Department of Labor Rescinds Independent Contractor Rule

May 7, 2021

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Overview

On May 5, 2021, the U.S. Department of Labor (DOL) rescinded its proposed independent contractor rule issued during the final days of the Trump administration. That rule, published January 7, 2021, would have revised the DOL’s test for determining a worker’s status under the Fair Labor Standards Act (FLSA), and would have made it easier for businesses to classify their workers as independent contractors. The Trump-era rule was scheduled to take effect March 8, 2021, but was delayed to May 7, 2021. Now, with this rescission, the rule will not take effect at all.

Instead, the DOL’s Final Rule published May 6, 2021 returns to the “economic realities” test. In issuing its Final Rule, the DOL found that the rescinded rule would have undermined the FLSA and over seventy years of precedent, and would have resulted in many workers losing FLSA protections. The economic realities test, as currently reinstated, determines independent contractor status based on the following factors:

The extent to which the services rendered are an integral part of the principal's business.
The permanency of the relationship.
The amount of the alleged contractor's investment in facilities and equipment.
The nature and degree of control by the principal.
The alleged contractor's opportunity for profit and loss.
The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
The degree of independent business organization and operation.

The DOL’s Final Rule on this subject reflects its intent to apply a more stringent test for establishing independent contractor status.

Please contact a member of our firm’s Labor & Employment Law practice group for more information on how your organization can comply with the current independent contractor classification standard under the FLSA.

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