Small Business Update on Labor Rules

Analysis from the Small Business Legislative Council
The Small Business Legislative Council reported that in late March 2021, former Boston Mayor Marty Walsh was confirmed by the U.S. Senate and sworn in as the new Secretary of Labor. Secretary Walsh’s initial orders of business are expected to be largely focused on COVID and broader Administration agenda items. For example, back in January President...

The Small Business Legislative Council reported that in late March 2021, former Boston Mayor Marty Walsh was confirmed by the U.S. Senate and sworn in as the new Secretary of Labor. Secretary Walsh’s initial orders of business are expected to be largely focused on COVID and broader Administration agenda items. For example, back in January President Biden instructed OSHA (which is part of the Department of Labor (DOL)) to issue proposed COVID-related workplace safety rules. While OSHA issued interim guidance, it missed the March 15 deadline set forth by the President to issue proposed rules and is still working to respond. Additionally, Secretary Walsh is also one of the members of the cabinet who have been tasked to help sell the President’s new infrastructure proposal.

Other regulatory items related to DOL include:

Independent Contractor Rules

Probably the biggest long-term issue that is in the process of developing (largely behind the scenes) at the DOL relates to the rules surrounding when a worker can be classified as an independent contractor rather than an employee.

Of course the distinction between an employee and an independent contractor comes into play in a whole host of laws enforced by a wide variety of agencies. From federal tax, wage and hour and antidiscrimination laws to state unemployment and workers compensation laws – the DOL is just one of many of the proverbial cooks in the kitchen on this issue.  o why are we so focused on what the DOL might do? Because the DOL has the power to dramatically alter the playing field in this area.

The bottom line is that, as to any worker, businesses have to decide if that worker is an independent contractor or an employee. This classification will be applied for all purposes as it is logistically untenable and legally impermissible to have someone classified as an independent contractor for the purposes of some laws (such as unemployment) and an employee for others (such as wage and hour). The DOL’s independent contractor rules technically only apply for the purposes of determining worker classifications under federal wage and hour laws – namely the Fair Labor Standards Act (FLSA). However, the FLSA applies to any business with at least two employees and annual sales or business of at least $500,000.  According to the DOL, 143 million American workers are covered by the FLSA. So if the DOL makes the standard for classifying workers as independent contractors under the FLSA more rigorous, in order to stay in compliance any business that is covered by the FLSA will have to use this more rigorous standard. In short – when it comes to worker classifications – it is the toughest test in town that controls.

The DOL currently uses what is known as the economic realities test to determine if a worker can qualify as an independent contractor.  The economic realities test looks at five factors: (1) the nature and degree of the worker’s control over the work; (2) the worker’s opportunity for profit or loss; (3) the amount of skill required for the work; (4) the degree of permanence of the working relationship; and (5) whether the work is part of an integrated unit of the business.

In the waning days of the Trump Administration, the DOL issued a new final rule that was intended to make it easier for businesses to satisfy the economic realities test and classify workers as contractors. Under the Trump independent contractor rule, the DOL would focus primary on the first two factors of the economic realities test. Under that rule, if a worker would qualify as an independent contractor when looking at the factors of control and opportunity for profit and loss then the inquiry would stop there and the independent contractor classification would be permissible. Only if there was uncertainty or ambiguity would the Trump rule call for looking at the third, fourth and fifth factors noted above. The rule also would allow businesses to offer certain benefits to independent contractors without undermining their classification.

The Trump independent contractor rule was originally slated to go into effect on March 8, 2021. Unsurprisingly, when the Biden Administration came to town it issued an instruction that the agencies should hold and reconsider any rules that had been finalized but had not yet gone into effect – thus the effective date of the independent contractor rule was delayed. On March 11, 2021, the DOL issued a notice of its intent to entirely withdraw and strike the Trump independent contractor rule. The notice is being held open for 30 days for comment. Shortly after the notice was published, the Coalition for Workforce Innovation, which includes companies like Uber and Lyft, filed a lawsuit challenging the DOL’s decision to delay and potentially withdraw the rule. This challenge isn’t expected to have a long term impact on the DOL’s ability to walk away from the Trump rule (as the issues raised could largely be cured).  But it does increase the cost, complexity and public attention to the issue.  

Joint Employer

Another area where the DOL has been charting a change of course relates to the rules for when two companies will be considered joint employers for the purpose of liability under the FLSA.

In early 2020, the Trump Administration issued a new rule narrowing the instances in which two entities will be considered joint employers. Then in September of 2020, in a case brought by New York and Pennsylvania, a federal judge struck down the rule finding it “arbitrary and capricious” and inconsistent with the FLSA. The Trump Administration appealed the decision to the Second Circuit Court of Appeals. After President Biden won the election, a selection of business groups intervened in the case to defend the Trump Administration’s rule (expecting that the new Biden Administration would elect not to do so). The case before the Second Circuit is still pending and just last week the Biden Administration asked the court for a 60 day delay. In the meantime, on March 11, the DOL issued a proposed rule to repeal the Trump Administration’s joint employer rule and to revert back to the prior rule promulgated by the Obama Administration that expanded the instances in which companies can be considered joint employers.

DHI corporate members can access the full SBLC report and archives here. This material is protected under copyright law and contains confidential information. It is for the sole personal, informational use of DHI members. It cannot be distributed, reprinted, referenced as a source for attribution, or otherwise made public.