The Biden administration just unraveled a Trump-era rule change that offered to make it easier for companies to classify–or reclassify–their workers as independent contractors rather than employees. The move stands to throw a wrench in the business models of companies like Uber and DoorDash, which had been the most vocal advocates for the Trump-era rule.
The Department of Labor (DOL) on May 5, 2021 revoked a Trump-era rule, which had been on hold since getting completed in early January. The agency cited the rule change as inconsistent with existing laws, including the Fair Labor Standards Act, which is a 1938 law establishing basic worker protections. The DOL explained that “the Department believes that the [Trump-era] 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.”
Business Groups Filed Lawsuits
Biden announced early on that he opposed this rule, so it came as no surprise when the administration delayed implementation. Business groups filed a lawsuit in March alleging that Biden’s DOL delay didn’t follow legal procedures and should have implemented the rule change. Now that the Department of Labor has withdrawn the ruling altogether, you can bet that organizations will be filing additional lawsuits.
Likely they will allege the same now that the DOL revoked the rule. Courts have previously ruled that short comment periods demonstrate arbitrary and capricious rule change and have invalidated rules.
Does this affect your business?
When you think of gig workers, your mind probably goes directly to the Ubers and DoorDashes of the world, which have faced near-constant legislative challenges over the past few years. From California’s AB5 legislation to the proposed PRO Act, businesses that employ gig workers find politicians looking to reduce the number of gig workers and increase the number of employees.
But, many smaller businesses use independent contractors as well. For instance, by way of full disclosure, I am not an Inc. employee–I’m an independent contractor, and this rule change could affect my livelihood.
Jessica Looman, the principal deputy administrator for the Labor Department’s wage and hour division, told The Wall Street Journal that this Trump-era rule didn’t just affect current gig employees but could make it easier for companies to take current employees and assign them as contractors–meaning they wouldn’t be covered by the FLSA or any other laws designed to protect employees.
Looman also says that she doesn’t expect this rule change to affect the “app-based” workers,” a clear reference to Uber-type jobs.
Because the rule change never went into effect, it’s doubtful that your business will feel an immediate impact. However, the contractor vs. employee question is far from resolved. Expect to see more battles between businesses that use gig workers, gig workers, unions, and government regulators and politicians.
If you’re in doubt over whether you should classify someone as an employee or a contractor, double-check with your local employment attorney, or classify the person as an employee. It’s always legal to treat someone as an employee.
