Independent Contractor Status Under the Fair Labor Standards Act; Withdrawal

Citation86 FR 14027
Record Number2021-05256
Published date12 March 2021
SectionProposed rules
CourtWage And Hour Division
14027
Federal Register / Vol. 86, No. 47 / Friday, March 12, 2021 / Proposed Rules
1
29 U.S.C. 206(a).
navigation information for the
instrument procedures at this airport.
Class E airspace designations are
published in paragraph 6005 of FAA
Order 7400.11E, dated July 21, 2020,
and effective September 15, 2020, which
is incorporated by reference in 14 CFR
71.1. The Class E airspace designations
listed in this document will be
published subsequently in the Order.
FAA Order 7400.11, Airspace
Designations and Reporting Points, is
published yearly and effective on
September 15.
Regulatory Notices and Analyses
The FAA has determined that this
regulation only involves an established
body of technical regulations for which
frequent and routine amendments are
necessary to keep them operationally
current, is non-controversial and
unlikely to result in adverse or negative
comments. It, therefore: (1) Is not a
‘‘significant regulatory action’’ under
Executive Order 12866; (2) is not a
‘‘significant rule’’ under DOT
Regulatory Policies and Procedures (44
FR 11034; February 26, 1979); and (3)
does not warrant preparation of a
regulatory evaluation as the anticipated
impact is so minimal. Since this is a
routine matter that will only affect air
traffic procedures and air navigation, it
is certified that this rule, when
promulgated, would not have a
significant economic impact on a
substantial number of small entities
under the criteria of the Regulatory
Flexibility Act.
Environmental Review
This proposal will be subject to an
environmental analysis in accordance
with FAA Order 1050.1F,
‘‘Environmental Impacts: Policies and
Procedures’’ prior to any FAA final
regulatory action.
List of Subjects in 14 CFR Part 71
Airspace, Incorporation by reference,
Navigation (air).
The Proposed Amendment
Accordingly, pursuant to the
authority delegated to me, the Federal
Aviation Administration proposes to
amend 14 CFR part 71 as follows:
PART 71—DESIGNATION OF CLASS A,
B, C, D, AND E AIRSPACE AREAS; AIR
TRAFFIC SERVICE ROUTES; AND
REPORTING POINTS
1. The authority citation for 14 CFR
part 71 continues to read as follows:
Authority: 49 U.S.C. 106(f), 106(g); 40103,
40113, 40120; E.O. 10854, 24 FR 9565, 3 CFR,
1959–1963 Comp., p. 389.
§ 71.1 [Amended]
2. The incorporation by reference in
14 CFR 71.1 of FAA Order 7400.11E,
Airspace Designations and Reporting
Points, dated July 21, 2020, and
effective September 15, 2020, is
amended as follows:
Paragraph 6005 Class E Airspace Areas
Extending Upward From 700 Feet or More
Above the Surface of the Earth.
* * * * *
ASW TX E5 Yoakum, TX [Amended]
Yoakum Municipal Airport, TX
(Lat. 29°1847N, long. 97°0818W)
That airspace extending upward from 700
feet above the surface within a 6.3-mile
radius of Yoakum Municipal Airport.
Issued in Fort Worth, Texas, on March 8,
2021.
Martin A. Skinner,
Manager, Operations Support Group, ATO
Central Service Center.
[FR Doc. 2021–05139 Filed 3–11–21; 8:45 am]
BILLING CODE 4910–13–P
DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 780, 788 and 795
RIN 1235–AA34
Independent Contractor Status Under
the Fair Labor Standards Act;
Withdrawal
AGENCY
: Wage and Hour Division,
Department of Labor.
ACTION
: Notice of proposed rulemaking;
request for comments.
SUMMARY
: This notice of proposed
rulemaking (NPRM) proposes to
withdraw the final rule titled
‘‘Independent Contractor Status under
the Fair Labor Standards Act,’’ which
was published on January 7, 2021 and
the effective date of which is currently
May 7, 2021.
DATES
: Submit written comments on or
before April 12, 2021.
ADDRESSES
: You may submit comments,
identified by Regulatory Information
Number (RIN) 1235–AA34, by either of
the following methods: Electronic
Comments: Submit comments through
the Federal eRulemaking Portal at
http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Address written submissions to
Division of Regulations, Legislation, and
Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S–
3502, 200 Constitution Avenue, NW,
Washington, DC 20210. Instructions:
Please submit only one copy of your
comments by only one method.
Commenters submitting file attachments
on www.regulations.gov are advised that
uploading text-recognized documents—
i.e., documents in a native file format or
documents which have undergone
optical character recognition (OCR)—
enable staff at the Department to more
easily search and retrieve specific
content included in your comment for
consideration. Anyone who submits a
comment (including duplicate
comments) should understand and
expect that the comment will become a
matter of public record and will be
posted without change to https://
www.regulations.gov, including any
personal information provided. The
Department will post comments
gathered and submitted by a third-party
organization as a group under a single
document ID number on https://
www.regulations.gov. All comments
must be received by 11:59 p.m. EST on
April 12, 2021 for consideration. The
Department strongly recommends that
commenters submit their comments
electronically via http://
www.regulations.gov to ensure timely
receipt prior to the close of the comment
period, as the Department continues to
experience delays in the receipt of mail.
Submit only one copy of your comments
by only one method. Docket: For access
to the docket to read background
documents or comments, go to the
Federal eRulemaking Portal at http://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT
:
Amy DeBisschop, Division of
Regulations, Legislation, and
Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S–
3502, 200 Constitution Avenue NW,
Washington, DC 20210; telephone: (202)
693–0406 (this is not a toll-free
number). Copies of this proposal may be
obtained in alternative formats (Large
Print, Braille, Audio Tape or Disc), upon
request, by calling (202) 693–0675 (this
is not a toll-free number). TTY/TDD
callers may dial toll-free 1–877–889–
5627 to obtain information or request
materials in alternative formats.
SUPPLEMENTARY INFORMATION
:
I. Background
A. Statutory and Legal Background
The Fair Labor Standards Act (FLSA
or Act) requires all covered employers
to pay nonexempt employees at least the
federal minimum wage for every hour
worked in a non-overtime workweek.
1
In an overtime workweek, for all hours
worked in excess of 40 in a workweek,
covered employers must pay a
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2
29 U.S.C. 207(a).
3
29 U.S.C. 211(c).
4
See 29 U.S.C. 206 (minimum wage) and 207
(overtime pay).
5
29 U.S.C. 203(e)(1).
6
29 U.S.C. 203(d).
7
29 U.S.C. 203(g).
8
United States v. Rosenwasser, 323 U.S. 360, 362,
363 n.3 (1945) (quoting 81 Cong. Rec. 7657
(statement of Senator Black)).
9
Nationwide Mut. Ins. v. Darden, 503 U.S. 318,
326 (1992).
10
See id.; Walling v. Portland Terminal Co., 330
U.S. 148, 150–51 (1947) (‘‘But in determining who
are ‘employees’ under the Act, common law
employee categories or employer-employee
classifications under other statutes are not of
controlling significance. This Act contains its own
definitions, comprehensive enough to require its
application to many persons and working
relationships, which prior to this Act, were not
deemed to fall within an employer-employee
category.’’ (citation omitted)).
11
Portland Terminal, 330 U.S. at 152; see also
Rutherford Food Corp. v. McComb, 331 U.S. 722,
729 (1947) (workers may not be employees when
their work does not ‘‘in its essence . . . follow[] the
usual path of an employee’’).
12
United States v. Silk, 331 U.S. 704, 712 (1947)
(analyzing the definition of employee under the
Social Security Act).
13
Rutherford Food, 331 U.S. at 729 (‘‘There may
be independent contractors who take part in
production or distribution who would alone be
responsible for the wages and hours of their own
employees.’’).
14
Tony & Susan Alamo Found. v. Sec’y of Labor,
471 U.S. 290, 301 (1985) (quoting Goldberg v.
Whitaker House Coop., Inc., 366 U.S. 28, 33 (1961)).
15
Goldberg, 366 U.S. at 32–33.
16
331 U.S. at 716. At the time, the Supreme Court
noted that ‘‘[d]ecisions that define the coverage of
the employer-[e]mployee relationship under the
Labor and Social Security acts are persuasive in the
consideration of a similar coverage under the Fair
Labor Standards Act.’’ Rutherford Food Corp. v.
McComb, 331 U.S. 722, 723–23 (1947). However,
Congress amended the Social Security Act in 1948.
17
331 U.S. at 716.
18
See id.
19
Id.
20
See Rutherford Food, 331 U.S. at 727.
21
Id. at 730.
22
See id.
23
Id. at 729–30.
24
Usery v. Pilgrim Equip. Co., 527 F.2d 1308,
1311 (5th Cir. 1976) (quoting Bartels v.
Birmingham, 332 U.S. 126, 130 (1947)).
25
See Baystate Alternative Staffing, Inc. v.
Herman, 163 F.3d 668, 675 (1st Cir. 1998); Brock
v. Superior Care, Inc., 840 F.2d 1054, 1058–59 (2d
Cir. 1988); Donovan v. DialAmerica Mktg., Inc., 757
F.2d 1376, 1382–83 (3d Cir. 1985); McFeeley v.
Jackson Street Entm’t, LLC, 825 F.3d 235, 241 (4th
Cir. 2016); Acosta v. Off Duty Police Services, Inc.,
915 F.3d 1050, 1055 (6th Cir. 2019); Secretary of
Labor, U.S. Dep’t of Labor v. Lauritzen, 835 F.2d
1529, 1534 (7th Cir. 1987); Karlson v. Action
Process Service & Private Investigation, LLC, 860
F.3d 1089, 1092 (8th Cir. 2017); Real v. Driscoll
Strawberry Associates, Inc., 603 F.2d 748, 754 (9th
Cir. 1979); Acosta v. Paragon Contractors Corp., 884
F.3d 1225, 1235 (10th Cir. 2018); Scantland v. Jeffry
Knight, Inc., 721 F.3d 1308, 1311 (11th Cir. 2013);
Morrison v. Int’l Programs Consortium, Inc., 253
F.3d 5, 11 (D.C. Cir. 2001).
