The U.S. Department of Labor (DOL) is officially withdrawing the prior administration’s independent contractor rule, which would have made it easier for businesses to classify workers as independent contractors rather than employees.
New Rule to be Withdrawn
On May 5, the DOL issued an announcement, stating, “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.”
Under the FLSA, employees are entitled to minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.
Return to the Norm for Now
Workers shouldn’t expect a new independent-contractor rule any time soon. According to Jessica Looman, principal deputy administrator for the DOL Wage and Hour Division, “We are going back to the decades-old analysis and we really feel that this is the space where we can best protect workers.”
Although the DOL doesn’t plan to issue a new rule in the near future, President Joe Biden has supported an “ABC” test similar to California’s independent-contractor rule. With some exceptions, California requires all three of the following factors to be met for a worker to be classified as an independent contractor:
- 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.
Other states, such as Illinois, Massachusetts and New Jersey, apply a similarly stringent independent-contractor test.