The Department of Labor has issued new guidance on how to determine whether a worker is an employee or independent contractor as the agency considers rescinding a 2024 rule.
On Thursday, May 1, the department’s Wage and Hour Division informed staff that it will no longer apply the 2024 independent contractor rule when enforcing the Fair Labor Standards Act during investigations. Replacing a rule that was finalized during President Donald Trump’s first term in 2021, the 2024 rule is being challenged in court by a variety of stakeholders, including lawsuits filed by two trucking companies.
The Department of Labor’s enforcement guidance is similar to the 2024 rule in principle. Because of that, the situation may not change for many companies and workers, including trucking companies and owner-operator truck drivers.
More substantial changes to independent contractor classification may be ahead. In addition to multiple pending federal lawsuits, the Trump administration signaled that it may get rid of the current regulation.
2024 independent contractor rule
In January 2024, the Department of Labor replaced a 2021 independent contractor rule that was considered more employer-friendly.
In his final days in office during his first term, Trump issued the first independent contractor classification regulation. Before the 2021 rule, employment determination was based on agency guidance and court rulings that drew from a number of tests and factors.
The 2021 rule looked at five factors when determining whether a worker is an independent contractor:
- Nature and degree of control
- Opportunity for profit or loss based on initiative, investment or both
- Skill required for the work
- Permanence of the work relationship
- Whether the work is part of an integrated unit of production
The first two factors were considered “core factors.” If those core factors clearly favored an independent contractor, the determination was made. If the core factors were more ambiguous, then the remaining three factors were available for further guidance.
However, that rule never saw the light of day. Under former President Joe Biden, the Department of Labor delayed the start date before officially withdrawing the rule and replacing it with a new one.
Although the 2024 rule included similar factors to consider, it looked at the totality of the factors. Each factor had equal weight, with no factors being more determinative than the others.
Proponents of the 2024 rule have claimed it would solve widespread issues of misclassification. Opponents have argued the more ambiguous six-factor economic reality test would force employers to reclassify bona fide independent contractors as employees.
What does new guidance do?
The Department of Labor’s new guidance retains the totality of factors seen in the 2024 rule while ignoring all of the regulatory details.
Specifically, the department is using 2008 guidance that points to seven factors that courts have looked at in employment classification lawsuits:
- Extent to which the services rendered are an integral part of the principal’s business
- Permanency of the relationship
- Amount of the alleged contractor’s investment in facilities and equipment
- Nature and degree of control by the principal
- Alleged contractor’s opportunities for profit and loss
- Amount of initiative, judgment or foresight in open market competition with others required for the success of the claimed independent contractor
- Degree of independent business organization and operation
Like the 2024 rule, none of those factors has more weight than the other when determining whether a worker is an independent contractor.
When it comes to making that determination, Department of Labor investigators are working off that framework. Although similar to the 2024 rule, there is one thing missing: 339 pages of a final rule. Within those pages lies a detailed analysis of how those factors are to be applied. By eliminating that context, the department will have more discretion when determining who is an independent contractor.
Essentially, the new guidance puts employers back to where they were before the 2021 rule. For trucking companies and owner-operators, not much has changed … for now.
What’s next?
The 2024 rule is still officially intact, but that may change.
In its guidance letter, the Department of Labor points out that the 2024 rule is still valid and that it is merely choosing not to enforce it.
“Until further action is taken, the 2024 rule remains in effect for purposes of private litigation, and nothing in this (guidance) changes the rights of employees or responsibilities of employers under the (Fair Labor Standards Act,” Department of Labor Wage and Hour Division Acting Administrator Donald Harrison stated in the guidance.
That means that any worker can file a misclassification lawsuit against an employer that does not follow the 2024 rule. However, any such lawsuit may be rendered moot if the Trump administration rescinds that rule.
There are multiple lawsuits challenging the 2024 rule. Two were filed by trucking companies arguing they can no longer hire truck drivers as independent contractors. Other lawsuits were filed by the Coalition for Workforce Innovations and freelance writers. Most of those cases are on hold while the new administration reviews them.
Harrison indicated in the guidance that the Department of Labor may rescind the 2024 rule.
“The department has taken the position in those lawsuits that it is reconsidering the 2024 rule, including whether to rescind the regulation,” Harrison said. “Specifically, (the Wage and Hour Division) is currently reviewing and developing the appropriate standard for determining (Fair Labor Standards Act) employee versus independent contractor status.”
As of Monday, May 5, the Department of Labor had not indicated what it plans to do with the independent contractor rule. LL
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