26
See, e.g., Parrish v. Premier Directional
Drilling, L.P., 917 F.3d 369, 380 (5th Cir. 2019)
nonexempt employee at least one and
one-half times the employee’s regular
rate.
2
The FLSA also requires covered
employers to make, keep, and preserve
certain records regarding employees.
3
The FLSA’s minimum wage and
overtime pay requirements apply only
to employees.
4
Section 3(e) generally
defines ‘‘employee’’ to mean ‘‘any
individual employed by an employer.’’
5
Section 3(d) of the Act defines
‘‘employer’’ to ‘‘include[ ] any person
acting directly or indirectly in the
interest of an employer in relation to an
employee.’’
6
Section 3(g) defines
‘‘employ’’ to ‘‘include[ ] to suffer or
permit to work.’’
7
The Supreme Court, in interpreting
these definitions, has stated that ‘‘[a]
broader or more comprehensive
coverage of employees within the stated
categories would be difficult to frame,’’
and that ‘‘the term ‘employee’ had been
given ‘the broadest definition that has
ever been included in any one act.’ ’’
8
The Supreme Court has further stated
that the ‘‘striking breadth’’ of the FLSA’s
definition of ‘‘employ’’—‘‘to suffer or
permit to work’’—‘‘stretches the
meaning of ‘employee’ to cover some
parties who might not qualify as such
under a strict application of traditional
agency law principles.’’
9
Thus, the
FLSA expressly rejects the common law
standard for determining whether a
worker is an employee.
10
Though the FLSA’s definition of
employee is broader than the common
law definition, the Supreme Court has
also recognized that the Act was ‘‘not
intended to stamp all persons as
employees.’’
11
The Supreme Court has
acknowledged that even a broad
definition of employee ‘‘does not mean
that all who render service to an
industry are employees.’’
12
One
category of workers that has been
recognized as being outside the FLSA’s
broad definition of ‘‘employees’’ is
‘‘independent contractors.’’
13
Courts
have thus recognized a need to delineate
between employees, who fall under the
protections of the FLSA, and
independent contractors, who do not.
The Supreme Court has repeatedly
emphasized that the test for whether an
individual is an employee under the
FLSA is one of ‘‘economic reality.’’
14
Under this test, the ‘‘technical
concepts’’ used to label a worker as an
employee or independent contractor do
not drive the analysis, but rather it is the
economic realities of the relationship
between the worker and the employer
that is determinative.
15
In United States v. Silk, 331 U.S. 704,
712 (1947), an early case applying an
economic realities test under the Social
Security Act, the Supreme Court
acknowledged that ‘‘[p]robably it is
quite impossible to extract from the
statute a rule of thumb’’ regarding the
distinction between employees and
independent contractors.
16
The Court
suggested that federal agencies and
courts ‘‘will find that degrees of control,
opportunities for profit or loss,
investment in facilities, permanency of
relation and skill required in the
claimed independent operation are
important for decision.’’
17
The Court
cautioned that no single factor is
controlling and that the list is not
exhaustive.
18
The Court went on to note
that the workers in that case were ‘‘from
one standpoint an integral part of the
businesses’’ of the employer, supporting
a conclusion that some of the workers
in that case were employees.
19
The same day that the Supreme Court
issued its decision in Silk, it also issued
Rutherford Food Corp. v. McComb, 331
U.S. 722 (1947), in which it affirmed a
circuit court decision that analyzed an
FLSA employment relationship based
on its economic realities.
20
The Court
rejected an approach based on ‘‘isolated
factors’’ and again considered ‘‘the
circumstances of the whole activity.’’
21
The Court considered several of the
factors that it listed in Silk as they
related to meat boners on a
slaughterhouse’s production line,
ultimately determining that the boners
were employees.
22
The Court noted,
among other things, that the boners did
a specialty job on the production line,
had no business organization that could
shift to a different slaughter-house, and
were best characterized as ‘‘part of the
integrated unit of production under
such circumstances that the workers
performing the task were employees of
the establishment.’’
23
Since Silk and Rutherford Food,
federal courts of appeals have applied
the economic realities test to distinguish
independent contractors from
employees who are entitled to the
FLSA’s protections. Recognizing that
the common law concept of ‘‘employee’’
had been rejected for FLSA purposes,
courts of appeals followed the Supreme
Court’s instruction that ‘‘‘employees are
those who as a matter of economic
realities are dependent upon the
business to which they render
service.’ ’’
24
All of the courts of appeals have
followed the economic realities test, and
nearly all of them analyze the economic
realities of an employment relationship
using the factors identified in Silk.
25
No
court of appeals considers any factor or
combination of factors to universally
predominate over the others in every
case.
26
For example, the Ninth Circuit
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(stating that it ‘‘is impossible to assign to each of
these factors a specific and invariably applied
weight’’ (citation omitted)); Martin v. Selker Bros.,
949 F.2d 1286, 1293 (3d Cir. 1991) (‘‘It is a well-
established principle that the determination of the
employment relationship does not depend on
isolated factors . . . neither the presence nor the
absence of any particular factor is dispositive.’’);
Scantland, 721 F.3d at 1312 n.2 (the relative weight
of each factor ‘‘depends on the facts of the case’’).
27
Real, 603 F.2d at 754.
28
See id.
29
See Usery, 527 F.2d at 1311.
30
See Hobbs v. Petroplex Pipe and Constr., Inc.,
946 F.3d 824, 836 (5th Cir. 2020).
31
See, e.g., Franze v. Bimbo Bakeries USA, Inc.,
826 F. App’x 74, 76 (2d Cir. 2020).
32
See, e.g., Franze, 826 F. App’x at 76; Razak v.
Uber Techs., Inc., 951 F.3d 137, 142–43 (3d Cir.
2020); Gilbo v. Agment, LLC, 831 F. App’x 772, 775
(6th Cir. 2020).
33
See, e.g., Superior Care, 840 F.2d at 1054.
34
See WHD Opinion Letter (Aug. 13, 1954)
(applying six factors very similar to the six
economic realities factors currently used by courts
of appeals).
35
WHD Opinion Letter FLSA–795 (Sept. 30,
1964).
36
See, e.g., WHD Opinion Letter, 2002 WL
32406602, at *2 (Sept. 5, 2002); WHD Opinion
Letter, 2000 WL 34444342, at *3 (Dec. 7, 2000);
WHD Opinion Letter, 2000 WL 34444352, at *1 (Jul.
5, 2000); WHD Opinion Letter, 1999 WL 1788137,
at *1 (Jul. 12, 1999); WHD Opinion Letter, 1995 WL
1032489, at *1 (June 5, 1995); WHD Opinion Letter,
1995 WL 1032469, at *1 (Mar. 2, 1995); WHD
Opinion Letter, 1986 WL 740454, at *1 (June 23,
1986); WHD Opinion Letter, 1986 WL 1171083, at
*1 (Jan. 14, 1986); WHD Opinion Letter WH–476,
1978 WL 51437, at *2 (Oct. 19, 1978); WHD
Opinion Letter WH–361, 1975 WL 40984, at *1
(Oct. 1, 1975); WHD Opinion Letter (Sept. 12, 1969);
WHD Opinion Letter (Oct. 12, 1965).
37
Fact Sheet #13 is available at https://
www.dol.gov/sites/dolgov/files/WHD/legacy/files/
whdfs13.pdf (last visited March 9, 2021).
38
WHD maintains additional sub-regulatory
guidance addressing whether a worker is an
employee or independent contractor under the
FLSA. For example, WHD’s Field Operations
Handbook, in its section titled ‘‘Test of the
employment relationship,’’ cross-references Fact
Sheet #13. See Section 10b05 of Chapter 10 (‘‘FLSA
Coverage: Employment Relationship, Statutory
Exclusions, Geographical Limits’’) of WHD’s Field
Operations Handbook, available at https://
www.dol.gov/sites/dolgov/files/WHD/legacy/files/
FOH_Ch10.pdf (last visited March9, 2021); see also
https://www.dol.gov/sites/dolgov/files/WHD/legacy/
files/misclassification-facts.pdf (last visited
March9, 2021). And the section of WHD’s elaws
Advisor compliance-assistance materials addressing
independent contractors provides guidance very
similar to that of Fact Sheet #13. See https://
webapps.dol.gov/elaws/whd/flsa/scope/ee14.asp
(last visited March9, 2021).
39
See 37 FR 12084 (explaining that Part 780 was
revised in order to adapt to the changes made by
the Fair Labor Standards Amendments of 1966 (80
Stat. 830) and implementing 29 CFR 780.330(b) to
apply a six-factor economic realities test to
determine whether a sharecropper or tenant is an
employee under the Act or an independent
contractor); 34 FR 15794 (explaining that Part 788
was revised in order to adapt to the changes made
by the 1966 Amendments and implementing 29
CFR 788.16(a) to apply a six-factor economic
realities test to determine whether workers in
certain forestry and logging operations are
employees under the Act or independent
contractors).
40
See id.
41
See 62 FR 11734 (amending 29 CFR
500.20(h)(4)).
has explained that some of the factors
‘‘which may be useful in distinguishing
employees from independent
contractors for purposes of social
legislation such as the FLSA’’ are: (1)
The degree of the employer’s right to
control the manner in which the work
is to be performed; (2) the worker’s
opportunity for profit or loss depending
upon his or her managerial skill; (3) the
worker’s investment in equipment or
materials required for his or her task, or
employment of helpers; (4) whether the
service rendered requires a special skill;
(5) the degree of permanence of the
working relationship; and (6) whether
the service rendered is an integral part
of the employer’s business.
27
The Ninth
Circuit repeated the Supreme Court’s
instruction that no individual factor is
conclusive and that the ultimate
determination depends upon the
circumstances of the whole activity.
28
Some courts of appeals have applied
the factors with some variations. For
example, the Fifth Circuit typically does
not list the ‘‘integral part’’ factor as one
of the considerations that guides the
analysis.
29
Nevertheless, the Fifth
Circuit—recognizing that the listed
factors are not exhaustive—has
considered the extent to which a
worker’s function is integral to a
business as part of its economic realities
analysis.
