DOL Finalizes Independent Contractor vs. Employee FLSA Rule That Likely Will Never Take Effect

In September, we discussed the Department of Labor’s announcement of a then-proposed rule offering the agency’s interpretations of whether a worker is an independent contractor for purposes of the Fair Labor Standards Act (FLSA). Before the horrific chaos at the Capitol yesterday, the DOL issued its final version of the independent contractor rule.

The final rule clarifies the test to determine whether a worker is an employee or an independent contractor, swinging the pendulum back toward the latter in a move reminiscent of the seesaw employers ride with the NLRB during every change of administration. See the September post linked above for more expansive discussion, but in short, the final rule from the DOL:

• Economic reality test. Reaffirms the “economic reality” test to determine whether an individual is running their own business (an independent contractor) or is economically dependent on a potential employer for work (an employee covered by the FLSA).
• Core factors. Identifies and explains the two “core factors” that DOL gives the most weight when determining whether a worker is economically dependent: the nature and degree of the individual’s control over the work and the individual’s opportunity for profit or loss. The DOL’s rule attempts to the parties’ actual practice rather than what may be contractually or theoretically possible. This can cut both ways, of course.
• Other factors. Identifies three “other factors” that can help when the two core factors point in opposite directions: (1) the amount of skill required for the work; (2) the degree of permanence of the working relationship between the worker and the potential employer (but not the indefinite or continuous nature of the engagement); and (3) whether the work is part of an “integrated unit of production.”

The final rule will be published in the Federal Register today and would theoretically take effect 60 days after publication on March 8, 2021.

Employer Takeaways: This is a Non-Event

We know now what we did not know in September: Democrats control both chambers in Congress. Employers can expect that the newly seated 117th Congress will simply repeal this rule under the 1996 Congressional Review Act. Congress now has 60 “session days” (days in which Congress is in session) to use expedited procedures to overturn a regulation. By passing a resolution of disapproval, not subject to filibuster rules in the Senate, and with soon-to-be President Biden’s inevitable signature, the regulation would be repealed. The CRA also would bar the DOL from ever issuing a rule in “substantially the same form” as the disapproved rule unless it is specifically authorized by a subsequent law. (Granted, there is no test for what “substantially the same form” means, as the Congressional Research Service explains in this report.)

Even in the unlikely event this rule survives the CRA, it wouldn’t preempt state laws like those in California, New Jersey, or Illinois that are more protective of workers. Don’t hold your breath for March 8, employers. Congress and the Biden administration will almost assuredly relegate this rule to the dustbin of history.