Legal Alert: U.S. Department of Labor Announces Plan to Replace Biden-Era Worker Classification Test and Operate under more Business-Friendly Standards
On May 2nd, the U.S. Department of Labor (the “DOL”) issued a Field Assistance Bulletin demonstrating its intent to pause enforcement of the Biden administration’s 2024 revisions to the Fair Labor Standards Act’s (the “FLSA”) worker classification test, which ultimately made it more difficult for employers to classify workers as independent contractors (the “2024 Test”). In the interim, as the DOL reviews the 2024 Test and develops an alternative, it will rely on older guidance for FLSA classification enforcement purposes, namely Fact Sheet #13 from July 2008 and Opinion Letter FLSA 2019-6, discussed below. The move is among the Trump administration’s latest efforts to cut back on enforcement of federal regulations that are deemed unfriendly to American businesses.
The 2024 Test, unlike previous iterations under the FLSA, emphasized in dispositive fashion whether workers are economically dependent on their employer for work or, alternatively, “in business for themselves” and thus truly independent, based on the totality of the circumstances. (Fact Sheet). In the latter case, the worker would be deemed an independent contractor. In the former, an employee.
Because of its simplicity, the 2024 Test is widely deemed much more holistic and amorphous than the FLSA’s previous, more predictable “economic realities” test, which required that employers consider a discrete, albeit non-exhaustive, list of primary factors to classify their workers:
- Opportunity for profit or loss depending on the worker’s managerial skill,
- Investments by the worker and the employer,
- Permanence of the work relationship between the worker and the employer,
- Nature and degree of control exercised by the employer over the worker,
- Whether the work performed by the worker is integral to the employer’s business,
- Skill and initiative needed by the worker to perform, and
- Degree of independent business operation by the worker.
The DOL’s revival of Fact Sheet #13 and Opinion Letter FLSA 2019-6 to guide FLSA enforcement decisions marks a return to norm.
Ultimately, the Trump administration’s election to rely on older DOL guidance until it modifies the 2024 Test will be greeted enthusiastically by employers across the country, who prefer predictability when structuring relationships with their workers.
Going forward, employers should perform several proactive steps to ensure that their business comports with the shifting classification landscape. This includes reviewing each of its independent contractors’ classification status under the DOL’s revised guidelines, as well as applicable state law, and working with legal counsel to develop classification models that improve operations and limit legal exposure from regulatory and civil actors. This is particularly important in jurisdictions that have implemented more stringent classification tests than the FLSA at the state level, including California, New Jersey, and Massachusetts.
It is important to note that the DOL’s backpedal from enforcement of the 2024 Test does not affect private litigants currently relying on the 2024 Test or employers who are already must pay back wages and associated penalties for improperly classified workers. It is also important to note that the DOL is working to modify or replace the 2024 Test, meaning there may only be a short window where it relies on older guidance to guide enforcement actions.
If your business is—or may be—affected by these changes, please reach out to us. Kessler Collins is poised to provide the legal support you need to navigate these challenges and protect your interests.