30
The Second Circuit varies in
that it treats the employee’s opportunity
for profit or loss and the employee’s
investment as a single factor, but it still
uses the same considerations as the
other circuits to inform its economic
realities analysis.
31
In sum, since the 1940s, federal courts
have consistently analyzed the question
of employee status under the FLSA by
examining the economic realities of the
employment relationship to determine
whether the worker is dependent on the
employer for work or is in business for
him or herself.
32
In doing so, courts
have looked to the six factors first
articulated in Silk as useful guideposts
while acknowledging that those factors
are not exhaustive and should not be
applied mechanically.
33
B. Prior Wage and Hour Division
Guidance
Since at least 1954, the Wage and
Hour Division (WHD) has applied
variations of this multifactor analysis
when considering whether a worker is
an employee under the FLSA or an
independent contractor.
34
In a guidance
document issued in 1964, WHD stated,
‘‘The Supreme Court has made it clear
that an employee, as distinguished from
a person who is engaged in a business
of his own, is one who as a matter of
economic reality follows the usual path
of an employee and is dependent on the
business which he serves.’’
35
Like the
courts, WHD has consistently applied a
multifactor economic realities analysis
when determining whether a worker is
an employee under the FLSA or an
independent contractor.
36
The Department’s primary sub-
regulatory guidance addressing this
topic, WHD Fact Sheet #13,
‘‘Employment Relationship Under the
Fair Labor Standards Act (FLSA),’’
similarly states that, when determining
whether an employment relationship
exists under the FLSA, the test is the
‘‘economic reality’’ rather than an
application of ‘‘technical concepts,’’ and
that status ‘‘is not determined by
common law standards relating to
master and servant.’’
37
Instead, ‘‘it is the
total activity or situation which
controls,’’ and ‘‘an employee, as
distinguished from a person who is
engaged in a business of his or her own,
is one who, as a matter of economic
reality, follows the usual path of an
employee and is dependent on the
business which he or she serves.’’ The
fact sheet identifies seven economic
realities factors; in addition to factors
that are similar to the six factors used
by the federal courts of appeals and
discussed above, it also identifies the
worker’s ‘‘degree of independent
business organization and operation.’’
The fact sheet identifies certain other
factors that are immaterial to
determining whether a worker is an
employee covered under the FLSA or
independent contractor, including the
place where work is performed, the
absence of a formal employment
agreement, and whether an alleged
independent contractor is licensed by a
State or local government.
38
In 1969 and 1972, WHD promulgated
regulations relevant to specific
industries after Congress amended the
FLSA to change the way it applied to
those industries.
39
Those regulations
applied a multifactor analysis under the
FLSA for determining whether a worker
is an employee or independent
contractor in those specific contexts.
40
Further, WHD promulgated a regulation
in 1997 applying a multifactor economic
realities analysis for distinguishing
between employees and independent
contractors under the Migrant and
Seasonal Agricultural Worker Protection
Act (MSPA).
41
On July 15, 2015, WHD issued
Administrator’s Interpretation No.
2015–1, ‘‘The Application of the Fair
Labor Standards Act’s ‘Suffer or Permit’
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42
AI 2015–1 is available at 2015 WL 4449086.
43
See News Release 17–0807–NAT, ‘‘US
Secretary of Labor Withdraws Joint Employment,
Independent Contractor Informal Guidance’’ (Jun. 7,
2017), available at https://www.dol.gov/newsroom/
releases/opa/opa20170607 (last visited March9,
2021).
44
See WHD Opinion Letter FLSA2019–6, 2019
WL 1977301 (Apr. 29, 2019) (withdrawn February
19, 2021).
45
See id. at *3.
46
See id. at *4.
47
See note at https://www.dol.gov/agencies/whd/
opinion-letters/search?FLSA (last visited March 9,
2021).
48
See 86 FR 1168. WHD had published a notice
of proposed rulemaking requesting comments on a
proposal. See 85 FR 60600 (Sept. 25, 2020). The
final rule adopted ‘‘the interpretive guidance set
forth in [that proposal] largely as proposed.’’ 86 FR
1168.
49
See id.
50
See id.
51
86 FR 1172.
52
86 FR 1172–75.
53
See 86 FR 1175.
54
See 86 FR 1246 (section 795.105(a)).
55
See 86 FR 1246 (section 795.105(b)).
56
See id.
57
See 86 FR 1246 (section 795.105(c)).
58
86 FR 1246–47 (sections 795.105(c) &
(d)(2)(iv)).
59
86 FR 1246 (section 795.105(c)).
60
See 86 FR 1246–47 (section 795.105(d)(1)(i)).
61
See id.
62
See 86 FR 1247 (section 795.105(d)(1)(ii)).
Standard in the Identification of
Employees Who Are Misclassified as
Independent Contractors’’ (AI 2015–
1).
42
AI 2015–1 reiterated that the
economic realities of the relationship
are determinative and that the ultimate
inquiry is whether the worker is
economically dependent on the
employer or truly in business for him or
herself. It identified six economic
realities factors that followed the six
factors used by most federal courts of
appeals: (1) The extent to which the
work performed is an integral part of the
employer’s business; (2) the worker’s
opportunity for profit or loss depending
on his or her managerial skill; (3) the
extent of the relative investments of the
employer and the worker; (4) whether
the work performed requires special
skills and initiative; (5) the permanency
of the relationship; and (6) the degree of
control exercised or retained by the
employer. AI–2015–1 further
emphasized that the factors should not
be applied in a mechanical fashion and
that no one factor was determinative. AI
2015–1 was withdrawn on June 7,
2017.
43
In 2019, WHD issued an opinion
letter, FLSA2019–6, regarding whether
workers who worked for companies
operating self-described ‘‘virtual
marketplaces’’ were employees covered
under the FLSA or independent
contractors.
44
Like WHD’s prior
guidance, the letter stated that the
determination depended on the
economic realities of the relationship
and that the ultimate inquiry was
whether the workers depend on
someone else’s business or are in
business for themselves.
45
The letter
identified six economic realities factors
that differed slightly from the factors
typically articulated by WHD
previously: (1) The nature and degree of
the employer’s control; (2) the
permanency of the worker’s relationship
with the employer; (3) the amount of the
worker’s investment in facilities,
equipment, or helpers; (4) the amount of
skill, initiative, judgment, and foresight
required for the worker’s services; (5)
the worker’s opportunities for profit or
loss; and (6) the extent of the integration
of the worker’s services into the
employer’s business.
46
Opinion Letter
FLSA2019–6 was withdrawn for further
review on February 19, 2021.
47
C. The January 2021 Independent
Contractor Rule
On January 7, 2021, the Department
published a final rule entitled
‘‘Independent Contractor Status under
the Fair Labor Standards Act’’ with an
effective date of March 8, 2021
(Independent Contractor Rule or
Rule).
48
The Independent Contractor
Rule would introduce into Title 29 of
the Code of Federal Regulations a new
part (Part 795) titled ‘‘Employee or
Independent Contractor Classification
under the Fair Labor Standards Act’’
that would provide a new generally
applicable interpretation of employee or
independent contractor status under the
FLSA.
49
The Rule would also revise
WHD’s prior interpretations of
independent contractor status in 29 CFR
780.330(b) and 29 CFR 788.16(a), both
of which apply in limited contexts.
50
The Department explained that the
purpose of the Independent Contractor
Rule would be to establish an economic
realities test that improved on prior
articulations that the Rule viewed as
‘‘unclear and unwieldy.’’
51
It stated that
the existing economic realities test
applied by WHD and courts suffered
from confusion regarding the meaning
of ‘‘economic dependence,’’ a lack of
focus in the multifactor balancing test,
and confusion and inefficiency caused
by overlap between the factors.
52
The
Rule explained that the shortcomings
and misconceptions associated with the
test were more apparent in the modern
economy and that additional clarity
would promote innovation in work
arrangements.
53
The Independent Contractor Rule
explained that independent contractors
are not employees under the FLSA and
are therefore not subject to the Act’s
minimum wage, overtime pay, or
recordkeeping requirements.
54
The Rule
would adopt an ‘‘economic
dependence’’ test under which a worker
is an employee of an employer if that
worker is economically dependent on
the employer for work.
55
In contrast, the
worker would be an independent
contractor if the worker is in business
for him or herself.
56
The Rule’s new economic realities test
would identify five economic realities
factors that would guide the inquiry into
a worker’s status as an employee or
independent contractor.
57
These factors
would not be exhaustive, no one factor
would be dispositive, and additional
factors would be considered if they ‘‘in
some way indicate whether the [worker]
is in business for him- or herself, as
opposed to being economically
dependent on the potential employer for
work.’’
58
Two of the identified factors
would be designated as ‘‘core factors’’
that would carry greater weight in the
analysis. If both of those factors
indicated the same classification, as
either an employee or an independent
contractor, there would be a
‘‘substantial likelihood’’ that
classification is the worker’s correct
classification.
59
The first core factor would be the
nature and degree of control over the
work, which would indicate
independent contractor status to the
extent that the worker exercised
substantial control over key aspects of
the performance of the work, such as by
setting his or her own schedule, by
selecting his or her projects, and/or
through the ability to work for others,
which might include the potential
employer’s competitors.
60
Requiring the
worker to comply with specific legal
obligations, satisfy health and safety
standards, carry insurance, meet
contractually agreed upon deadlines or
quality control standards, or satisfy
other similar terms that are typical of
contractual relationships between
businesses (as opposed to employment
relationships) would not constitute
control.
61
The second core factor would be the
worker’s opportunity for profit or loss.
62
This factor would weigh towards the
worker being an independent contractor
to the extent the worker has an
opportunity to earn profits or incur
losses based on either his or her exercise
of initiative (such as managerial skill or
business acumen or judgment) or his or
her management of investment in or
capital expenditure on, for example,
helpers or equipment or material to
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63
See id.
64
See id.
65
See id.
66
See 86 FR 1247 (section 795.105(d)(2)).
67
86 FR 1246 (section 795.105(c)).
68
See 86 FR 1247 (section 795.110).
69
See 86 FR 1247–48 (section 795.115).
