On March 11, 2021, the U.S. Department of Labor (DOL) issued Notices of Proposed Rulemaking (NPRMs) to withdraw the Joint Employer and Independent Contractor Final Rules published during the previous administration.

The Joint Employer Final Rule

The Joint Employer Final Rule went into effect in January 2020 and addressed the standard for determining whether an employee may be deemed to be jointly employed by two or more employers. The Rule instructed that joint employer liability is guided by four primary, albeit non-exclusive, factors derived from the decision of the U.S. Court of Appeals for the Ninth Circuit in Bonnette v. California Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983). Those factors are whether, and to what extent, the proposed employer (1) hires or fires the employee; (2) supervises and controls the employee’s work schedules or conditions of employment; (3) determines the employee’s rate and method of payment; and (4) maintains the employee’s employment records. Notably, the Final Rule emphasized that actual, rather than mere theoretical, exercise of control is required to establish a joint employment relationship. A more detailed discussion of the Final Rule can be found here: Department of Labor Issues Final Rule on FLSA’s Joint Employer Standard.

Although the Joint Employer Final Rule was designated as merely interpretive, rather than controlling, by the DOL at the time of its publication, shortly thereafter attorneys general for 18 states filed suit in federal court in New York to have the Rule vacated. The lawsuit claims that the Rule was promulgated in violation of the Administrative Procedure Act and that it will harm their states in multiple ways, including by lowering wages, decreasing compliance with worker protection laws, reducing their tax revenue, and increasing the administrative and enforcement costs for their comparable state law equivalents to the FLSA. That suit remains pending and the DOL cited it among the reasons for withdrawing the Rule and reconsidering its position, as well as the fact that a split exists among the federal circuit courts of appeal as to the proper joint employer analysis to apply.

The Independent Contractor Final Rule

The Independent Contractor Rule was published in January 2021 and currently is scheduled to go into effect in May 2021. That Final Rule provides that “an individual is an independent contractor, as distinguished from an ‘employee’ under the Act, if the individual is, as a matter of economic reality, in business for him or herself.” Under the Rule, the “economic dependence” inquiry focuses on five, non-exclusive factors. Two of the factors are considered primary: the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss. The remaining three factors come into play if the first two factors are inconclusive: the amount of skilled required, the “degree of permanence” of the parties’ work relationship, and whether the putative employee’s work is “part of an integrated unit of production.” Similar to the standard set forth in the Joint Employer Final Rule, the actual practices of the working relationship, and not what the parties’ contract may theoretically allow, is emphasized. A more detailed discussion of the Independent Contractor Final Rule can be found here: Department of Labor Issues Final Independent Contractor Rule.

In proposing to withdraw the Independent Contractor Final Rule, the DOL asserts “that, upon further review and consideration of the Rule, the Department questions whether the Rule is fully aligned with the FLSA’s text and purpose or case law describing and applying the economic realities test.”

What Happens Next

The DOL’s proposed withdrawals of these Final Rules are open for public comment until April 12, 2021, after which the Agency likely will either issue new Final Rules with revised standards or will simply withdraw the current Rules, resulting in a return to the standards existing before those Rules were in effect. Importantly, regardless of the positions ultimately adopted by the DOL, more stringent or otherwise different standards may apply to parallel wage and hour claims under state law.