Toward the end of the Trump administration, the U.S. Department of Labor (DOL) announced a final rule intended to clarify the standard for determining whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA), which governs federal minimum wage and overtime pay requirements.

The proposed rule was set to go into effect on March 8, 2021. Although many employers in a wide variety of industries welcomed the new rule, the Biden administration delayed its effective date—the DOL issued an order officially withdrawing the rule effective May 6, 2021. 

The rescinded rule would have put more emphasis on the nature and degree of the worker's control over the work and the worker's opportunity for profit or loss in the “economic realities" test. Because the new rule has been withdrawn, there is still no clear guidance for employers on how to apply a balancing test of at least six different factors under the existing formulation of the economic realities test.

Moreover, employers may also need to apply different worker classification tests, including those established by applicable state laws. Examples include the common law control test or “ABC" test and the Internal Revenue Code, the expanded IRS “right to control" test.

It is currently unclear if or when the DOL will take any further action, such as proposing another rule. Regardless, employers should continue to take steps to try to ensure their workers are properly classified, consider applicable federal, state or local laws, and not to assume that simply defining a relationship as that of an independent contractor makes it true.

For more on this issue and an overview of the most commonly applied tests, please see the Worker Classification: Employee vs. Independent Contractor memo prepared by the Office of General Counsel.

If you have any further questions about this or related topics, contact Wyatt Stewart, Scott Kneeland, or Eric Lipton.

Eric Lipton is Big "I" senior counsel.