70
See https://www.dol.gov/agencies/whd/
opinion-letters/search?FLSA (last visited March 9,
2021), noting the withdrawal of Opinion Letters
FLSA2021–8 and FLSA2021–9.
71
See 86 FR 8326.
72
86 FR 12535.
73
Id. (citing January 20, 2021 memo from the
Assistant to the President and Chief of Staff, titled
‘‘Regulatory Freeze Pending Review,’’ 86 FR 7424).
74
Id.
75
See 29 U.S.C. 203(e)(1), (g).
76
See Rutherford Food, 331 U.S. at 728 & n.7.
77
See generally People ex rel. Price v. Sheffield
Farms-Slawson-Decker Co., 225 N.Y. 25, 29–31
(N.Y. 1918).
78
See, e.g., Parrish, 917 F.3d at 378 (‘‘Given the
remedial purposes of the [FLSA], an expansive
definition of ‘employee’ has been adopted by the
courts.’’ (citation omitted)); Off Duty Police, 915
F.3d at 1054–55 (noting, directly under the heading
‘‘Employment Relationship,’’ that ‘‘[t]he FLSA is ‘a
broadly remedial and humanitarian statute . . .
designed to correct labor conditions detrimental to
the maintenance of the minimum standard of living
necessary for health, efficiency, and general well-
being of workers’’’ (quoting Donovan v. Brandel,
736 F.2d 1114, 1116 (6th Cir. 1984) (some internal
quotation marks omitted)). The FLSA’s broad scope
of employment, broader than the common law, was
not changed by the Supreme Court’s decision in
Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134
(2018), which explained that the Act’s statutory
exemptions should be interpreted fairly because
there is no textual indication that the exemptions
should be construed narrowly. See 138 S. Ct. at
1142. Here, the Act’s definition of ‘‘employ’’ as
including ‘‘to suffer or permit to work’’ gives a clear
textual basis for the breadth of employment under
the FLSA. 29 U.S.C. 203(g); see Off Duty Police, 915
F.3d at 1062 (‘‘[T]hese [economic reality] factors
must be balanced in light of the FLSA’s strikingly
broad definition of employee.’’ (quotations and
citation omitted)).
79
Darden, 503 U.S. at 326; see also Portland
Terminal, 330 U.S. at 150 (in determining employee
status under the FLSA, ‘‘common law employee
categories or employer-employee classifications
under other statutes are not of controlling
significance’’).
80
86 FR 1201, 1246–47 (sections 795.105(c) and
(d)).
81
See, e.g., Fact Sheet #13 (July 2008), available
at https://www.dol.gov/sites/dolgov/files/WHD/
legacy/files/whdfs13.pdf (last visited March 9,
2021).
further the work.
63
While the effects of
the worker’s exercise of initiative and
management of investment would both
be considered under this factor, the
worker would not need to have an
opportunity for profit or loss based on
both initiative and management of
investment for this factor to weigh
towards the worker being an
independent contractor.
64
This factor
would weigh towards the worker being
an employee to the extent the worker is
unable to affect his or her earnings or is
only able to do so by working more
hours or faster.
65
The Rule would also identify three
other factors: The amount of skill
required for the work, the degree of
permanence of the working relationship
between the worker and the employer,
and whether the work is part of an
integrated unit of production (which is
distinct from the concept of the
importance or centrality of the worker’s
work to the employer’s business).
66
The
Rule would provide that these other
factors would be ‘‘less probative and, in
some cases, [would] not be probative at
all’’ and would be ‘‘highly unlikely,
either individually or collectively, to
outweigh the combined probative value
of the two core factors.’’
67
The Rule would further provide that
the actual practice of the parties
involved is more relevant than what
may be contractually or theoretically
possible.
68
The Rule would also provide
five examples illustrating how different
factors would inform the analysis.
69
WHD issued Opinion Letters
FLSA2021–8 and FLSA2021–9 on
January 19, 2021 applying the Rule’s
analysis to specific factual scenarios,
and then withdrew those opinion letters
on January 26, 2021, explaining that the
letters were issued prematurely because
they were based on a Rule that had yet
to take effect.
70
D. Delay of Rule’s Effective Date
On February 5, 2021, the Department
published a proposal to delay the
Independent Contractor Rule’s effective
date until May 7, 2021, 60 days after the
original effective date of March 8,
2021.
71
On March 4, 2021, after
considering the approximately 1,500
comments received in response to that
proposal, the Department published a
final rule delaying the effective date of
the Independent Contractor Rule as
proposed.
72
The Department explained
that the delay was consistent with a
January 20, 2021 memorandum from the
Assistant to the President and Chief of
Staff, titled ‘‘Regulatory Freeze Pending
Review.’’
73
The Department further
explained that a delay would allow it
additional time to consider ‘‘significant
and complex’’ issues associated with the
Rule, including whether the rule
effectuates the FLSA’s purpose to
broadly cover workers as employees as
well as the costs and benefits attributed
to the rule, including its effect on
workers.
74
II. Proposal To Withdraw
The Department proposes to
withdraw the Independent Contractor
Rule, which has not yet taken effect.
The Department’s reasons for proposing
to withdraw the Rule are explained
below, and the Department requests
comments on its proposal.
A. The Rule’s Standard Has Never Been
Used by Any Court or by WHD, and Is
Not Supported by the Act’s Text or Case
Law
WHD recognizes that the cornerstone
of the FLSA is the Act’s broad definition
of ‘‘employ,’’ which provides that an
employee under the Act is any
individual whom an employer suffers,
permits, or otherwise employs to
work.
75
Rather than being derived from
the common law of agency, the FLSA’s
‘‘suffer or permit’’ definition of
‘‘employ’’ originally came from state
laws regulating child labor.
76
This
standard was intended to expand
coverage beyond employers who
controlled the means and manner of
performance.
77
The FLSA’s breadth in
defining the employment relationship,
as well as its clear remedial purpose,
comes from the statutory text itself as
well as the legislative history.
78
This
standard ‘‘stretches the meaning of
‘employee’ [under the FLSA] to cover
some parties who might not qualify as
such under a strict application of
traditional agency law principles.’’
79
The FLSA’s overarching inquiry of
economic dependence thus establishes a
broader scope of employment than that
which exists under the common law of
agency.
Among the reasons the Department is
proposing to withdraw the Rule is that,
upon further review and consideration
of the Rule, the Department questions
whether the Rule is fully aligned with
the FLSA’s text and purpose or case law
describing and applying the economic
realities test.
1. The Choice To Elevate Control and
Opportunity for Profit or Loss as the
‘‘Most Probative’’ Factors in
Determining Employee Status Under the
FLSA
The Rule would elevate two ‘‘core’’
factors, control and opportunity for
profit or loss, above all other factors,
and would provide that only in ‘‘rare’’
cases would the other factors outweigh
the core factors.
80
For decades, WHD,
consistent with case law, has applied a
multi-factor balancing test to assess
whether the worker, as a matter of
economic reality, is economically
dependent on the employer or is in
business for him or herself.
81
Courts
universally apply this analysis as well
and have explained that ‘‘economic
reality’’ rather than ‘‘technical
concepts’’ is the test of employment
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82
Goldberg, 366 U.S. at 33; see also Tony & Susan
Alamo, 471 U.S. at 301 (‘‘The test of employment
under the Act is one of ‘economic reality.’’’)
(quoting Goldberg, 366 U.S. at 33).
83
See, e.g., Razak, 951 F.3d at 142–43; Karlson,
860 F.3d at 1092; Keller v. Miri Microsystems LLC,
781 F.3d 799, 807 (6th Cir. 2015); Lauritzen, 835
F.2d at 1534; Real, 603 F.2d at 754; Fact Sheet #13
(July 2008), available at https://www.dol.gov/sites/
dolgov/files/WHD/legacy/files/whdfs13.pdf (last
visited March [insert], 2021).
84
86 FR 1246–47 (sections 795.105(c) & (d)).
85
See id.
86
Id. at 1197.
87
Id. at 1246 (section 795.105(c)).
88
Id. at 1197 (referencing the NPRM).
89
Id.
90
Id. at 1201 (internal quotation marks omitted).
91
Id. at 1202.
92
See, e.g., Silk, 331 U.S. at 716 (explaining that
‘‘[n]o one [factor] is controlling’’ in the economic
realities test, including ‘‘degrees of control’’);
Parrish, 917 F.3d at 380 (stating that it ‘‘is
impossible to assign to each of these factors a
specific and invariably applied weight’’ (citation
omitted)); Selker Bros., 949 F.2d at 1293 (‘‘It is a
well-established principle that the determination of
the employment relationship does not depend on
isolated factors . . . neither the presence nor the
absence of any particular factor is dispositive.’’).
93
Parrish, 917 F.3d at 380 (quoting Hickey v.
Arkla Indus., Inc., 699 F.2d 748, 752 (5th Cir.
1983)); see also Scantland, 721 F.3d at 1312 n.2 (the
relative weight of each factor ‘‘depends on the facts
of the case’’).
94
See Razak, 951 F.3d at 143 (citing DialAmerica
Mktg., 757 F.2d at 1382); see also McFeeley, 825
F.3d at 241 (‘‘While a six-factor test may lack the
virtue of providing definitive guidance to those
affected, it allows for flexible application to the
myriad different working relationships that exist in
the national economy. In other words, the court
must adapt its analysis to the particular working
relationship, the particular workplace, and the
particular industry in each FLSA case.’’); Ellington
v. City of East Cleveland, 689 F.3d 549, 555 (6th Cir.
2012) (‘‘This ‘economic reality’ standard, however,
is not a precise test susceptible to formulaic
application.... It prescribes a case-by-case
approach, whereby the court considers the
‘circumstances of the whole business activity.’’’)
(quoting Brandel, 736 F.2d at 1116); Morrison v.
Int’l Programs Consortium, Inc., 253 F.3d 5, 11 (D.C.
Cir. 2001) (‘‘No one factor standing alone is
dispositive and courts are directed to look at the
totality of the circumstances and consider any
relevant evidence.’’); Dole v. Snell, 875 F.2d 802,
805 (10th Cir. 1989) (‘‘It is well established that no
one of these factors in isolation is dispositive;
rather, the test is based upon a totality of the
circumstances.’’); Superior Care, 840 F.2d at 1059
(‘‘No one of these factors is dispositive; rather, the
test is based on a totality of the circumstances....
