As we’ve discussed in past articles, administrative regulations play a big role in defining workers’ wage rights under the federal Fair Labor Standards Act (“FLSA”). Unfortunately, even for seasoned wage and hour lawyers, its hard to keep up with the ever-changing regulatory environment. This is especially true in the years immediately following a new political party’s takeover of the Executive Branch.
In this article, we attempt to summarize the complicated saga behind the Trump Administration’s attempts to modify the FLSA rules applicable to determining: (1) whether a business should be treated as a worker’s “joint employer” and (ii) whether a worker should be considered a non-employee “independent contractor.”
As discussed, the Trump Administration (like previous Administrations) made a big mistake by waiting until the final year of the administration to roll-out consequential regulations. Such procrastination is risky because if you (in the case of Trump) or your political party (in the case of Obama) lose the White House, your successor can easily dismantle the eleventh-hour regulations before they can “take hold.” The more prudent approach would be to implement regulations in the first-half of the Administration. Early implementation increases the chances that legal challenges to the regulations can be fully litigated during the Administration and that the substantive aspects of the regulations will have sufficient time to impact FLSA jurisprudence.
Having bestowed some free advise aspiring Presidents, we turn our attention to the less-ambitious task of explaining what’s going on with Trump’s joint employment and independent contractor regulations:
Joint Employment
In January 2020, the USDOL published an interpretive regulation entitled “Joint Employer Status Under the Fair Labor Standards Act.” See 85 FR 2820 (Jan. 16, 2020). The regulation was scheduled to become effective in March 2020 and was widely considered to make it easier for big business to shift FLSA liability to contractors, subcontractors, and other business entities that “directly” employ the aggrieved workers. Under the new regulation, determining a business’ employer status would depend on whether it: “(1) Hires or fires the employee; (2) Supervises and controls the employee’s work schedule or conditions of employment; (3) Determines the employee’s rate and method of payment; and (4) Maintains the employee’s employment records.” Id. at 2859. Many workers’ rights advocates – including our law firm – complained that the regulation ignored well-established Supreme Court and Circuit Court decisions defining “employer” status.
John Milton wrote: “O fairest flower no sooner blown but blasted.”[1] So it was with Trump’s joint employment regulation. In January 2021, the incoming Biden Administration announced plans to “rescind” the regulation. The rulemaking process ensued, and, in July 2021, Biden’s USDOL published a final rule “rescinding” the Trump regulation. See 86 FR 40939 (July 30, 2021). In addition, a federal judge in New York – ruling in a lawsuit filed by seventeen states and the District of Columbia – invalidated most of the Trump regulation on grounds that it violated the federal Administrative Procedure Act. See New York v. Scalia, 490 F. Supp. 3d 748 (S.D.N.Y. 2020).
So it’s safe to say that Trump’s joint employment regulation, having been rescinded by Biden and invalidated by a New York federal judge, is dead.
Going forward, it remains to be seen whether the Biden Administration will commence a new round of rulemaking in the hope of finalizing a fresh joint employment regulation. It is presumed that any such regulation will be more employee-friendly than the rescinded Trump regulation. But time is running short.
“Independent Contractor” Status
Determining whether workers are employees entitled to the FLSA’s wage and hour protections or unprotected “independent contractors” is one of the most important and hotly-contested issues in wage and hour law. In January 2021, in the closing days of the Trump Administration, the USDOL published a final rule entitled “Independent Contractor Status Under the Fair Labor Standards Act.” See 86 FR 1168 (Jan. 7, 2021). This proposed rule, which we’ll call the “Trump IC Rule,” was widely considered to be quite business-friendly. Many worker’s rights advocates complained that the rule contradicted binding Supreme Court and Circuit Court decisions requiring that a worker’s employment status be based on a holistic consideration of six “economic reality” factors.
In May 2021, the Biden Administration published a final rule “withdrawing” the Trump IC Rule. 86 FR 24303 (May 5, 2021). However, in March 2022, a federal district court in Texas ruled that Biden’s “withdrawal” of the Trump IC Rule violated the Administrative Procedure Act. See Coalition for Workforce Innovation v. Walsh, 2022 WL 1073346, 2022 U.S. Dist. LEXIS 68401 (E.D. Tx. Mar. 14, 2022). The Biden Administration has appealed this ruling to the Fifth Circuit.
But there’s more. In October 2022, Biden’s USDOL announced a proposed rule that, if finalized, will replace the Trump IC Rule. See 87 FR 62218 (Oc. 13, 2022). This proposed rule, which we’ll call the “Biden IC Rule,” purports to “focus[] on the economic realities of the workers’ relationship with the employer and whether the workers are either economically dependent on the employer for work or in business for themselves.” Id. at 62274 (proposed language for 29 C.F.R. § 795.105). The Biden IC Rule then describes six “economic reality” factors that should be used as “tools or guides to conduct a totality-of-the-circumstances analysis.” Id. (proposed language for 29 C.F.R. § 795.105). These six factors, which “are not exhaustive,” include:
- Whether the worker’s “managerial skill” impacts the economic success of his/her work;
- Whether the worker has made any “investments” that are capital or entrepreneurial in nature;
- The “permanence” of the work relationship;
- The nature and degree of “control” exerted over the over the worker;
- The extent to which the work performed is integral to the purported employer’s business; and
- Whether the worker uses “specialized skills” that contribute to a “business-like initiative.”
The above rule has not been finalized and is still going through the rulemaking process required by the Administrative Procedure Act. Any final rule presumably will be finalized in the first-half of 2023. Then, if history is any guide, we can expect ample litigation over the legality of any final rule. --PW
[1] John Milton, On the Death of a Fair Infant Dying of a Cough.