Dive Brief:
- In rulemaking hotly debated by the trucking industry, the Labor Department plans to shift the way it handles an economic reality test developed by the Supreme Court, regulators said.
- The rule rescinds the 2021 Independent Contractor Rule, which determined that independent contractors are not employees under the Fair Labor Standards Act and not subject to minimum wage, overtime or recordkeeping requirements, according to a regulatory filing.
- “Instead of using the ‘core factors’ set forth in the 2021 IC Rule, this final rule returns to a totality-of-the-circumstances analysis of the economic reality test in which the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity,” the filing said.
Dive Insight:
The 2021 Independent Contractor Rule was developed under former President Donald Trump, and the shift underlined the difference in labor policies between the former and current administrations.
“In contrast to prior guidance and contrary to case law, the 2021 IC Rule designated two of the five factors—the nature and degree of control over the work and the worker’s opportunity for profit or loss—as ‘core factors’ that should carry greater weight in the analysis,” regulators said in the filing.
The new rule notes six factors involved in the classification, according to a news release:
- worker’s opportunity for profit or loss
- financial stake and nature of resources a worker has invested
- degree of permanence of the work relationship
- degree of control an employer has over the work
- whether the work is essential to the employer’s business
- worker’s skill and initiative
“The Department believes that this approach is the most beneficial because it is aligned with the Department’s decades-long approach (prior to the 2021 IC Rule) as well as with federal appellate case law, and is more consistent with the Act’s text and purpose as interpreted by the courts,” regulators said in the filing.
The rule carries overtures of California’s ongoing dispute over AB5 and its impact on independent contractors in the trucking industry. Jessica Looman, administrator of DOL’s Wage and Hour Division, said that the final rule does not adopt an “ABC” test, a framework that jurisdictions including California have adopted in order to determine independent contractor status.
The filing, revealed Tuesday in an “unpublished” version, will become effective 60 days after its official publication in the Federal Register, slated for Wednesday.
A precursor to the final rule, a notice of proposed rulemaking, unveiled the shift in 2022 and generated over 54,000 comments, drawing opposition from the American Trucking Associations and the Truckload Carriers Association.
The ATA continued that rebuke Tuesday. President and CEO Chris Spear said the Biden administration “has chosen to replace a clear and straightforward standard with a tangled mess” that will weaken the nation’s workforce.
HR Dive Senior Reporter Ryan Golden contributed to this report.
