DOL Withdraws Joint Employer, Independent Contractor Rules

Employment Law

The Department of Labor (DOL) intends to withdraw the Joint Employer and Independent Contractor final rules, the agency signaled in recently filed Notices of Prospective Rulemaking (NPRMs).

One of several agencies—including the National Labor Relations Board and the Equal Employment Opportunity Commission—to consider the standard for determining whether an employee may be deemed to be jointly employed by two or more employers, the DOL issued its Joint Employer rule in January 2020.

The final rule established the use of a four-factor balancing test derived from a 1983 opinion of the U.S. Court of Appeals for the Ninth Circuit, Bonnette v. California Health & Welfare Agency. The final rule was set to take effect on March 16.

However, a group of 18 state attorneys general filed suit to challenge the final rule. Last September, a U.S. District Court agreed with the AGs, holding that the final rule violated the Administrative Procedure Act because it was arbitrary and capricious and conflicted with existing law, specifically the Fair Labor Standards Act (FLSA).

Citing the court’s decision vacating most of the final rule, the DOL proposed in the NPRM to rescind the rule. In addition to concerns about the rule’s conflicting with the FLSA, the DOL noted discrepancies between the final rule and precedent in many federal appellate courts.

“This judicial landscape suggests that withdrawing the Rule would not be disruptive,” the DOL wrote in the NPRM. “Among other things, the Rule has not significantly affected judicial analysis of FLSA joint employment cases, and rescinding the Rule could potentially alleviate any confusion over the joint employment standard applied by courts.”

In its second NPRM, the DOL said it intends to withdraw the Independent Contractor final rule, published in January 2021 and scheduled to take effect in May 2021.

The final rule established an “economic reality” test to determine whether an individual is economically dependent on a potential employer for work or is in business for him/herself. Two “core factors” that drive this determination are (1) the nature and degree of control over the work and (2) the worker’s opportunity for profit or loss based on initiative and/or investment.

Other factors that can be weighed include the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an “integrated unit of production.”

In the NPRM, the agency cited several reasons for withdrawing the final rule: the novelty of the economic reality test, the fact that courts and the DOL have not used it, and the fact that the rule “would narrow or minimize other factors considered by courts traditionally, making the economic test less likely to establish that a worker is an employee under the FLSA.”

In light of these concerns, the DOL said it will withdraw the final rule.

To read the NPRM to rescind the Joint Employer rule, click here.

To read the NPRM to rescind the Independent Contractor rule, click here.

Why it matters: The NPRMs on withdrawing the final rules were open for public comment until April 12. The DOL now has the option to issue new final rules on either or both of the topics, or the agency can withdraw the final rules and return to the standards that were previously in place.

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