Law Alert: DOL Publishes Final IC Rule
January 7, 2020
Today, the Department of Labor published the text of its final rule establishing the test for independent contractor status under the Fair Labor Standards Act. The rule is scheduled to take effect on March 8, 2021 (but may be delayed or revoked after the Biden administration takes office). The text remained largely unchanged from the initial language released in the Notice of Proposed Rulemaking published last September. The DOL suggested that the proposed rule received overwhelming support from the more than 1,800 commenters, with individual independent contractors supporting the text of the rule by a 20-1 margin.
The final rule is an economic realities test with a two-tier analysis.
1st tier/Core Factors
- Nature and degree of control over work.
- Opportunity for profit or loss based on initiative and/or investment.
Where the Core Factors point in the same direction, there is a substantial likelihood that the employment classification indicated by the Core Factors will be determinative.
Three 2nd tier factors (the Guideposts) may provide additional guidance, especially where the Core Factors do not point to the same classification.
- Amount of skill required.
- Degree of permanence of the relationship.
- Whether the work is part of an integrated unit of production.
The rule makes clear that the actual practice of the parties is more relevant than what may be theoretically or contractually possible, and also provides six fact-specific examples applying the factors. One fact-specific scenario specifically considers trucking, stating that an owner-operator who operates equipment outfitted with a speed limiter used to ensure safe operations and who must meet contractual deadlines (with penalties for missing deadlines and incentives for meeting deadlines) is not subject to impermissible control under the final rule.
Because the rule’s effective date is not until after the Biden inauguration, there may likely be a further delay of the effective date and complications for the future of the rule (including a challenge that the rule is arbitrary and capricious under the Administrative Procedures Act). In the event of such a challenge, the Biden administration could choose not to defend the rule and may negotiate a settlement in which they revisit the rule under a new notice and comment period. Although business groups supporting the rule would likely seek to intervene to defend the rule against a challenge in court, courts have considerable discretion with respect to whether intervenors must also sign off on any settlement.
Should the Georgia special election results stand, and Democrats take control of the Senate, it becomes more likely that the rule will be struck down under expedited procedures by a simple majority vote of Congress under the Congressional Review Act. The Trump administration and a Republican Congress used this procedure to strike down a number of Obama administration rules finalized near the end of his term, and it seems likely that a Democratic Congress may take similar steps with respect to this rule, which the incoming Biden administration had already targeted.