U.S. Dept. of Labor Withdraws Independent Contractor Rule

5/7/21: U.S. Dept. of Labor Withdraws Independent Contractor Rule

The U.S. Department of Labor officially withdrew the “Independent Contractor Rule” effective May 6, 2001. The rule, adopted by the prior administration, would have made it easier for businesses to classify workers as independent contractors rather than employees.

Under the Fair Labor Standards Act (FSLA), covered employers are required to pay employees at least the federal minimum wage and overtime compensation. These FLSA requirements do not apply to independent contractors. Independent contractors, however, typically have more flexibility to set their own schedules and can work for more than one company.

According to the Department’s press statement, it is withdrawing the rule for several reasons, including:

• The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.
• The rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.
• The rule would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.

For the near term, it appears unlikely that the Department of Labor will re-examine or issue rules that could ease criteria for classifying workers as independent contractors.

The official notice of the rule’s withdrawal is published in the Federal Register.