We reported in this article that on 29 July 2021, the U.S. Department of Labour announced a final rule to rescind the previous on, “Joint Employer Status under the Fair Labour Standards Act” (FLSA), that took effect in March 2020, withdrawing rules on classification of workers based on ‘economic reality’.

The court found that the U.S. Department of Labor (DOL) failed to consider potential alternatives to rescinding the independent contractor rule, and that the public wasn’t given enough time to provide their comments, violating the Administrative Procedure Act (APA).

In this case, the notice-and-comment period was only 19 days, considered too short: “Although the APA does not mandate the minimum number of days necessary for adequate comment, circumstances warranting a comment period of less than 30 days are rare and generally require good cause”, the judge said.

This means a return to the previous rules (“Joint Employer Status Under the Fair Labour Standards Act,” or Joint Employer Rule). Under federal law, employers should generally follow these federal independent contractor standards to determine if a worker is an independent contractor or an employee:

• the extent to which the services rendered are an integral part of the principal’s business.
• the permanency of the relationship.
• The amount of the worker’s investment in facilities and equipment.
• The nature and degree of control by the principal.
• The worker’s opportunities for profit and loss.
• The amount of initiative, judgment, or foresight in open market competition with others required for the success of the worker.
• The degree of independent business organization and operation.

The Court ruled that the Independent Contractor rule became effective as of 8 March 8 2021 and remains in effect. It also held that the DOL could have achieved its goal to provide greater guidance for independent contractor analysis and create regulatory certainty, without withdrawing the rule in its entirety. The Biden administration has not indicated whether it intends to appeal the decision.

The court’s decision is important for businesses that rely heavily on contract workers, especially in the gig economy.

Employers should also consider state laws, such as in Massachusetts and California, that provide much more stringent tests to determine whether a worker is an independent contractor or an employee.