Déjà Vu All Over Again: Wage & Hour Division proposes new independent contractor regulation 

For the third time in five years, the Wage & Hour Division of the U.S. Department of Labor has published proposed regulations to define who is an independent contractor and who is an employee under the Fair Labor Standards Act, the Family and Medical Leave Act, and the Migrant and Seasonal Agricultural Worker Protection Act. 

The WHD published the notice of proposed rulemaking and request for public comment on Friday. Unless later extended, the comment period will close on April 28.   

The current proposal, once finalized, will replace a Final Rule that was promulgated during the Biden Administration, and which took effect in March 2024.

The Biden rule rescinded and replaced a Final Rule that had been published in the final days of the first Trump Administration, in January 2021. The WHD under the Biden Administration first delayed the effective date of the Trump rule, and eventually replaced it three years later.

Interspersed with the regulatory moves under the first Trump Administration, the Biden Administration, and now the second Trump Administration, was a significant amount of litigation challenging the various regulations.

“Economic realities”

The current proposal published on Friday largely returns to the approach and the criteria that were in the first Trump rule, but with some tweaks. The new proposal outlines five factors for determining the “economic realities” of the relationship and whether a particular worker should be classified as an “employee” or an “independent contractor” under the governing statutes.

In contrast to the Biden rule, the new proposal prioritizes two of the five factors and attributes greater weight to what it calls “core” factors:

• The worker’s control over the work being performed.
• The worker’s opportunity for profit or loss.

Although less probative than these two “core” factors, the proposal cites three more factors that can be useful for consideration:

• The amount of skill required for the work being performed.
• The degree of permanence of the working relationship.
• Whether the work is part of an integrated unit of production.

The proposal says assessment of a worker’s status should focus primarily on whether the individual is dependent on the company for work (employee), as opposed to operating as one who has his or her own business (independent contractor).

By contrast, the Biden rule generally made it more difficult for a business to successfully defend an independent contractor classification. The Biden Administration viewed the “totality of the circumstances,” considering six factors while leaving the door open for consideration of additional, unspecified, factors.

Businesses struggling with this issue are likely to find the Trump Administration’s proposed regulation easier to apply, with more predictable outcomes.

View of the courts

There is an abundance of case law on the independent contractor classification issue, and courts remain free to apply that case law as they see fit regardless of the views of the WHD as expressed through regulations. This is even more so since the 2024 decision of the U.S. Supreme Court in Loper Bright Enterprises. Before that decision, courts generally deferred to regulatory agency interpretations of the law. But in Loper Bright, the Supreme Court struck down that precedent and held that “it thus remains the responsibility of the court to decide whether the law means what the agency says.”

Moreover, the flip-flopping of the WHD on the regulatory front tends to diminish the credibility of its interpretations in the eyes of many courts. 

However, businesses should not overlook the fact that under the FLSA and the Portal to Portal Act there is an affirmative defense to exposure for back wages and liquidated damages based on good faith reliance on any administrative regulation. Thus, if the current proposal becomes final, it offers a potential affirmative defense to liability for back wages and liquidated damages in the event of a misclassification lawsuit. In other words, there remains a high value to employers and businesses to see that the WHD completes and finalizes the proposed regulations.

Comments accepted through April 28

The public comment period on the proposal is open through April 28, and there is some chance it could be extended. Either way, there are likely to be many comments filed both in support of, and in opposition to, the proposal. In 2022, when the WHD under President Biden published its proposed regulations on this issue, more than 55,000 comments were filed.

We will continue to monitor the rulemaking proceeding. If you have any questions, please contact any member of Constangy’s Wage and Hour Compliance & Litigation Practice Group.