On May 6, 2021, the U.S. Department of Labor (“DOL”) announced the withdrawal of the “Independent Contractor Rule”, which was established in the last days of the Trump Administration. This rule would have established a uniform standard for determining a worker’s status as an “independent contractor” under the Fair Labor Standards Act (“FLSA”).

The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime compensation at not less than one-and-one-half times their regular rate of pay for every hour they work over 40 in a workweek. FLSA protections do not apply to independent contractors.

The Trump Administration’s Independent Contractor Rule would have maintained the previously used “economic realities” test to determine whether a worker is in business for himself or herself (an independent contractor) or is economically dependent on the employer for work (an employee) for purposes of the FLSA by considering the following factors:

1. The extent to which the services rendered are an integral part of the principal’s business.
2. The permanency of the relationship.
3. The amount of the worker’s investment in facilities and equipment.
4. The nature and degree of control by the principal.
5. The worker’s opportunities for profit and loss.
6. The amount of initiative, judgment, or foresight in open market competition with others required for the success of the worker.
7. The degree of independent business organization and operation.

The new rule would have placed more emphasis on the fourth and fifth factors.

In withdrawing the Trump Administration’s Independent Contractor Rule, the DOL stated that the Rule was “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.” The DOL is not proposing a new rule, but, rather, is leaving in place the “economic realities” test, with no emphasis on certain factors. 

Employers should stay abreast of the ongoing changes in this body of law to ensure their classification of employees fall in line with the DOL rules. The withdrawal of the Rule may be an indication that the Biden Administration will seek more stringent requirements or interpretations of existing law.