Since the test concerns the totality of the
circumstances, any relevant evidence may be
considered, and mechanical application of the test
is to be avoided.’’); Lauritzen, 835 F.2d at 1534
(‘‘Certain criteria have been developed to assist in
determining the true nature of the relationship, but
no criterion is by itself, or by its absence,
dispositive or controlling.’’); Hickey, 699 F.2d at
752 (‘‘It is impossible to assign to each of these
factors a specific and invariably applied weight.’’);
Usery, 527 F.2d at 1311–12 (‘‘No one of these
considerations can become the final determinant,
nor can the collective answers to all of the inquiries
produce a resolution which submerges
consideration of the dominant factor—economic
dependence.’’).
95
86 FR 1246 (section 795.105(c)).
96
See id. at 1246–47 (section 795.105(d)(1)). The
worker’s opportunity for profit or loss would be the
other core factor.
97
Id. at 1198 (citing 85 FR 60619).
under the FLSA.
82
WHD and the courts
of appeals generally consider and
balance the following economic realities
factors—derived from the Supreme
Court’s decisions in Silk, 331 U.S. at
716, and Rutherford Food, 331 U.S. at
729–30: The nature and degree of the
employer’s control over the work; the
permanency of the worker’s relationship
with the employer; the degree of skill,
initiative, and judgment required for the
work; the worker’s investment in
equipment or materials necessary for the
work; the worker’s opportunity for
profit or loss; whether the service
rendered by the worker is an integral
part of the employer’s business; and the
degree of independent business
organization and operation.
83
The Rule would set forth a new
analysis elevating two factors (control
and opportunity for profit or loss) as
‘‘core’’ factors above the other factors,
and designating them as having greater
probative value.
84
The Rule would
further provide that if both core factors
point towards the same classification—
that the worker is either an employee or
an independent contractor—then there
would be a substantial likelihood that
this is the worker’s correct
classification.
85
In addition, the
preamble to the Rule disagreed that the
economic realities test ‘‘requires factors
to be unweighted or equally
weighted.’’
86
Although the Rule did
identify three other factors, it made
clear that these ‘‘other factors are less
probative and, in some cases, may not
be probative at all, and thus are highly
unlikely, either individually or
collectively, to outweigh the combined
probative value of the two core
factors.’’
87
The Rule underscored that it
‘‘is quite unlikely for the other, less
probative factors to outweigh the
combined weight of the core factors. In
other words, where the two core factors
align, the bulk of the analysis is
complete, and anyone who is assessing
the classification may approach the
remaining factors and circumstances
with skepticism, as only in unusual
cases would such considerations
outweigh the combination of the two
core factors.’’
88
Similarly, the Rule
would provide that unlisted additional
factors may be considered, but that they
are ‘‘unlikely to outweigh either of the
core factors.’’
89
The Rule noted that
‘‘[w]hile all circumstances must be
considered, it does not follow that all
circumstances or categories of
circumstance, i.e., factors, must also be
given equal weight.’’
90
Rather, the Rule
would emphasize the control and
opportunity for profit or loss factors as
more probative than other factors in
determining whether an individual is in
business for him or herself, and provide
that ‘‘other factors are less probative and
may have little to no probative value in
some circumstances.’’
91
WHD understands that no court has
taken the Rule’s approach in analyzing
whether a worker is an employee or an
independent contractor under the FLSA,
and that the Rule would mark a
departure from WHD’s own
longstanding approach. In view of this
elevation of only two factors, the
Department is concerned that the Rule’s
approach may be inconsistent with the
position, expressed by the Supreme
Court and federal courts of appeals, that
no single factor in the analysis is
dispositive.
92
WHD is not aware of any
court that has, as a general and fixed
rule, elevated a subset of the economic
realities factors, and there is no clear
statutory basis for such a predetermined
weighting of the factors. Rather, WHD is
cognizant of the voluminous case law
that emphasizes that it ‘‘ ‘is impossible
to assign to each of these factors a
specific and invariably applied
weight.’ ’’
93
Undeniably, courts have
generally refused to assign universal
weights to certain factors; rather, courts
emphasize that the analysis considers
the totality of the circumstances and
neither the presence nor absence of any
particular factor is dispositive.
94
Accordingly, the Department is
concerned that the Rule’s approach is in
tension with the language of the Act as
well as the position, expressed by the
Supreme Court and in appellate cases
from across the Circuits, that no single
factor is determinative in the analysis of
whether a worker is an employee or
independent contractor and, as such,
questions whether the Rule’s ‘‘core
factor’’ approach is supportable.
2. The Role of Control in the Rule’s
Analysis
As explained, the Independent
Contractor Rule would identify two
factors as ‘‘core’’ factors, would
designate them as ‘‘the most probative’’
of whether a worker is an employee or
independent contractor, and would
provide that each core factor ‘‘typically
carries greater weight in the analysis
than any other factor.’’
95
The nature and
degree of control over the work would
be one of the two core factors.
96
According to the Rule, ‘‘review of case
law indicates that courts of appeals have
effectively been affording the control
and opportunity factors greater weight,
even if they did not always explicitly
acknowledge doing so.’’
97
The Rule
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98
See id. at 1200–01.
99
See Darden, 503 U.S. at 326 (‘‘[T]he FLSA . . .
defines the verb ‘employ’ expansively to mean
‘suffer or permit to work.’ This . . . definition,
whose striking breadth we have previously noted,
stretches the meaning of ‘employee’ to cover some
parties who might not qualify as such under a strict
application of traditional agency law principles.’’
(citations omitted)); Portland Terminal, 330 U.S. at
150–51 (‘‘But in determining who are ‘employees’
under the Act, common law employee categories or
employer-employee classifications under other
statutes are not of controlling significance. This Act
contains its own definitions, comprehensive
enough to require its application to many persons
and working relationships, which prior to this Act,
were not deemed to fall within an employer-
employee category.’’ (citations omitted)); Rutherford
Food, 331 U.S. at 728 (‘‘The [FLSA] definition of
‘employ’ is broad.’’); Rosenwasser, 323 U.S. at 362–
63 (‘‘A broader or more comprehensive coverage of
employees [than that of the FLSA] . . . would be
difficult to frame.’’).
100
See 86 FR 1247 (section 795.105(d)(1)(ii)).
101
Id.
102
Id. at 1188.
103
See id. The Fifth Circuit decisions cited were
Parrish v. Premier Directional Drilling, L.P., 917
F.3d 369, 383 (5th Cir. 2019), and Hopkins v.
Cornerstone America, 545 F.3d 338, 344–46 (5th
Cir. 2008).
104
See Parrish, 917 F.3d at 383; Hopkins, 545
F.3d at 344–46. Indeed, the Fifth Circuit recently
again articulated the investment factor as ‘‘‘the
extent of the relative investments of the worker and
the alleged employer.’’’ Hobbs, 946 F.3d at 829
(quoting Hopkins, 545 F.3d at 343). In Hobbs, the
Fifth Circuit affirmed the district court’s finding
that the relative investments—the potential
employer’s ‘‘overall investment in the pipe
construction projects’’ as compared to the workers’
individual investments—favored employee status.
Id. at 831–32. The Fifth Circuit agreed with the
district court’s conclusion to give the factor ‘‘little
weight in its analysis’’ in that case given the nature
of the industry and work involved. Id. at 832 (citing
Parrish, 917 F.3d at 383). In sum and contrary to
what the Rule would provide, the Fifth Circuit
routinely considers the relative investments of the
worker and the potential employer even if the factor
may ultimately be accorded little weight depending
on the circumstances.
105
See, e.g., McFeeley, 825 F.3d at 243
(comparing the potential employers’ payment of
rent, bills, insurance, and advertising expenses to
the workers’ ‘‘limited’’ investment in their work);
Keller, 781 F.3d at 810 (‘‘We agree that courts must
compare the worker’s investment in the equipment
to perform his job with the company’s total
investment, including office rental space,
advertising, software, phone systems, or
insurance.’’); Baker v. Flint Eng’g & Constr. Co., 137
F.3d 1436, 1442 (10th Cir. 1998) (‘‘In making a
finding on this factor, it is appropriate to compare
the worker’s individual investment to the
employer’s investment in the overall operation.’’);
Lauritzen, 835 F.2d at 1537 (disagreeing that ‘‘the
overall size of the investment by the employer
relative to that by the worker is irrelevant’’ and
finding that ‘‘that the migrant workers’
disproportionately small stake in the pickle-farming
operation is an indication that their work is not
independent of the defendants’’); see also Iontchev
v. AAA Cab Service, Inc., 685 Fed. Appx. 548, 550
(9th Cir. 2017) (noting that the drivers ‘‘invested in
equipment or materials and employed helpers to
perform their work’’ but concluding that the
investment factor was ‘‘neutral’’ because the cab
company ‘‘leased taxicabs and credit card machines
to most of the [drivers]’’).
106
See 86 FR at 1193–96, 1247 (section
795.105(d)(2)(iii)).
107
See id. at 1193–95.
108
Id. at 1195.
109
See id. at 1193–94. The Rule’s discussion of
precedent failed to consider a passage from the
Supreme Court’s decision in Silk, finding that
‘‘unloaders’’ were employees of a retail coal
company as a matter of economic reality in part
because they were ‘‘an integral part of the
businesses of retailing coal or transporting freight.’’
331 U.S. at 716 (emphasis added).
110
See id. at 1193.
addressed and rejected comments which
opined that focusing the analysis on two
core factors—one of which would be
control—would narrow the analysis to a
common law control test.
98
Although the standard for
determining who is an employee and
who is an independent contractor under
the Rule is not the same as the common
law control analysis, the Department is
concerned that significant legal and
policy implications could result from
making control one of only two factors
that would be ascribed greater weight.
For example, the Supreme Court has
repeatedly stated that the FLSA’s
definition of ‘‘employ’’ in section 3(g)
means that the scope of employment
under the Act is broader than under a
common law control (i.e., agency)
analysis.
