Department of Labor Officially Withdraws Trump Administration Worker-Classification Rule

May 7, 2021
On May 6, 2021, the U.S. Department of Labor (the “Department”) withdrew a final rule (the “Rule”), announced two weeks before the end of former President Trump’s term, for classifying workers as employees or independent contractors under the Fair Labor Standards Act (the “FLSA” or the “Act”). The Rule had been scheduled to take effect on March 8, 2021. However, on his first day in office, President Biden directed agency heads to impose a “regulatory freeze” on Trump-era rules. Accordingly, on March 4, the Department imposed a 60-day delay on the Rule’s effective date. On March 12, the Department issued a proposal to withdraw the Rule, which we discussed here.
Worker classification is significant because the FLSA’s minimum wage and overtime provisions cover employees, not independent contractors. Courts have historically distinguished between employees and independent contractors by using a multifactor “economic realities” test, which typically looks to five or six factors. The Rule would have focused on two “core factors”:  (1) “the nature and degree of control over the work”; and (2) “the individual’s opportunity for profit or loss.” These two factors would have been dispositive when they both pointed toward the same classification. In withdrawing the Rule, the Department stated that this two-factor test would have “narrowed the facts and considerations” informing the worker-classification analysis, which would have “result[ed] in workers losing FLSA protections.” The Department also stated that, by giving an “elevated role” to the control factor, the Rule came “too close” to the common law control test, which classifies fewer workers as employees than the Act does.
The Department has not “propose[d] regulatory guidance to replace the [Rule].” On the campaign trail, then presidential candidate Biden promised to establish, for all federal law, “a [worker-classification] standard modeled on the ABC test,” which tends to push more workers into the employee category. However, Democrats have not yet introduced legislation in the current Congress that would enact the ABC test for the FLSA. The bill the Democrats have introduced enacts the ABC test solely for purposes of the National Labor Relations Act. Still, worker classification under the FLSA is likely to remain a priority for the Department. On April 29, 2021, Secretary of Labor Marty Walsh told Reuters that “in a lot of cases gig workers should be classified as employees,” and that the Department was planning to hold discussions with companies to ensure that gig workers are provided with “all the things that an average employee in America can access.” Walsh reportedly plans to nominate David Weil, a critic of gig-labor employers, to run the Department’s Wage and Hour Division. Weil held that very same office under the Obama administration, and he used the office to aggressively prosecute worker misclassification. 
The Department’s move to withdraw the Trump Rule has already been challenged in federal court. On March 26, 2021, the Coalition for Workforce Innovation and the Associated Builders and Contractors filed a complaint in the Eastern District of Texas arguing that the Rule went into effect on March 8, 2021 because the Department’s action delaying the Rule’s effective date was arbitrary and capricious. The court has not yet issued any rulings on the merits of that argument.