What You Need to Know
- The withdrawal becomes effective Thursday.
- The Financial Services Institute supported Labor’s Independent Contractor Rule.
- Labor says the rule would have eroded worker protections.
The Labor Department on Wednesday said it would withdraw effective Thursday its Independent Contractor Rule in order to maintain workers’ rights to the minimum wage and overtime compensation protections of the Fair Labor Standards Act.
The rule clarified the standard for employee versus independent contractor under the Fair Labor Standards Act, and reaffirmed an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee).
The Financial Services Institute, an advocacy group for independent financial advisors, supported the rule and said it was “disappointed” by its withdrawal.
Labor said it is withdrawing the rule for several reasons, including:
- The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.
- The rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.
- The rule would have narrowed the facts and considerations comprising the analysis of whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.
“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” Labor Secretary Marty Walsh said in a statement.
“Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” Walsh stated. “We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”
The FLSA, as Labor explains, “includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime compensation at not less than one-and-one-half times their regular rate of pay for every hour they work over 40 in a workweek.”
FLSA protections do not apply to independent contractors.