Biden’s Independent Contractor Rule Quietly Takes Effect, Replaces Trump-Era Standards

Complaints argue that the new rule makes it more complicated for business owners to evaluate whether a worker is an independent contractor.

The U.S. Department of Labor’s new independent contractor rule went into effect Monday, despite court challenges brought by businesses finding the rule makes it more difficult for them to determine whether someone is an employee or an independent contractor.

The new rule marks an almost three-year endeavor by the Biden administration to overturn a Trump-era rule, which established a straightforward “economic reality” test for businesses to distinguish an independent contractor from an employee.

The test, hailed by employers for its simplicity when it came out in the final days of President Donald Trump’s first term, mostly concerned just two factors: the worker’s degree of control over his or her work and the worker’s opportunity for profit or loss.

Under the new framework, however, businesses are asked to consider four more equally important factors when examining the workers’ independent contractor status, including the investments made by the worker and the employer, the permanence of the work relationship, the extent to which the work performed is an integral part of the employer’s business, and the use of the worker’s skill and initiative.

In practice, the rule change means that workers who indefinitely or continuously work for one client may be considered employees of that client unless they also actively advertise their services and make investments to grow their business and secure more work. However, purchasing their own tools and equipment for particular jobs does not count towards such “investment.”

“Costs borne by a worker to perform their job, such as tools and equipment to perform specific jobs and the worker’s labor, are not evidence of capital or entrepreneurial investment,” the new rule states.

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The new standard also means that seasonal agricultural workers will be more likely to be classified as employees since the work they performed is an “integral part of the employer’s business.”

The Biden DOL says that for a tomato farm that pays workers to pick the tomatoes during the harvest season, tomato picking is “central to the principal business of the farm” and thus indicates employee status for tomato pickers. Meanwhile, an accountant hired by the farm to do taxes would be considered a contractor since accounting is not integral to the tomato business. The DOL didn’t explain where other roles between the two extremes might fit.

The Biden DOL has claimed that this multi-factor analysis will protect full-time workers from being “misclassified” as independent contractors who are not entitled to overtime pay, sick leave, minimum wage, and other employment protections and benefits.

“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” said Acting Secretary of Labor Julie Su. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”

Businesses Decry Confusion

The new independent contractor rule faced fierce pushback since 2021, when the Biden administration began looking to depart from the Trump-era test.

Several national business groups, including the Associated Builders and Contractors, the National Federation of Independent Business (NFIB), and the U.S. Chamber of Commerce, have waged legal battles to block the new rule from taking effect. In a complaint filed on March 5 in Texas, they argued that the six-factor test doesn’t use any “meaningful standards” and makes it “impossible for businesses to demonstrate compliance.”

For example, the 2024 rule states that only “capital or entrepreneurial investment” by a worker to grow his or her business weighs in favor of contractor status. It also asserts that control over “economic aspects of the working relationship” is indicative of employee status.

“Those terms are vague and fail to provide meaningful guidance to the regulated public,” the business groups argued.

Their requests have moved through the courts, but a Texas district court judge did not address the final request for an enjoinment before the rule took effect.

More recently, on March 7, a group of trucking companies filed an emergency motion in a Louisiana court for a preliminary injunction, along with an emergency motion for a temporary restraining order. They alleged that the DOL failed to comply with the Administrative Procedure Act, which mandates that the government publish an analysis examining in detail the negative impact of the rule on small businesses and consider less
burdensome alternatives.

Also in the fight is a group of freelance writers and editors, who argued in a separate lawsuit that the Trump DOL “made their lives easier” in 2021 with the two-factor test for delineating between independent contractors and employees.

“Now the [Biden DOL] arbitrarily reverses course with a new rule that obscures the line between contractor and employee in an impenetrable fog,” argued the freelancers, represented by conservative legal group Pacific Legal Foundation. “It enables the Department’s enforcement officers and trial lawyers to label anyone performing services for another company to be deemed an ‘employee’ under essentially any circumstance.”

Advice for Employers

In the meantime, businesses must properly classify workers under the new rule to ensure compliance, advised the NFIB, a Tennessee-based advocacy group.

“If workers who were classified as independent contractors under the previous rule are classified as employees under this rule, a small business owner will have to pay these workers minimum wage and overtime,” it explained. “In addition, if an independent contractor is considered an employee, he or she is eligible to start or join a union organizing campaign.”

In order to adapt to the changes, The NFIB recommended that employers read through DOL’s fact sheet on the rule and see if the listed examples sound like any of their current contractors.

“If so, consider whether those business relationships should continue,” the group said, warning against taking on a new contractor who might be considered an employee under the new rule.

Original News Source Link – Epoch Times

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