99
In light of the directive to
consider as employment relationships
under the FLSA a broader scope of
relationships than those where the
employer sufficiently controls the work,
the outsized—even if not exclusive—
role that control would have if the
Rule’s analysis were to apply may be
contrary to the Act’s text and case law.
These considerations are further reasons
the Department is proposing to
withdraw the Rule.
3. The Rule’s Narrowing of the Factors
The Department is also concerned
that the Independent Contractor Rule’s
treatment of the factors would
improperly narrow the application of
the economic realities test. For example,
the Rule would provide that the
opportunity for profit or loss factor
indicates independent contractor status
if the worker has that opportunity based
on either his or her exercise of initiative
(such as managerial skill or business
judgment) or management of his or her
investment in or capital expenditure on
helpers or equipment or material to
further his or her work.
100
The worker
‘‘does not need to have an opportunity
for profit or loss based on both for this
factor to weigh towards the individual
being an independent contractor.’’
101
In
other words, the factor would indicate
independent contractor status if the
worker either: (1) Made no capital
investment but exercised managerial
skill or (2) had a capital investment but
exercised no managerial skill. The Rule
would therefore erase from the analysis
in certain situations the worker’s lack of
capital investment or lack of managerial
skill—both of which are longstanding
and well-settled indicators of employee
status. The worker’s investment and
managerial skill would be considered
only as the two prongs comprising the
opportunity for profit or loss factor
under the Rule, so if one indicates an
opportunity for profit or loss, the other
could not reverse or weigh against that
finding even if it indicates employee
status as a matter of economic reality.
In addition, the preamble to the Rule
provided that ‘‘comparing the
individual worker’s investment to the
potential employer’s investment should
not be part of the analysis of
investment.’’
102
In support, the Rule
cited decisions from the Fifth and
Eighth Circuits in which courts gave
little weight to the comparison of the
potential employer’s investment in its
business to the worker’s investment in
the work in light of the facts presented
in those cases.
103
However, the
decisions cited did make the
comparison of the investments a part of
the analysis, but found that the
comparison had little relevance or
accorded it little weight under those
particular facts.
104
In any event,
numerous other courts of appeals
consider the worker’s investment in the
work in comparison to the potential
employer’s investment in its
business,
105
as does WHD in
enforcement actions. Despite this
authority, the Rule would preclude
comparing the worker’s investment to
the potential employer’s investment.
The Rule would also recast the factor
examining whether the worker’s work
‘‘is an integral part’’ of the employer’s
business as whether the work ‘‘is part of
an integrated unit of production.’’
106
The Rule would reject as irrelevant to
this factor whether the work is
important or central (i.e., integral) to the
employer’s business.
107
Instead, the
Rule would provide that ‘‘the relevant
facts are the integration of the worker
into the potential employer’s production
processes’’ because ‘‘[w]hat matters is
the extent of such integration rather
than the importance or centrality of the
functions performed’’ by the worker.
108
The Rule asserted that this recast
articulation is supported by Supreme
Court precedent,
109
but WHD and courts
often consider whether the work is
important or central, as the Rule
acknowledges.
110
Finally, in stressing the primacy of
actual practice by providing that ‘‘the
actual practice of the parties involved is
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111
Id. at 1247 (section 795.110).
112
Id.; but see Razak, 951 F.3d at 145 (‘‘[A]ctual
control of the manner of work is not essential;
rather, it is the right to control which is
determinative.’’).
113
86 FR 1205.
114
Rosenwasser, 323 U.S. at 362.
115
Darden, 503 U.S. at 326.
116
See footnote 94, supra.
117
Emilie Jackson, Adam Looney, and Shanthi
Ramnath, ‘‘The Rise of Alternative Work
Arrangements: Evidence and Implications for Tax
Filing and Benefit Coverage,’’ The Department of
the Treasury; Office of Tax Analysis (January 2017),
available at https://home.treasury.gov/system/files/
131/WP-114.pdf (last visited March 9, 2021).
118
86 FR 1168.
119
Id. at 1246 (section 795.105(c)).
120
Id.
121
See id. at 1170, 1193–96, 1247 (section
795.105(d)(2)(iii)).
122
See id. at 1193–94.
123
See id. at 1193.
124
See id. at 1211.
125
Id. at 1214–16.
126
Id. at 1223.
127
See id. at 1222.
128
See id. at 1222–23.
more relevant than what may be
contractually or theoretically
possible,’’
111
the Rule would advise that
‘‘a business’ contractual authority to
supervise or discipline an individual
may be of little relevance if in practice
the business never exercises such
authority.’’
112
In support of this
guidance, the Rule’s preamble asserted
that ‘‘the common law control test does
not establish an irreducible baseline of
worker coverage for the broader
economic reality test applied under the
FLSA,’’ and that the FLSA ‘‘does not
necessarily include every worker
considered an employee under the
common law.’’
113
This understanding of
the FLSA’s scope of employment seems
inconsistent with the Supreme Court’s
observations that ‘‘[a] broader or more
comprehensive coverage of employees’’
than that contemplated under the FLSA
‘‘would be difficult to frame,’ ’’
114
and
that the FLSA ‘‘stretches the meaning of
‘employee’ to cover some parties who
might not qualify as such under a strict
application of traditional agency law
principles.’’
115
In the each of the ways identified
above, the Rule would narrow the scope
of facts and considerations comprising
the analysis of whether the worker is an
employee or independent contractor.
The Department proposes to withdraw
the Rule in part because it eliminates
from the economic realities test several
facts and concepts that have deep roots
in both the courts’ and WHD’s
application of the analysis. The
Department is further concerned that for
this reason, the Rule’s approach is
inconsistent with the court-mandated
totality-of-the-circumstances approach
to determining whether a worker is an
employee or an independent
contractor.
116
In addition to these legal
concerns, the Department is concerned,
as a policy matter, that the Rule’s
narrowing of the analysis would result
in more workers being classified as
independent contractors not entitled to
the FLSA’s protections, contrary to the
Act’s purpose of broadly covering
workers as employees. To the extent
that women and people of color are
overrepresented in low-wage
independent contractor positions, as
some commenters asserted as part of the
Independent Contractor Rule
rulemaking, this result could have a
disproportionate impact on low-wage
and vulnerable workers. For example, a
report from the U.S. Treasury
Department Office of Tax Analysis
shows that independent contractors are
more likely to be low-income than those
who are primarily employees. The
report finds that 42 percent of what it
calls ‘‘gig economy or platform workers’’
and 45 percent of ‘‘self-employed sole
proprietors’’ make less than $20,000 a
year, compared to 14 percent of those
who are employees earning wages.
117
B. Whether the Rule Would Provide the
Intended Clarity
One of the Independent Contractor
Rule’s primary stated purposes would
be to ‘‘significantly clarify to
stakeholders how to distinguish
between employees and independent
contractors under the Act.’’
118
Although
the intent of the Rule would be to
provide clarity, it would also (as
discussed above) introduce several
concepts to the analysis that neither
courts nor WHD have previously
applied. The Department’s proposal to
withdraw the Rule arises in part from a
concern regarding the possibility that
these changes will cause confusion or
lead to inconsistent outcomes rather
than provide clarity or certainty, as
intended.
For example, the Rule would identify
two factors as ‘‘core’’ factors, would
designate them as ‘‘the most probative,’’
and would provide that they carry
‘‘greater weight’’ than other factors.
119
The Rule would also provide that, if
both core factors ‘‘point towards the
same classification ..., there is a
substantial likelihood that is the
individual’s accurate classification,’’
and other factors would be ‘‘highly
unlikely, either individually or
collectively, to outweigh’’ the core
factors.
120
Because neither courts nor
WHD have previously pre-assigned
certain factors a greater weight than
other factors or grouped the factors into
categories of ‘‘core’’ and ‘‘other’’ factors,
it may not be clear to courts, WHD, and/
or the regulated community how the
analysis and weighing of factors would
work, and there could be inconsistent
approaches and/or outcomes as a result.
In addition, the Rule would recast
several factors as discussed above. As
one example, the factor that many
courts articulate as whether the work ‘‘is
an integral part’’ of the employer’s
business would be recast as whether the
work ‘‘is part of an integrated unit of
production.’’
121
The Rule asserts that
this revision is supported by Supreme
Court precedent.
122
However, as the
Rule acknowledges,
123
this more limited
articulation has not generally been
applied by courts or WHD and would
thus be unfamiliar to employers,
workers, courts, and WHD. As a result,
there could be inconsistent approaches
and/or outcomes in its application.
In sum, the Rule would make
numerous changes to an economic
realities test that courts and WHD are
familiar with applying. Given that
courts and WHD could struggle with
applying the new concepts introduced
by the Rule, the Department is uncertain
whether the Rule would provide the
clarity that it intends.
C. The Costs and Benefits of the Rule,
Particularly the Assertion That the Rule
Will Benefit Workers as a Whole
As part of its analysis of possible
costs, transfers, and benefits, the
Independent Contractor Rule quantified
some possible costs (regulatory
familiarization) and some possible cost
savings (increased clarity and reduced
litigation).
124
The Rule identified and
discussed—but did not quantify—
numerous other costs, transfers, and
benefits possibly resulting from the
Rule, including ‘‘possible transfers
among workers and between workers
and businesses.’’
125
The Rule
‘‘acknowledge[d] that there may be
transfers between employers and
employees, and some of those transfers
may come about as a result of changes
in earnings,’’ but determined that these
transfers cannot ‘‘be quantified with a
reasonable degree of certainty for
purposes of [the Rule].’’
126
The
Economic Policy Institute (EPI) had
submitted a comment during the
rulemaking estimating that the annual
transfers from workers to employers as
a result of the Rule would be $3.3
billion in pay, benefits, and tax
payments.
127
The Rule discussed its
disagreements with various assumptions
underlying EPI’s estimate and explained
its reasons for not adopting the
estimate.
128
The Rule concluded that
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129
Id. at 1223.
130
Modernizing Regulatory Review:
Memorandum for the Heads of Executive
Departments and Agencies (Jan. 20, 2021),
published at 86 FR 7223 (Jan. 26, 2021).
131
See 86 FR 1210.
