Changes at the DOL regarding Trump-era rules – Joint employer standard and independent contractor classification remain in flux

Over the past few years, we have covered the ever-changing policies and court rulings regarding the joint employer and independent contractor standards, and the Department of Labor’s recent withdrawal of a rule regarding independent contractors is no exception. President Joe Biden’s change in staffing at the National Labor Relations Board in early 2020 was a signal of changes to come, and a New York federal court struck down key portions of the new joint employer standard introduced by the Trump administration in March 2020. An appeal is currently pending in the Second Circuit. The joint employer rule also faced challenges from a number of other states because it conflicted with the definition of “employer” and “employee” in the Fair Labor Standards Act.  
The independent contractor rule introduced in early 2021 (prior to the beginning of President Biden’s administration) would have:

• Made it easier to classify workers as independent contractors.
• Identified two “core factors” that are most probative to the question of whether a person is an employee or an independent contractor (the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiate).
• Identified certain other factors that were relevant considerations in classifying an individual’s employment status.

After receiving approximately 1,000 comments on the rule, however, the Department of Labor withdrew it on May 6, 2021, because of potential conflicts with the Fair Labor Standards Act and judicial precedent. The withdrawal of the rule likely means that more workers may be classified as employees – and therefore have the protection of the Fair Labor Standards Act. 

In March 2021, the Department of Labor also issued a proposed rulemaking indicating its intent to rescind the final joint employer rule that took effect in March 2020, which adopted a four-factor balancing test. The joint employer test articulated in this rule focuses primarily on the control of the employee, including an evaluation of whether the potential joint employer “(i) hires or fires the employee; (ii) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree; (iii) determines the employee’s rate and method of payment; and (iv) maintains the employee’s employment records.” 29 C.F.R. § 791.2(a)(1)(i)-(iv).

This rule was favorable to franchisors because franchisors were unlikely to be held to be joint employers of their franchisee’s employees unless they exercised substantial control over the employees, but is unlikely to continue throughout the Biden presidency. In addition to the challenges to this rule in New York and other states, the Department of Labor has indicated that the Trump-era rule may not have considered the costs for employees and employers in complying with this new and different standard.

The comment period on the proposed rescission of the revised rule expired in April, and an official withdrawal of the new joint employer rule can likely be expected soon. Although the new joint employer rule and independent contractor rule introduced in 2020 and 2021 may have been intended to clarify confusion regarding these standards, the expected rescission or withdrawal of both rules means that franchisees, franchisors, and other parties in interest must still rely on case law and local precedent when analyzing issues about potential employment liability.