Skip to Main Content

Keeping you informed

U.S. Labor Department Signals Potential Changes for Gig Workers by Withdrawing Independent Contractor Rule

    Client Alerts
  • May 07, 2021

On Wednesday, the federal Department of Labor announced its decision to withdraw regulations issued during the final weeks of the Trump administration that defined the difference between employees and independent contractors for purposes of enforcing wage payment requirements under the Fair Labor Standards Act. The withdrawn rule applied an “economic realities” test that reviewed the dependence of the worker on the company to which he or she provides services. If the worker controlled the means and methods by which the work was performed, and ran the risk of profit or loss from the work, they were more likely to be considered independent contractors.

Labor advocates criticized the rule, claiming that it narrowed the FLSA statutory definition of employees entitled to minimum wage and overtime. The rule was scheduled to take effect March 8, but this date was delayed before the notice of withdrawal. As a result, at least for now, the independent contractor test remains based on a review of the totality of the circumstances, including the degree of control exercised over the worker’s tasks.

This traditional test was not developed for the current gig worker economy, and it has led to endless litigation over whether these workers are employees for purposes of wage payment and other laws. President Biden has proposed moving to a rule adopted by California and a few other states that would consider workers employees unless the company proves otherwise. This rule would require the company to demonstrate, among other things, that the worker is providing services outside of the company’s line of business. This would result in many gig workers being classified as employees. DOL may proceed with a new rulemaking in line with this broader definition of employees.