The Department of Labor (DOL) is likely rescinding the current joint employer and independent contractor rules, according to a proposal issued by the Department earlier this month. Both of these rules were issued under the Trump administration and were aimed at simplifying the analysis for these rather-complicated working relationships for purposes of the Fair Labor Standards Act (FLSA).
The joint employer rule sought to address common situations where an employee works for two separate entities (like a staffing agency and the organization to which they are assigned). In those situations where an employee may be employed by two separate entities simultaneously, the rule clarified which employer was responsible for ensuring compliance with FLSA regulations. The rule took effect in March 2020 but was the subject of a lawsuit challenging the procedural steps taken to implement the rule immediately thereafter. That lawsuit is still pending but may be rendered moot by the rule change.
Likewise, the independent contractor rule addressed another type of working relationship that, despite its common use, has been the source of much confusion for employers for many years. The rule simplified the parameters of the relationship and made it easier for employers to show that the individual working for their organization was an independent contractor and not an employee. While it is currently unclear what will replace the simplified rule, the Biden Administration has stated it favors the “ABC” test used by California law, which greatly restricts the situations where an organization can utilize independent contractors. Under the ABC test, a worker in California is considered an employee and not an independent contractor unless the employer can show: 1) the worker is free from the control and direction of the hiring entity; 2) the worker performs work that is outside the usual course of the hiring entity’s business; and 3) the worker is customarily engaged in an independently established trade, occupation, or business of the same nature that is involved in the work performed.
The moves by the Biden Administration were not entirely unexpected. The President issued a “regulatory freeze” on his first day in office, stating that all pending rules were going to be reviewed. The withdrawal of the rules are subject to a comment period until April 12, 2021. Following the comment period, the department will either issue new rules or withdraw the existing ones. Employers are encouraged to identify their existing business and employment practices which may have been created or adjusted to comply with these two rules in anticipation of updated department rules.
The attorneys at Fishel Downey Albrecht & Riepenhoff, LLP routinely advise public and private employers on compliance with the FLSA and other state and federal employment regulations. If you have any questions about this or any other matter, please contact us at info@fisheldowney.com or call 614-221-1216.