DOL Moves to Rescind Joint Employment, Independent Contractor Regulations

The U.S. Department of Labor plans to rescind a Trump-era regulation on joint employment and an impending regulation on independent contractor use, it said in a March 11 announcement.

The joint employment rule took effect in March 2020 and limited employers’ liability under the Fair Labor Standards Act. A federal district court, however, vacated large portions of the rule later that year.

The independent contractor rule, slated to take effect in May, sought to implement a relatively broad test for independent contractor status.

Both sets of regulations were generally viewed as employer-friendly and likely to be on the chopping block for the Biden administration.

The joint employment rule involves a test to determine whether two employers should be held jointly responsible for FLSA compliance with respect to a single employee. Employers had requested clarity on the issue, although some questioned whether the Trump administration’s rule left too much room for court interpretation. A court eventually determined that the “vertical” relationship portion of the rule, which addressed relationships like those involving staffing agencies, was inconsistent with the statute; it allowed the “horizontal” portion, which regulates two associated employers, to stand.

The independent contractor rule was set to create an “economic reality” test that would focus on the nature and degree of a worker’s control over their work and an individual’s opportunity for profit or loss. One management-side attorney dubbed the impending change “a jolt of good news” but noted that it was likely to face challenges, most notably from a new administration.

DOL’s Wage and Hour Division said that rescinding these rules would protect workers’ rights. “While legitimate independent contractors are an important part of our economy, the misclassification of employees as independent contractors denies workers access to critical benefits and protections the law provides,” said WHD Principal Deputy Administrator Jessica Looman in a statement. “Additionally, removing a standard for joint employment that may be unduly narrow would protect more workers’ wages and improve their well-being and economic security.”

Stakeholders can comment on the proposed rescissions through April 12th.