The U.S. Department of Labor (DOL) final rule revising the standard for determining whether a worker is an employee or independent contractor under the Fair Labor Standards Act (FLSA) took effect March 11, 2024. The fate of the rule is uncertain, however, as it faces several legal challenges that could disrupt its implementation.

Independent contractor final rule

The final rule, published in the Federal Register on Jan. 10, 2024, formally rescinds the regulation issued by the DOL in 2021 and adopts instead a six-factor “economic realities” test long applied by courts. (See Labor Department Releases Independent Contractor Final Rule, Revising Standard.) Under the new rule, none of the enumerated factors is given weight over the others, and the factors are not exclusive, Rather, independent contractor status is to be determined based on the “totality of the circumstances.”

Lawsuits

The 2021 rule, issued in the waning days of the Trump Administration, was the first-ever formal regulation defining independent contractor status under the FLSA. However, the Biden DOL withdrew the rule in May 2021, and a coalition of industry groups filed suit challenging the withdrawal. In a 2022 decision, a federal court in Texas held that the DOL unlawfully delayed and withdrew the 2021 rule. (See DOL Withdrawal of Trump-Era Independent Contractor Final Rule Unlawful, Court Rules.) The government appealed, and the appeal was held in abeyance pending completion of new rulemaking. With the January publication of the 2024 final rule, the business groups on Feb. 19 asked the appeals court to lift the stay, vacate as moot the district court’s 2022 decision, and remand the case to the district court to allow the plaintiffs to file an amended complaint. The amended complaint was filed on March 5. Coalition for Workforce Innovation v. Su (E.D. Tex., Mar. 5, 2024, No. 1:21-CV-130).

A separate action, Frisard’s Transportation, LLC v. U.S. Department of Labor (E.D. La., Feb. 8, 2024, No. 2:24-cv-00347) was filed by the Liberty Justice Center and Pelican Institute for Public Policy on behalf of a family-owned trucking company that employs 30 independent owner-operator drivers in the state.

Professionals hoping to ensure their ongoing status as independent contractors also have filed legal challenges. In Warren v. U.S. Department of Labor (N.D. Ga., Jan. 16, 2024, No. 2:24-cv-00007),four freelance writer-editors have sued claiming the rule amounts to a “concerted effort to force them into employment relationships they neither want nor need.” The plaintiffs assert, based on recent conversations with clients and on past experience, that they will lose business due to uncertainty about their status and clients’ fear of liability under the new rule.

Similarly, in Littman v. U.S. Department of Labor (M.D. Tenn., Feb. 21, 2024, No. 3:24-cv-194), two freelance writer-editors allege the new rule will hinder their ability to continue working independently and deter potential clients from hiring them. One plaintiff asserts that a client already has restricted the number of hours she can work, another has required her to indemnify the company if it is found to have misclassified her, and several others have begun requiring her to document the precise tasks she performs, an additional chore which she contends takes her several unpaid hours to complete.

Legal claims

According to the complaints, the DOL rulemaking was arbitrary and capricious, was an abuse of discretion, and exceeded the agency’s statutory authority because Congress did not empower DOL to issue legislative rules defining the employment relationship under the FLSA. Like most recent challenges to federal agency rulemaking, claimants also contend that if Congress did authorize the DOL to promulgate an independent contractor rule, Congress violated the Constitution’s nondelegation doctrine. Plaintiffs in the Warren case also claim that the independent contractor rule is unconstitutional because it fails to provide sufficient guidance about who is covered under the FLSA despite that violations of the statute can incur serious (even criminal) penalties.

The lawsuits uniformly seek a preliminary and permanent injunction barring DOL from enforcing the 2024 rule and an order invalidating the rule. The industry plaintiffs also want the court to declare unlawful and set aside the DOL’s rescission of the 2021 rule and a declaration that the 2021 rule remains in effect.

On March 7, the Frisard’s Transportation plaintiffs filed an emergency motion for a nationwide temporary restraining order (TRO) and motion for a preliminary injunction blocking the rule. Those motions were denied on March 8. Plaintiffs in the Littman case have filed a motion for preliminary injunction to halt enforcement of the Rule pending a final judgment on the merits.

Congressional Review Act challenge

In addition to the lawsuits, Congressional Republicans are seeking to erect a legislative roadblock. On March 6, U.S. Senator Bill Cassidy, ranking member of the Senate Health, Education, Labor, and Pensions (HELP) Committee, introduced a Congressional Review Act (CRA) resolution to overturn the independent contractor rule. A companion resolution (H.J. Res.116) was introduced in the House. The CRA allows Congress to overturn agency action through passage of a joint resolution of disapproval, under which to consider legislation to overturn rules. The rule at issue cannot go into effect (or continue to be enforced) if both houses of Congress approve (and the President signs) a CRA joint resolution of disapproval—or if Congress overrides a presidential veto.

Jackson Lewis is tracking these legal challenges and will keep you posted on developments. For now, though, the DOL’s final independent contractor rule is in effect. Reach out to your Jackson Lewis attorney for assistance complying with the changing legal requirements of working with independent contractors.