DOL Independent Contractor Final Rule on Hold

The White House issued a memorandum halting all non-emergency rulemaking and regulatory activity pending review by the new administration. This applies to the new Independent Contractor Final Rule issued by the Department of Labor (DOL) in early January. The rule was set to take effect on March 8.

The National Law Review has stated that it does not expect the Final Rule to be implemented as the Biden administration has indicated a directional return to the worker classification position of the Obama administration. This includes legislation that makes worker misclassification a substantive violation of the law, increases penalties for misclassification, ratchets up enforcement, and encourages collaborative enforcement partnerships with the Department of Labor (DOL), the National Labor Relations Board (NLRB), the Equal Employment Opportunity Commission, the Internal Revenue Service, the Justice Department, and state tax, unemployment insurance, and labor agencies.

The memo effectively eliminates the DOL’s Final Rule on independent contractor classification, which would have reduced the number of primary factors the agency would consider when determining whether a worker is an independent contractor or an employee to two “core factors”—the level of control over the work and the worker’s opportunity for profit or loss. The DOL’s Final Rule would have made it easier for companies in states with less restrictive laws to classify service providers as independent contractors.  President Biden has also promised to work with Congress to establish a federal standard for independent contractor classification modeled on the “ABC test” for all labor, employment, and tax laws. The ABC test is the most stringent of various tests used to determine worker status. In addition to the two “core factors” indicated above, it typically evaluates the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an “integrated unit of production”.