Rulemaking whiplash: DOL withdraws Trump-era independent contractor rule

In early January 2021, the Trump administration created a new, employer-friendly regulation that would have made it easier (or at least provided clarity) for companies to classify workers as independent contractors. The rule was set to go into effect on March 12, 2021. On the same day, however, the new Biden team slammed on the brakes, announcing its intention to withdraw the regulation. On May 6, the administration followed through and formally withdrew it.

What is old is new again

Prior to the now-rescinded rule, the U.S. Department of Labor (DOL) and the courts used the “economic realities” test to analyze whether a worker was correctly classified as an independent contractor. The test generally looked at six factors:

• Degree of the employer's right to control the manner in which the work is to be performed;
• Worker’s opportunity for profit or loss depending on her managerial skill;
• Her investment in equipment or materials required for the task or the employment of helpers;
• Whether the rendered service requires a special skill;
• Degree of permanence of the working relationship; and
• Whether the rendered service is an integral part of the employer's business.

The rescinded rule tweaked the economic realities test to put more emphasis on the degree of control over workers and the workers’ opportunity for profit or loss. The remaining factors were still present but given less significance. Now, the DOL and the courts will be back to analyzing all factors and looking at the totality of the circumstances.