Texas Court Reinstates Trump Administration Independent Contractor Rule

On March 14, 2022, a federal district court in the Eastern District of Texas concluded in Coalition for Workforce Innovation et al v. Walsh that the Biden Administration’s delay in the implementation and ultimate withdrawal of the Trump Administration’s final rule regarding independent contractors (the “Final Rule”) violated the federal Administrative Procedures Act (APA). As a result, the Trump Administration’s Final Rule is in effect.

As discussed in the January 22, 2021, edition of Compliance Corner, the Final Rule featured a five-factor test that employers could use to determine whether a worker was an employee or independent contractor. As discussed in the May 13, 2021, edition of Compliance Corner, the Biden Administration withdrew the Final Rule because it believed that the Final Rule conflicted with the Fair Labor Standards Act (FLSA). According to the Biden Administration, the test established in the rule made it easier for employers to label workers as independent contractors and, therefore, no longer subject to that statute’s worker protections. The test also affected which workers an employer considers full-time employees subject to the employer mandate and, indeed, which workers qualify for benefits at all. See this FAQ in the December 9, 2021, edition of Compliance Corner for a discussion of the issues surrounding the provision of benefits to independent contractors.

In the current case, the trial court determined that the Biden Administration did not comply with the APA because it did not provide interested parties with an opportunity to “meaningfully comment” on the proposed delay and withdrawal and because the Biden Administration acted in an “arbitrary and capricious” fashion when doing so. Although the Biden Administration provided a notice and comment period as required by the APA when it proposed to delay the implementation of the Final Rule, the trial court found that the comment period was only 19 days when a 30-day comment period was the minimum length of time for people to “meaningfully comment.” In addition, the trial court determined that the Biden Administration acted in an “arbitrary and capricious” manner when it withdrew the Final Rule because it failed to consider alternatives to the withdrawal, such as proposing different factors to consider when determining independent contractor status.

In the short term, the Final Rule is in effect. Since this action was taken at the trial court level, it is possible that the Biden Administration will appeal the ruling or subject the Final Rule to the administrative process again so that it may withdraw the rule in a manner that satisfies the court’s interpretation of the APA. Employers should consult with employment law counsel when considering how to implement and follow this rule.

Coalition for Workforce Innovation et al v. Walsh»