Viewpoint: Federal court reinstates Trump-era DOL independent contractor rule

A Texas federal district court recently reinstated the independent contractor rule that was put into place by President Trump’s Department of Labor. The rule was previously withdrawn by the Biden Administration.

Background

At the end of the Trump Administration in January 2021, the Department of Labor (DOL) issued a rule that sought to clarify the controlling factors for who is, and who is not, an independent contractor for purposes of the Fair Labor Standards Act. The rule consisted of two main factors and three guiding factors to be evaluated. The two main factors were: (1) the level of control the individual has over his own work; and (2) the opportunity for profit or loss due to their own personal investment. If, and only if, the analysis of the two main factors proved inconclusive of determining independent contractor status, were employers to weigh the three guiding factors: (1) the level of skill of the role involved; (2) the permanence of the working relationship; and (3) how the role in question relates to the employer’s overall business operation. The rule also provided that employers could offer independent contractors certain employee benefits without impacting their classification status, but only if the workers satisfied the five-part test’s other provisions. The rule was widely regarded as favoring independent contractor status and was to take effect on March 8, 2021.

Shortly after taking office, but before the March 8 effective date, the Biden administration delayed the effective date of the rule. A couple of months later, the Biden Administration ultimately withdrew the Trump-era rule. Following that decision by the Biden Administration, various business groups filed a lawsuit in federal court in Texas challenging the Biden administration’s actions.

District court’s decision

Ruling against the Biden administration, the district court made two important determinations. First, the court concluded that the delay of the effective date of the Trump-era rule violated the Administrative Procedure Act in three different ways. Second, the court held that the withdrawal of the Trump-era rule was arbitrary and capricious under the Administrative Procedure Act because it restricted comments to the question of whether or not to withdraw the Trump-era rule, rather than allowing the public to propose other alternatives such as modifying the standard set forth in that rule. The court concluded that “[b]y refusing to consider alternatives to the total withdrawal of the Independent Contractor Rule, the DOL failed to ‘consider important aspects of the problem before [it]’—the lack of clarity of the economic realities test and the need for regulatory certainty.”