132
See, e.g., Rutherford Food, 331 U.S. at 729
(‘‘‘This Act contains its own definitions,
comprehensive enough to require its application to
many persons and working relationships, which
prior to this Act, were not deemed to fall within an
employer-employee category.’’’) (quoting Portland
Terminal, 330 U.S. at 150); Rosenwasser, 323 U.S.
at 362–63 (‘‘A broader or more comprehensive
coverage of employees [than that of the FLSA] . . .
would be difficult to frame.’’).
133
Fact Sheet #13 is available at https://
www.dol.gov/sites/dolgov/files/WHD/legacy/files/
whdfs13.pdf (last visited March 9, 2021).
134
Chapter 10 of Wage and Hour’s Field
Operations Handbook, entitled ‘‘FLSA Coverage:
Employment Relationship, Statutory Exclusions,
Geographical Limits’’, is available at https://
www.dol.gov/sites/dolgov/files/WHD/legacy/files/
FOH_Ch10.pdf (last visited March 9, 2021). The
relevant provision, Section 10b05 (‘‘Test of the
employment relationship’’), is on page 6.
135
See https://webapps.dol.gov/elaws/whd/flsa/
scope/ee14.asp (last visited March 9, 2021).
136
See https://www.dol.gov/agencies/whd/
opinion-letters/search?FLSA (last visited March 9,
2021), noting the withdrawal of Opinion Letters
FLSA2021–8 and FLSA2021–9.
137
Id.
138
See 58 FR 51735 (Sept. 30, 1993).
‘‘workers as a whole will benefit from
[the Rule], both from increased labor
force participation as a result of the
enhanced certainty provided by [the
Rule], and from the substantial other
benefits detailed [in the Rule].’’
129
Although the Rule did not use EPI’s
analysis to quantify transfers, upon
further consideration, the Department
believes that the analysis may be useful
in illustrating the types of impacts that
the Rule would have on workers.
Upon review, the Department does
not believe the Rule fully considered the
likely costs, transfers, and benefits that
could result from the Rule. This concern
is premised in part on WHD’s role as the
agency responsible for enforcing the
FLSA and its experience with cases
involving the misclassification of
employees as independent contractors.
The consequence for a worker of being
classified as an independent contractor
is that the worker is excluded from the
protections of the FLSA. Without the
protections of the FLSA, workers need
not be paid at least the federal minimum
wage for all hours worked, and are not
entitled to overtime compensation for
hours worked over 40 in a workweek.
These impacts can be significant and
must be evaluated further. In addition,
a recent Presidential Memorandum
began a process for agencies to better
‘‘take into account the distributional
consequences of regulations.’’
130
WHD
also questions whether a rule that could
increase the number of independent
contractors,
131
effectuates the FLSA’s
purpose, recognized repeatedly by the
Supreme Court, to broadly provide
employees with its protections.
132
These
concerns are an additional reason that
the Department is proposing to
withdraw the Rule.
D. Withdrawal Would Not Be Disruptive
Because the Rule Has Yet to Take Effect
Because the Independent Contractor
Rule has yet to take effect, the
Department does not believe that
withdrawing it would be disruptive.
Courts have not applied the Rule in
deciding cases. Moreover, WHD has not
implemented the Rule. For example,
WHD’s Fact Sheet #13, titled
‘‘Employment Relationship Under the
Fair Labor Standards Act (FLSA)’’ and
dated July 2008, does not contain the
Rule’s analysis for determining whether
a worker is an employee or independent
contractor.
133
WHD’s Field Operations
Handbook addresses independent
contractor status by simply cross-
referencing Fact Sheet #13 and likewise
does not contain the Rule’s new
economic realities test.
134
WHD’s elaws
Advisor compliance-assistance
information regarding independent
contractors likewise does not contain
the Rule’s analysis.
135
And on January
26, 2021, Wage and Hour withdrew two
opinion letters that it had issued on
January 19, 2021 applying the Rule’s
analysis to several factual scenarios.
136
WHD explained that the letters were
‘‘issued prematurely because they are
based on [a Rule] that ha[s] not gone
into effect.’’
137
Accordingly, the
regulated community has been
functioning under the current state of
the law and the Department does not
believe that it would be negatively
affected by continuing to do so were the
Rule to be withdrawn. In particular, any
businesses currently engaging
independent contractors or individuals
who are now independent contractors
would be able to continue to operate
without any effect brought about by the
absence of new regulations. Even if the
Department withdraws the Rule,
businesses that had taken steps in
preparation for the Rule taking effect
will not be precluded from adjusting
their relationships with workers or
paying for new services from workers,
and can rely on past court decisions and
WHD guidance to determine whether
those workers are employees under the
FLSA or independent contractors.
E. Effect of Proposed Withdrawal
If the Independent Contractor Rule is
withdrawn as proposed: (1) The
guidance that the Rule would have
introduced as Part 795 of Title 29 of the
Code of Federal Regulations will not be
introduced and Part 795 will be
reserved; and (2) the revisions that the
Rule would have made to 29 CFR
780.330(b) and 29 CFR 788.16(a) will
not occur and their text will remain
unchanged. The Department is not
proposing any regulatory guidance to
replace the guidance that the
Independent Contractor Rule would
have introduced as Part 795, so any
commenter feedback addressing or
suggesting such a replacement or
otherwise requesting that the
Department adopt any specific guidance
if the Rule is withdrawn will be
considered to be outside the scope of
this NPRM. In addition to the reasons
for the proposed withdrawal explained
above, withdrawal of the Rule would
allow WHD an additional opportunity to
consider legal and policy issues relating
to the FLSA and independent
contractors.
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995
(PRA) and its attendant regulations
require an agency to consider its need
for any information collections, their
practical utility, as well as the impact of
paperwork and other information
collection burdens imposed on the
public, and how to minimize those
burdens. The PRA typically requires an
agency to provide notice and seek
public comments on any proposed
collection of information contained in a
proposed rule. This NPRM does not
contain a collection of information
subject to Office of Management and
Budget approval under the PRA.
IV. Executive Order 12866, Regulatory
Planning and Review; and Executive
Order 13563, Improved Regulation and
Regulatory Review
A. Introduction
Under Executive Order 12866, OMB’s
Office of Information and Regulatory
Affairs determines whether a regulatory
action is significant and, therefore,
subject to the requirements of the
Executive Order and OMB review.
138
Section 3(f) of Executive Order 12866
defines a ‘‘significant regulatory action’’
as a regulatory action that is likely to
result in a rule that may: (1) Have an
annual effect on the economy of $100
million or more, or adversely affect in
a material way a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
state, local or tribal governments or
communities (also referred to as
economically significant); (2) create
serious inconsistency or otherwise
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139
See 76 FR 3821 (Jan. 21, 2011).
140
See 86 FR 1168. WHD had published a notice
of proposed rulemaking requesting comments on a
proposal. See 85 FR 60600 (Sept. 25, 2020). The
final rule adopted ‘‘the interpretive guidance set
forth in [that proposal] largely as proposed.’’ 86 FR
1168.
141
An establishment is a single physical location
where one predominant activity occurs. A firm is
an establishment or a combination of
establishments.
142
Statistics of U.S. Businesses 2017, https://
www.census.gov/data/tables/2017/econ/susb/2017-
susb-annual.html, 2016 SUSB Annual Data Tables
by Establishment Industry.
143
Occupational Employment and Wages, May
2019, https://www.bls.gov/oes/current/
oes131141.htm.
144
The benefits-earnings ratio is derived from the
Bureau of Labor Statistics’ Employer Costs for
Employee Compensation data using variables
CMU1020000000000D and CMU1030000000000D.
interfere with an action taken or
planned by another agency; (3)
materially alter the budgetary impact of
entitlements, grants, user fees or loan
programs or the rights and obligations of
recipients thereof; or (4) raise novel
legal or policy issues arising out of legal
mandates, the President’s priorities, or
the principles set forth in the Executive
Order. This proposed withdrawal will
be economically significant under
section 3(f) of Executive Order 12866
because it is withdrawing an
economically significant rule.
Executive Order 13563 directs
agencies to, among other things, propose
or adopt a regulation only upon a
reasoned determination that its benefits
justify its costs; that it is tailored to
impose the least burden on society,
consistent with obtaining the regulatory
objectives; and that, in choosing among
alternative regulatory approaches, the
agency has selected those approaches
that maximize net benefits.
139
Executive
Order 13563 recognizes that some costs
and benefits are difficult to quantify and
provides that, when appropriate and
permitted by law, agencies may
consider and discuss qualitatively
values that are difficult or impossible to
quantify, including equity, human
dignity, fairness, and distributive
impacts. The analysis below outlines
the impacts that the Department
anticipates may result from this
proposed withdrawal and was prepared
pursuant to the above-mentioned
executive orders.
B. Background
On January 7, 2021, WHD published
a final rule titled ‘‘Independent
Contractor Status under the Fair Labor
Standards Act’’ (Independent Contractor
Rule or Rule).
140
The Department is
proposing to withdraw the Rule, which
has not taken effect. If this withdrawal
goes forward as proposed, the Rule will
never have been in effect. Aside from
minimal rule familiarization costs, the
Department also provides below a
qualitative discussion of the transfers
that may be avoided by withdrawing the
Rule.
C. Costs
1. Rule Familiarization Costs
Withdrawing the Independent
Contractor Rule would impose direct
costs on businesses that will need to
review the withdrawal. To estimate
these regulatory familiarization costs,
the Department determined: (1) The
number of potentially affected entities,
(2) the average hourly wage rate of the
employees reviewing the withdrawal,
and (3) the amount of time required to
review the withdrawal. It is uncertain
whether these entities would incur
regulatory familiarization costs at the
firm or the establishment level.
141
For
example, in smaller businesses there
might be just one specialist reviewing
the withdrawal, while larger businesses
might review it at corporate
headquarters and determine policy for
all establishments owned by the
business. To avoid underestimating the
costs of the withdrawal, the Department
uses both the number of establishments
and the number of firms to estimate a
potential range for regulatory
familiarization costs. The lower bound
of the range is calculated assuming that
one specialist per firm will review the
withdrawal, and the upper bound of the
range assumes one specialist per
establishment.
