Today marks two additional efforts by President Biden’s Administration to reverse the Trump Administration’s rulemaking. This time, two U.S. Department of Labor rules that were both published in the Federal Register as final rules before President Biden’s inauguration are in the crosshairs. One of the rules concerns when a company might be deemed a joint employer of another company’s employees. The other concerns when a worker can be deemed an independent contractor, rather than an employee. Each is discussed in turn below.
The Joint Employer Rule
In January 2020, the DOL under President Trump issued a joint employer rule. It took effect March 16, 2020. But as we wrote about here, a number of states’ attorneys general filed suit to peremptorily challenge the rule, and the U.S. District Court for the Southern District of New York largely invalidated the rule on September 8, 2020. The District Court’s decision is currently on appeal before the Second Circuit Court of Appeals, with the DOL having already announced in its briefing in early January 2021 before the Second Circuit its support of the challenged rule.
Despite this recently-professed support for the rule (while President Trump was still in office), today the DOL under President Biden has published a Notice of Proposed Rulemaking and Request for Comments in which it proposes rescinding the joint employer rule based on the opposing views of the District Court and the states’ attorneys general that the rule is contrary to the Fair Labor Standards Act and prior DOL guidance. How it plans to explain its about face in light of the DOL’s briefing before the District Court and the Second Circuit remains to be seen. The period for commenting on the proposal to rescind the joint employer rule will close on April 12.
The Independent Contractor Rule
On January 6, 2021, Trump’s DOL also issued an independent contractor rule, which was scheduled to take effect on March 8, 2021. But as we anticipated in our January 6 blog would occur, the rule did not take effect on March 8. Instead, on January 20, 2021, within hours after Biden’s inauguration, the White House Chief of Staff issued a memorandum entitled “Regulatory Freeze Pending Review” that delayed the effective date of the independent contractor rule until March 21. A few weeks later, the DOL issued a notice proposing further delay of the rule’s effective date to May 7, 2021 and inviting public comment about that proposal of delay.
Many strenuous objections were made in comments submitted by the business community regarding the untimely nature of the proposed rule of delay and regarding the DOL’s failure to follow procedural requirements. And as the comments submitted by Seyfarth Shaw and others explained, the independent contractor rule provided straightforward, balanced guidance to independent workers and businesses to distinguish between employees and independent contractors under the economic realities legal standard that has governed such relationships for over 70 years.
Over such objections, on March 4, 2021, Biden’s DOL published as a final rule its decision to delay the effective date of the independent contractor rule until May 7. Today, it has taken the next step by publishing a Notice of Proposed Rulemaking and Request for Comments in which it proposes withdrawing the independent contractor rule, which it describes in an announcement as purportedly creating “a new” economic reality test that it claims is not supported by prior court decisions.
The period for commenting on the proposal to withdraw the independent contractor rule also will close on April 12. It is possible, however, that litigation may ensue regarding the propriety of delaying the rule’s effective date and of seeking to withdraw it.
What Does This Mean For Companies?
While we await the issuance of final rules by the DOL and the resolution of any litigation challenging the DOL’s actions, the best that companies can do is (1) continue to look to federal court decisions in applicable jurisdictions (and, yes, decisions do vary by jurisdiction concerning the relevant factors for independent contractor and joint employer status), and (2) consider applicable state laws that might be different. Prepare also for the future possibility that the Biden Administration will, through legislation, rulemaking, or non-binding guidance, seek to substantially narrow the situations in which a company would not be deemed a joint employer and the situations in which a worker could be classified as an independent contractor.
If you would like to discuss any of these development further, please feel free to contact the author or your typical Seyfarth contact.