Employers who try to determine whether a worker should be classified as an “employee” or as an “independent contractor” have more changes to contend with now, after U.S. District Court (E.D.-TX) ruled on March 14, 2020, that the Biden administration’s withdrawal of the Trump Labor Department’s January 2021 “Independent Contractor” rule (governing worker status under the Fair Labor Standards Act) was invalid. The Biden administration failed to follow proper rulemaking procedures under the Administrative Procedure Act, which applies both to new rules and to modification or rescission of existing rules. The APA requires publication of a “notice” in the Federal Register and a period during which members of the public can submit comments. In some cases, public hearings may be required. While publication of notice occurred, only a 19-day comment period was provided and no alternatives were presented for consideration.
The Trump rule was published in early January 2021, shortly before the Biden inauguration, and was slated to take effect in March 2021, but was placed on hold initially in February 2021, and then was formally withdrawn in May 2021. The Coalition for Workforce Innovation, representing “gig” economy employers who use many flexible workers who would be considered contractors under the Trump rule but would be deemed employees under the Biden interpretation (which reverted to Obama-era case law and guidance that the Trump standard had superseded).
Proper classification of an individual is important because employees are eligible for protections under civil rights law, the Affordable Care Act, unemployment insurance and worker’s compensation, and other company benefits such as paid leave or pensions. Employers must also make tax contributions (FICA) on behalf of employees, whereas independent contractors must pay both the employee and the employer contributions into Social Security. There are also different tax consequences for both the employers and for the workers classified as contractors.
The Trump independent contractor rule places significant emphasis on whether a worker was “dependent” on the purported employers for work versus being dependent upon the income received. The test prior to 2021 looked at seven “economic realities” factors (also used by the Internal Revenue Service) to analyze the work relationship. Those seven factors were reduce to a two-factor test under the Trump standard: (1) the nature and degree of control over the work; and (2) the worker’s opportunity for profit and loss.
For additional clarification, there were three other factors that could be considered if the issue was not resolved by the two-part test: (1) Amount of specialized training or skill required for the work that the purported employer does not provide; (2) Degree of permanence of the working relationship, focusing on the continuity and duration of the relationship, and leaning toward classifying the worker as a contractor if the work was sporadic; and (3) Whether the work performed was “part of an integrated unit of production.”
The Labor Department can still appeal the case to the US Court of Appeals, or it can opt to re-promulgate the rescission properly under the APA. Because this is a key issue for the Administration, it is unlikely that the Trump rule will be left in effect permanently. The DOL definition of “independent contractor” can also be a factor in OSHA and MSHA enforcement, particularly when it comes to applying the multi-employer worksite tests or determining the entity with primary responsibility for training, PPE and other OHS issues.
For more information on worker classification, contact Adele Abrams at safetylawyer@gmail.com.
