On January 10, 2024, the Department of Labor’s Wage and Hour Division (“WHD”) issued a final rule: Employee or Independent Contractor Classification Under the Fair Labor Standards Act. The regulation will take effect beginning March 11, 2024. Landmark filed a regulatory comment on December 13, 2022, commenting on the shortcomings of the Proposed Rule, which will soon become a Federal Regulation.

American labor law historically has had a highly complex standard for determining a worker’s status as either an employee or an independent contractor (“IC”). This standard included 6 factors of consideration, none of which were prioritized or dispositive. Furthermore, companies were exposed to costly litigation from the risk of misclassifying an employee or IC. This system discouraged companies from hiring ICs and reduced economic freedom.

This issue was remedied in January 2021, when the Trump Administration proposed a regulation that streamlined the standard for an IC. The regulation considered the economic realities test as opposed to the previously used 6 factor method. As a result, businesses were encouraged to hire more ICs without the fear of lawsuits brought about by the risk of misclassification.

Now, the Biden Administration is rescinding the Trump Administration regulation and reverting to the previous policy, status quo ante, recomplicating the standard and imposing greater restrictions on American businesses and ICs. Despite Landmark filing a strong regulatory comment, and opposition from countless other organizations and businesses, the WHD is moving ahead with the new regulations. This step backward exemplifies the anti-growth and anti-freedom agenda of the Biden Administration.

The WHD bases its new rule on the Fair Labor and Standards Act (“FLSA”), as well as court precedents made throughout the years since the passage of the Act. The WHD goes beyond the language of the FLSA to codify a cumbersome precedent created by the courts. They have little research supporting their regulation, and they changed the Act’s simple definitions of employer and employee into a confusing set of standards for determining a worker’s employment status.  The WHD will base its judgment of whether a worker is an employee or an IC on the subjective circumstances of each employment relationship it reviews. The WHD greatly exceeds its lawful role by instituting a largely impactful rule without clear and necessary authority.

The Department of Labor does not provide a quantitative estimate of the economic impact of their new rule, instead vaguely claiming that it will save businesses money by returning to the longstanding precedent of IC law. Even another federal agency raised issues with the proposed rules’ economic impact:

Commenters, including the Small Business Administration Office of Advocacy (SBA) contended that the Department has severely underestimated the economic impacts of this rule on small businesses and independent contractors.

Independent work is an engine of economic progress. Ranging from owner-operator truckers to freelance musicians, over 64 million independent workers practice their trade across the United States. In addition to driving billions of dollars in commerce, these independent workers enjoy the freedoms afforded by their IC status – namely, setting their own schedule and feeling like their own boss. This new rule will seriously limit these workers’ earning potential and economic mobility.

Landmark will continue to fight this Administration’s every move that weakens our freedoms and weakens the American economy.