The Department of Labor (DOL) withdrew the “Independent Contractor Status Under the Fair Labor Standards Act” final rule in May 2021. In response, the Society for Human Resource Management (SHRM) stated, “The DOL has traditionally analyzed a number of factors to consider whether a worker is an independent contractor or employee and looked at the ‘totality of circumstances.’ The withdrawn rules would have applied a more limited economic-reality test.”
According to The Wall Street Journal, the rule would have made it more difficult for gig workers to be considered employees under federal law. The WSJ stated that the DOL was likely to continue to use its previous regulation to enforce the Fair Labor Standards Act (which was enacted in 1938) and that the agency’s withdrawal doesn’t change the classification of gig workers. The WSJ also quoted a DOL spokesperson as saying no new independent contractor rules are imminent.
The DOL stated that it “believes that the Rule is inconsistent with the FLSA’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.”
Employers and workers should keep updated on future DOL action and court cases, and receive guidance from qualified professionals. They should also be aware of any state laws that could affect independent contractors.
California is especially strict in defining independent contractors. A worker isn’t considered an independent contractor unless the hiring entity meets all the following conditions:
- The worker performs their work independently and without direction from the hiring entity, both under the contract for the work performed and in fact.
- The worker performs work outside of the usual scope of work of the hiring entity’s business.
- The worker is typically involved in an independently established trade, occupation, or business of the same nature of the work they are performing.
According to the SHRM, Illinois, Massachusetts, and New Jersey have similar strict tests regarding independent contractors. The organization also stated that the Biden administration favors eventually changing the federal rule to be more similar to California’s.