Legislative lowdown: DOL does away with 2024 independent contractor rule

Investigators with the Department of Labor (DOL) will no longer apply the 2024 independent contractor rule in enforcement matters, the agency said on May 1.

Backing off Biden’s approach. The Biden-era rule, which took effect in March of last year, was expected to make it more difficult for businesses to classify workers as independent contractors rather than full-time employees. It rescinded a previous rule instituted during President Donald Trump’s first term, and restored a “multifactor economic reality test” for determining if an employee was an independent contractor.

The 2024 rule directed businesses to take into account a “totality of circumstances” when analyzing the employer-employee relationship, with no one factor taking precedence over another. The rule listed six factors to consider, including:

• the degree of permanence of the work relationship;
• the extent of employer control;
• the extent to which the work performed is an essential part of the employer’s business;
• the opportunity for profit or loss;
• investments by the worker and potential employer; and
• the worker’s skill and initiative.

This standard had been used by the courts for years to determine if workers were being classified correctly. The Trump-era rule directed employers to focus on just two core factors: a worker’s opportunity for profit or loss, and the nature and degree of the worker’s control over the work.

In litigation challenging the 2024 rule, the DOL has said it is reconsidering the Biden policy, including whether to rescind it, the agency noted in a field bulletin. As such, the Wage and Hour Department stated that it “will no longer apply the 2024 Rule’s analysis when determining employee versus independent contractor status” under the Fair Labor Standards Act.

2024 rule remains in effect. In the recent bulletin, the DOL pointed to a 2008 fact sheet and a 2019 opinion letter from Trump’s first term to explain how the agency will now enforce matters where payments for back wages or civil money penalties haven’t yet been made to individuals or the DOL.

The opinion letter had stipulated that individuals working for a virtual marketplace were independent contractors—though the document was withdrawn during the Biden administration.

While business groups representing industries such as construction, financial services, and tech sued over the 2024 rule, it has thus far survived legal challenges. In a press release explaining its changing approach to enforcement, the DOL clarified that the guidance “does not change existing regulations but reflects how the department is allocating enforcement resources during the review of the 2024 rule.”

The DOL’s recent guidance indicates it will return to a more business-friendly approach when handling enforcement matters regarding gig workers. Classifying workers as full-time employees has cost implications for employers, as they’re entitled to benefits such as a full minimum wage, overtime pay, and workers’ compensation, among others.