Industry groups are applauding the U.S. Labor Dept.’s recent proposal to rescind a 2024 final regulation that makes it harder for businesses to classify workers as independent contractors under the Fair Labor Standards Act, which governs when minimum wage and overtime are required.
The proposal by the department’s Wage and Hour Division would replace the Biden-era rule—which applied a multi-factor “economic realities” test to determine employee or independent contractor status—with the employee classification analysis that was in effect in 2021. The agency also proposes to apply that analysis to the Family and Medical Leave Act and Migrant and Seasonal Agricultural Worker Protection Act, which also incorporate the Fair Labor Standards Act scope of employment.
“The 2024 final rule creates an ambiguous and difficult-to-interpret standard for determining independent contractor status,” Kristen Swearingen, government affairs vice president of the Associated Builders and Contractors, said in a statement. The new proposal would simplify and clarify the process to determine independent worker or employee status under the Fair Labor Standards Act. she added.
The Associated General Contractors of America also supports the proposal. “AGC has long called for federal clarification of the independent contractor status and preservation of legitimate independent contractor relationships, such as those that have historically existed in the construction industry,” a group spokesperson told ENR.
The AFL-CIO supported the 2024 rule for helping to «end the employer practice of intentionally misclassifying workers as independent contractors to deprive them of their rights under the Fair Labor Standards Act.»
A 60-day public comment period on the measure is in effect until April 28.
When finalized, the rule would likely be a positive development for businesses that rely on gig workers, making it easier for them to maintain an independent contractor relationship, Todd Lebowitz, partner at law firm BakerHostetler, told ENR.
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“But I think people are going to overstate its importance,” said the attorney, whose practice focuses on employment and labor law. “The scope of where [the proposal would be] relevant is so narrow that I don’t think anybody should get too excited about this rule” as its impact on businesses that rely on independent contractors would be minimal.
Only the Fair Labor Standards Act and Family and Medical Leave Act would be affected by the proposal, he said. Related to the former, the new rule would only affect the test under that law and would become the department interpretation of who is an employee and who is an independent contractor, a standard the agency would apply in its investigations, he said.
But this would not amount to much in federal courts, which have been interpreting the Fair Labor Standards Act for more than 90 years, Lebowitz said. “There’s no obligation to defer to [the Labor Dept.] interpretation,” he said. Court «don’t need the [department] to tell them what it thinks the rule should be, especially when you’ve got a new administration every four to eight years that wants to change the rule.”
Most legal activity related to independent contractor misclassification also is at the state level, he added, and the federal Labor Dept. has no jurisdiction over state laws, he said.
“The rule would not have any effect on who is an employee or an independent contractor under federal tax law or federal employee benefits law or on state wage and hour law, or state workers comp or state unemployment or state taxes,” Lebowitz said.
Meanwhile, several groups have challenged the 2024 final rule in federal court, including ABC and its Southeast Texas chapter, the Coalition of Workforce Innovation, the U.S. Chamber of Commerce and four others.
The case is still pending in the federal district court in Beaumont, Texas, according to ABC.
