In the continuing tug, pull, shove, and throw around which test is the best to determine independent contractor (IC) status, a federal district court in Texas made a bigger than typical call about which IC test must currently be used by the U.S. Department of Labor (DOL).
One of the biggest players in the IC rule tug and pull is understandably the USDOL. For the last three presidential administrations – and even long before then – the DOL has tried to establish rules outlining the proper test for true IC status and what work should only be performed as an employee. These attempts to define what work should be considered as only that that which can be done by an employee involved rules that narrowed the definition of IC and thereby narrowed the ability of employers to utilized independent contractors or rules that broadened the IC analysis tests and in turn determined whether work is such that an IC can legally be engaged to perform it.
The Trump Administration’s DOL published proposed rules that were broader and therefore more expansive in finding IC status than the previous test implemented by the Obama Administration’s DOL. The Trump IC regulatory test narrowed the IC test toward emphasizing that the proper analysis was whether the worker is dependent upon a purported employer for work and therefore an IC as opposed to whether the worker is dependent upon the income received and thereby should be an employee.
More specifically the Trump Administration rules identified two core factors that it used to determine whether the work was okay for an IC to be engaged in or whether the work should be done by an employee; 1) the nature and degree of control the person performing it has over the work and 2) the worker’s opportunity for profit or loss for performing the work. Should these two criteria not clearly determine the status, three more non-exhaustive guidepost factors could be considered:
- “The amount of specialized training or skill required for the work that the potential employer does not provide;
- The degree of permanence of the working relationship focusing on the continuity and duration of the relationship and weighing toward independent contractor status if the relationship is definite in duration or [alternatively] sporadic; and
- Whether the work performed is ‘part of an integrated unit of production.’” (1)
The Biden Administration had the DOL withdraw these proposed rules shortly after taking office last year. The DOL first issued a delay in the effective date of the rules, and a day before the delay was to expire, they withdrew the rules entirely. The pulling back of these rules left businesses and IC’s without clarity as to how they should be lawfully engaged with one another.
This withdrawal action by the Biden Administration’s DOL was challenged in the U.S. District Court for the Eastern District of Texas and last week that Court ruled against the Biden Administration’s rules withdrawal as a violation of the federal Administrative Procedures Act. The Court ruled that this withdrawal of rules that had been legally issued was illegal. The Court’s holding effectively re-established the Trump DOL’s rule broader criteria for independent contractor status, for now.
This decision could be appealed or the Biden Administration DOL could go through the correct procedures under the Administrative Procedures Act and issue new regulations that would again narrow the test for IC status.
The tug, pull, throw, and shoving around IC or employee status analysis will no doubt continue through federal and state agencies as well as the courts. The U.S. DOL is only one, albeit major agency, to use an IC test. It however, is not the only test out there. To add to employers’ confusion over what an IC is, state agencies and various courts around the country have their own preferred definitions and tests for IC status that employers may run into as they just try to get some work done.
Source: (1) Littler News and Analysis. Federal Court Decision Protects Independent Contractor Status (3/15/2022)