Two days before its effective date, the U.S. Department of Labor has withdrawn a rule that was set to implement a so-called “economic reality” test to determine whether a worker is an employee or independent contractor. The DOL had already delayed the rule, which was originally set to take effect in March.
DOL said it withdrew the rule because it was inconsistent with the text and purpose of the Fair Labor Standards Act and would have had “a confusing and disruptive effect on workers and businesses alike due to its departure from long standing judicial precedent.” DOL said the rule elevated two factors — the nature and degree of workers’ control over their work and the opportunity for profit or loss — in its proposed test, a decision that ran against the position of the U.S. Supreme Court and federal courts of appeal that “no single factor in the analysis is dispositive and that the totality-of-the-circumstances must be considered” in determining a worker’s status.
This is an excellent result for employees. The Trump administration’s proposed change was designed to make it easier for employers to classify employees as independent contractors and thereby avoid overtime payments and tax responsibility for workers.