Independent Contractor Regulation Update: DOL Withdraws Opinion Letters, Delays Regulation Effective Date

Recently, on February 19, 2021, the U.S. Department of Labor (DOL) withdrew for the third time in three weeks an opinion letter - FLSA2019-6 - addressing the issue of whether workers are independent contractors. 

Earlier, on January 26, 2021, DOL withdrew two opinion letters - FLSA2021-9 and FLSA2021-8 - in which DOL concluded the workers in question were independent contractors.  DOL had issued FLSA2021-8 and FLSA2021-9 on January 19, the last full day of the Trump administration, and relied on its new independent contractor regulation to draw its conclusions.  At the time the two letters were issued, however, that new independent contractor regulation, which was announced in November 2020, was not yet effective since the effective date was set for March 8, 2021.  Indeed, DOL withdrew FLSA2021-8 and FLSA2021-9 soon after inauguration day on the grounds that “[t]hese letters were issued prematurely because they are based on rules that have not gone into effect.”

We covered the new independent contractor regulation in our February 5 GovCon Video Blog.™  As we mentioned, and as DOL itself has acknowledged, that new regulation is the first generally applicable regulation that DOL has ever issued setting forth criteria for determining whether workers are employees or independent contractors under the Fair Labor Standards Act (FLSA).  The new regulation adopts a five-factor “economic reality” test for making the determination, and a number of commenters have suggested that the new regulation will make it easier for employers to classify workers as independent contractors.  (For more on the new regulation, see our vlog here.)  This notion is seemingly borne out by DOL’s reliance on the new regulation in FLSA2021-8 and FLSA2021-9 to conclude workers were independent contractors. 

At the time of our vlog, the new administration had implemented a freeze on pending new regulations that had not yet taken effect.  Since then, on February 9, DOL proposed to move the effective date of the new independent contractor regulation from March 8 to May 7.  According to DOL, the new regulation “would adopt a new legal standard for determining employee and independent contractor status under the FLSA.”  Moreover, delaying the effective date would allow DOL –

"more time to further review and consider, among other important issues, the legal, policy, and/or enforcement implications of adopting that standard, such as: Whether the rule effectuates the FLSA’s purpose, recognized repeatedly by the Supreme Court, to broadly cover workers as employees; the costs and benefits attributed to the rule, including the assertion that workers as whole will benefit from the rule; and/or whether the rule’s explanation of the standard provides clarity for stakeholders and for the purposes of WHD enforcement, as was intended.”

In its announcement of the delay, DOL also instructs employers, in the meantime, to look to existing guidance in DOL's Fact Sheet #13 and to the legal analysis in current federal court decisions for the standards that DOL and courts will apply.

Thus, DOL’s proposed delay makes it clear that the new independent contractor regulation will undergo renewed and intense scrutiny that may ultimately lead to its withdrawal, and that any regulatory standard for determining whether workers are contractors or employees, if it is ever issued, will likely be re-formulated from the new regulation.

DOL’s nearly immediate withdrawal of the two “last minute,” and yet premature, opinion letters under the prior administration that concluded workers were independent contractors is not surprising in light of the status of the new regulation that the letters relied on when they were issued, and given DOL’s subsequent decision to subject the new regulation to a fresh new look.

More perplexing, however, is DOL’s recent decision to reach back to April 2019 to withdraw its FLSA2019-6 opinion letter in which it had also concluded that workers were independent contractors.  DOL withdrew that letter after it announced its decision to delay implementation of its new regulation on the grounds that it “addressed the same issue under consideration by the Department—independent contractor status under the FLSA.”  But that April 2019 opinion letter purportedly relied on the formulation of the economic reality test for determining independent contractor status that is currently applied by the Supreme Court and federal courts and that DOL now points employers to for guidance.

In any event, as we mentioned in our vlog, given how much subcontracting takes place in federal contracting and given that the line between independent contractor and employee status may be further blurred by the prevalence of remote working during the Covid-19 pandemic, government contractors should remain alert to any further developments. 

To read or obtain a copy of DOL's announcement of its proposed delay of the new independent contractor regulation go here.

To read other articles from The GovCon Bulletin™ go here.