Federal rules regarding worker classification – as either employees or independent contractors – just became a bit clearer, at least for the time being. On March 14, Judge Marcia Crone of the United States District Court for the Eastern District of Texas reinstated the Trump administration’s Department of Labor rule regarding worker classification. This rule was previously withdrawn by the Biden administration, an action the Court ruled was in violation of the Administrative Procedures Act. The Trump-era rule applies a more-limited economic-reality test that effectively makes it easier for employers to classify workers as independent contractors, who are not subject to minimum wage and other requirements under the Fair Labor Standards Act. The Biden administration has not indicated whether it will appeal this decision. Here are three things to know as you classify your workers:
- The “Independent Contractor Status Under the Fair Labor Standards Act” rule is now in effect and is available for review here.
- This Federal rule makes it easier to classify workers as independent contractors by focusing on the nature of the work and the worker’s opportunity for profit or loss based on initiative and investment.
- Many states have worker classification standards that are different from this rule, such as the ABC test. Employers should consult with our attorneys to review their classification determinations.
The takeaway to keep in mind is that employers who misclassify their employees may be subject to fines and penalties, and look-back periods significantly increase an employer’s liability.