’s independent contractor status under the Fair Labor Standards Act.

A focus of the rule would be the adoption of an “economic reality” test to determine a worker’s status.

“The final rule explains that independent contractors are workers who, as a matter of economic reality, are in business for themselves as opposed to being economically dependent on the potential employer for work,” the notice stated. “The final rule also explains that the inquiry into economic dependence is conducted by applying several factors, with no one factor being dispositive, and that actual practices are entitled to greater weight than what may be contractually or theoretically possible.”

At the time, the rule was set to take effect March 8, 2021.

A regulatory freeze was issued when President Joe Biden took office in January 2021. The new administration first delayed the rule before deciding to officially withdraw it in May.

“After reviewing the approximately 1,000 comments submitted in response to the (notice of proposed rulemaking), the department has decided to finalize the withdrawal of the independent contractor rule,” the agency said last May. “As explained in the final rule, the department believes that the rule is inconsistent with the (Fair Labor Standards Act)’s text and purpose, and would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.”

Court ruling

The court said the Department of Labor failed to consider potential alternatives to rescinding the independent contractor rule in its entirety.

“By refusing to consider alternatives to the total withdrawal of the independent contractor rule, the Department of Labor failed to ‘consider important aspects of the problem before it’ – the lack of clarity of the economic realities test and the need for regulatory certainty,” Judge Crone wrote.

What’s next?

The independent contractor rule is now in effect, but it is unclear how the administration will proceed.

Solicitor of Labor Seema Nanda told Bloomberg Law that the department is evaluating all legal options, including the possibility of issuing a new rulemaking. LL