What Lies Ahead
For now, the Biden Administration has indicated it does not intend to issue a new independent contractor test under the FLSA that may be more restrictive towards finding an independent contractor relationship. However, there remains both potentially good and bad news on the horizon for employers that will ensure continued uncertainty around this issue for some time, necessitating the need for continued vigilance as to potential changes.
First, employers comforted by the fact that at least the same test the DOL has used for years remains in place, thus providing at least familiarity and experience in application, should remain concerned over President Biden’s statements pertaining to independent contractor relationships. Specifically, President Biden has noted on several occasions his support of the “ABC” test similar to California’s new independent contractor rule resulting from the Dynamex Operations West, Inc. v. Superior Court decision and subsequently codified by AB5. Under the “ABC” test, it is presumed all workers are employees instead of contractors, and a worker would have to meet all three of the following factors for a business to properly classify them as an independent contractor:
- The worker is free from the control and direction of the hiring entity in connection with the performance of the work;
- The worker performs tasks that are outside the usual course of the hiring entity’s business (i.e., the worker cannot perform the work related to the core service or product the business offers its customers); and
- The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work they are performing.
This stringent standard, similar to tests already existing in Illinois, Massachusetts, and New Jersey, may be codified nationally should the Biden Administration determine it has the support necessary to implement through administrative regulation or through Congressional legislation. Given the support President Biden has expressed, as well as the support Secretary of Labor Marty Walsh has indicated for this standard, this potential change remains a viable option for implementation to the detriment of employer interests.
Alternatively, while the Trump rule never went into effect, pending litigation in Texas is seeking a court order implementing such rule. On March 26, 2021, the Coalition for Workforce Innovation and the Associated Builders and Contractors, Inc. filed suit in the U.S. District Court for the Eastern District of Texas seeking to put into effect the Trump independent contractor rule. Specifically, the plaintiffs seek a declaratory judgment against the Biden Administration DOL, arguing that the DOL’s delay of the March 8, 2021 effective date of the Trump rule was “arbitrary and capricious” and in violation of the Administrative Procedures Act. Plaintiffs seek a court order ruling that because the delay was in violation of the Administrative Procedures Act, the delay must be overturned, the Trump rule would then become effective as of March 8, 2021, and would thus render obsolete the Biden Administration’s Final Rule of May 6th. Thus, employers should keep an eye on any developments in such litigation that may result in another swing in the independent contractor analysis.