The U.S. Department of Labor has withdrawn the independent contractor rule approved earlier this year, saying the move will “maintain workers’ rights to the minimum wage and overtime compensation protections” of the Fair Labor Standard Act.

The previous rule, passed under the Trump administration, made it easier for companies like Uber and Lyft to classify workers as independent contractors instead of employees.

Companies can lower labor costs by using contractors, who are not entitled to the same benefits as employees, including minimum wage and overtime pay, because the FLSA does not apply to contractors.

The new rule, which took effect May 6, highlights a shift by the Biden administration toward more worker protections.

“By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” U.S. Secretary of Labor Marty Walsh said in a statement.

“Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors.

“We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”

Rationale

DOL cited several reasons for withdrawing the rule, including:

  • It was in tension with the FLSA’s text and purpose as well as relevant judicial precedent
  • Its prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balanced approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship 
  • It would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections

The department said it expects the rule withdrawal will “avoid a reduction in workers’ access to employer-provided fringe benefits such as health insurance and retirement plans” as well as unemployment insurance and workers’ compensation coverage.

The U.S. Chamber of Commerce was disappointed with the move, saying the previous rule was “well-grounded in the law and provided certainty to workers and businesses about worker classification.”

“We hope that the administration does not pursue new regulations that would limit earning opportunities for independent workers and small businesses.

“Such policies will slow economic growth, job creation, and earnings as we emerge from the pandemic.” 


For more information, contact CBIA’s Diane Mokriski (860.244.1900) | @HRHotline.