DOL Publishes Proposal of Withdrawal of Independent Contractor Rule

On March 12, 2021, the DOL published a proposal to withdraw the independent contractor rule that was finalized by the prior administration and set to take effect on May 7, 2021 (more info on the prior final rule is available in the January 21, 2021 edition of Compliance Corner) .

The DOL finalized the original rule in early January 2021, but then the Biden administration published a regulatory freeze on (among other things) any rules that were final but not yet effective (more info on the regulatory freeze is available in the February 4, 2021 edition of Compliance Corner). The final rule modified the standards and more clearly outlined five factors for employers to consider when determining whether an individual is an employee or an independent contractor. The rule appeared to make it easier for employers to classify the individual as the latter.

In the proposed withdrawal, the DOL explained that the final rule’s analysis would run contrary to the Fair Labor Standards Act’s (FLSA) purpose of providing broad protection of workers as employees, since the rule makes it easier to classify more workers as independent contractors (causing them to lose FLSA protections). The DOL also took issue with the original rule’s cost-benefit analysis, which it believes is flawed.

Because the final rule had not taken effect, the DOL stated that the final rule withdrawal will not be disruptive or burdensome to employers. In addition, the DOL indicated that the withdrawal will give the DOL an additional opportunity to review policy and legal issues relating to the employee versus independent contractor determination and analysis. The proposed withdrawal includes a request for comments. All such comments must be submitted by April 12, 2021.

Since the original final rule never took effect, employers do not have any obligations relating to the original final rule or the proposed withdrawal and the independent contractor analysis remains what it was before. Employers should also keep in mind that the DOL must follow specific procedures in withdrawing rules, and the proposed withdrawal, coupled with the request for comments, is part of that process. The formal, finalized withdrawal of the rule is expected after the comment period.

It remains to be seen whether the DOL will eventually publish additional guidance or rules on the issue. In the meantime, because proper employee/independent contractor classification remains an important issue, employers should work with outside counsel in making that determination.

Proposed Withdrawal »