The most recent data on private sector
entities at the time this NPRM was
drafted are from the 2017 Statistics of
U.S. Businesses (SUSB), which reports
5,996,900 private firms and 7,860,674
private establishments with paid
employees.
142
Because the Department
is unable to determine how many of
these businesses are interested in using
independent contractors, this analysis
assumes all businesses will undertake
review.
The Department believes ten minutes
per entity, on average, to be an
appropriate review time here. This
rulemaking would withdraw the
Independent Contractor Rule and would
not set forth any new regulations in its
place. Additionally, the Department
believes that many entities do not use
independent contractors and thus
would not spend any time reviewing the
withdrawal. Therefore, the ten-minute
review time represents an average of no
time for the entities that do not use
independent contractors, and
potentially more than ten minutes for
review by some entities that might use
independent contractors.
The Department’s analysis assumes
that the withdrawal would be reviewed
by Compensation, Benefits, and Job
Analysis Specialists (SOC 13–1141) or
employees of similar status and
comparable pay. The median hourly
wage for these workers was $31.04 per
hour in 2019, the most recent year of
data available.
143
The Department also
assumes that benefits are paid at a rate
of 46 percent
144
and overhead costs are
paid at a rate of 17 percent of the base
wage, resulting in a fully loaded hourly
rate of $50.60.
The Department estimates that the
lower bound of regulatory
familiarization cost range would be
$50,675,004 (5,996,900 firms × $50.60 ×
0.167 hours), and the upper bound,
$66,424,267 (7,860,674 establishments ×
$50.60 × 0.167 hours). The Department
estimates that all regulatory
familiarization costs would occur in
Year 1.
Additionally, the Department
estimated average annualized costs of
this proposed withdrawal over 10 years.
Over 10 years, it would have an average
annual cost of $6.7 million to $8.8
million, calculated at a 7 percent
discount rate ($5.8 million to $7.6
million calculated at a 3 percent
discount rate). All costs are in 2019
dollars.
2. Other Costs
In the Independent Contractor Rule,
the Department estimated cost savings
associated with increased clarity, as
well as cost savings associated with
reduced litigation. The Department does
not anticipate that this withdrawal
would increase costs in these areas, or
result in greater costs as compared to
the Rule. Although the intent of the
Rule would be to provide clarity, it
would also introduce several concepts
to the analysis that neither courts nor
WHD have previously applied. Because
the Rule would be unfamiliar and could
lead to inconsistent approaches and/or
outcomes, and because withdrawal
would maintain the status quo, the
Department does not believe that a
withdrawal of the Independent
Contractor Rule would result in
decreased clarity for stakeholders.
One of the main benefits discussed in
the Rule was the increased flexibility
associated with independent contractor
status. The Department acknowledges
that although many independent
contractors report that they value the
flexibility in hours and work,
employment and flexibility are not
mutually exclusive. Many employees
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145
Bureau of Labor Statistics, ‘‘Contingent and
Alternative Employment Arrangements—May
2017,’’ USDL–18–0942 (June 7, 2018), https://
www.bls.gov/news.release/pdf/conemp.pdf.
146
See 86 FR 1218.
147
Courts have noted that the FLSA has the
broadest conception of employment under federal
law. See, e.g., Darden, 503 U.S. at 326. To the extent
that businesses making employment status
determinations base their decisions on the most
demanding federal standard, a rulemaking
addressing the standard for determining whether a
worker is an FLSA employee or an independent
contractor may affect the businesses’ classification
decisions for purposes of benefits and legal
requirements under other federal laws.
148
Internal Revenue Service, ‘‘Publication 15,
(Circular E), Employer’s Tax Guide’’ (Dec. 23, 2019),
https://www.irs.gov/pub/irs-pdf/p15.pdf. The social
security tax has a wage base limit of $137,700 in
2020. An additional Medicare Tax of 0.9 percent
applies to wages paid in excess of $200,000 in a
calendar year for individual filers.
149
M. Reich. ‘‘Pay, Passengers and Profits: Effects
of Employee Status for California TNC Drivers.’’
University of California, Berkeley (October 5, 2020),
https://irle.berkeley.edu/files/2020/10/Pay-
Passengers-and-Profits.pdf; L. Moe, et al. ‘‘The
Magnitude of Low-Paid Gig and Independent
Contract Work in New York State,’’ The New
School Center for New York City Affairs (February
2020), https://static1.squarespace.com/static/
53ee4f0be4b015b9c3690d84/t/5e424affd767af
4f34c0d9a9/1581402883035/Feb112020_
GigReport.pdf.
similarly value and enjoy such
flexibility.
The Department welcomes any
comments and data on other costs
associated with this proposed
withdrawal.
D. Transfers
The Department believes that it is
important to provide a qualitative
discussion of the transfers that would
have occurred under the Rule. In the
economic analysis accompanying the
Rule, the Department assumed that the
Rule would lead to an increase in the
number of independent contractor
arrangements, and acknowledged that
some of this increase could be due to
businesses reclassifying employees as
independent contractors. As discussed
in the Rule and again below, an increase
in independent contracting could have
resulted in transfers associated with
employer-provided fringe benefits, tax
liabilities, and minimum wage and
overtime pay. By withdrawing the Rule,
these transfers from employees (and, in
some cases, from state or local
governments) to employers are avoided.
The Department welcomes any
comments and data on the transfer
impacts associated with this proposed
withdrawal.
1. Employer Provided Fringe Benefits
The reclassification of employees as
independent contractors, or the use of
independent contracting relationships
as opposed to employment, decreases
access to employer-provided fringe
benefits such as health care or
retirement benefits. According to the
BLS Current Population Survey (CPS)
Contingent Worker Supplement (CWS),
79.4 percent of self-employed
independent contractors have health
insurance, compared to 88.3 percent of
employees.
145
This gap between
independent contractors and employees
is also true for low-income workers.
Using CWS data, the Department
compared health insurance rates for
workers earning less than $15 per hour
and found that 71.0 percent of
independent contractors have health
insurance compared with 78.5 percent
of employees.
Additionally, a major source of
retirement savings is employer-
sponsored retirement accounts.
According to the CWS, 55.5 percent of
employees have a retirement account
with their current employer; in
addition, the BLS Employer Costs for
Employee Compensation (ECEC) found
that employers pay 5.3 percent of
employees’ total compensation in
retirement benefits on average ($1.96/
$37.03). If a worker shifts from
employee to independent contractor
status, that worker may no longer
receive employer-provided retirement
benefits.
2. Tax Liabilities
As self-employed workers,
independent contractors are legally
obligated to pay both the employee and
employer shares of the Federal
Insurance Contributions Act (FICA)
taxes. Thus, as discussed in the Rule, if
workers’ classifications change from
employees to independent contractors,
there may be a transfer in federal tax
liabilities from employers to workers.
146
Although the Rule only addressed
whether a worker is an employee or an
independent contractor under the FLSA,
the Department assumes in this analysis
that employers are likely to keep the
status of most workers the same across
all benefits and requirements, including
for tax purposes.
147
These payroll taxes
include the 6.2 percent employer
component of the Social Security tax
and the 1.45 percent employer
component of the Medicare tax.
148
In
sum, independent contractors are
legally responsible for an additional
7.65 percent of their earnings in FICA
taxes (less the applicable tax deduction
for this additional payment).
In addition to affecting tax liabilities
for workers, some commenters claimed
that the Rule would have an impact on
state tax revenue and budgets. In their
comment to the NPRM proposing the
Independent Contractor Rule, several
States’ Attorneys General asserted that
misclassifying employees as
independent contractors leads to losses
in unemployment insurance and
workers’ compensation funds, as well as
increases in the cost of providing health
care coverage to uninsured workers.
Because independent contractors do not
receive benefits like health insurance,
workers compensation, and retirement
plans from an employer, these
commenters suggested that a rule that
increases the prevalence of independent
contracting could shift this burden to
State and Federal governments.
3. Minimum Wage and Overtime
Requirements
When workers are shifted from
employee to independent contractor
status, the minimum wage and overtime
pay requirements of the FLSA no longer
apply. Independent contractors are more
likely to earn less than the minimum
wage: The 2017 CWS data indicate that
independent contractors are more likely
than employees to report earning less
than the FLSA minimum wage of $7.25
per hour (8 percent for self-employed
independent contractors, 5 percent for
other independent contractors, and 2
percent for employees). Research on
drivers who work for online
transportation companies in California
and New York also finds that many
drivers receive significantly less than
the applicable state minimum wages.
149
V. Regulatory Flexibility Act (RFA)
Analysis
The Regulatory Flexibility Act of 1980
(RFA), 5 U.S.C. 601 et seq., as amended
by the Small Business Regulatory
Enforcement Fairness Act of 1996,
Public Law 104–121 (1996), requires
federal agencies engaged in rulemaking
to consider the impact of their proposals
on small entities, consider alternatives
to minimize that impact, and solicit
public comment on their analyses. The
RFA requires the assessment of the
impact of a regulation on a wide range
of small entities, including small
businesses, not-for-profit organizations,
and small governmental jurisdictions.
Accordingly, the Department examined
this proposed withdrawal to determine
whether it would have a significant
economic impact on a substantial
number of small entities.
The most recent data on private sector
entities at the time this NPRM was
drafted are from the 2017 Statistics of
U.S. Businesses (SUSB), which reports
5,996,900 private firms and 7,860,674
private establishments with paid
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14038
Federal Register / Vol. 86, No. 47 / Friday, March 12, 2021 / Proposed Rules
150
Statistics of U.S. Businesses 2017, https://
www.census.gov/data/tables/2017/econ/susb/2017-
susb-annual.html, 2016 SUSB Annual Data Tables
by Establishment Industry.
151
See 2 U.S.C. 1501.
152
Calculated using growth in the Gross Domestic
Product deflator from 1995 to 2019. Bureau of
Economic Analysis. Table 1.1.9. Implicit Price
Deflators for Gross Domestic Product.
1
See 29 U.S.C. 206(a).
employees.
150
Of these, 5,976,761 firms
and 6,512,802 establishments have
fewer than 500 employees. The per-
entity cost for small business employers
is the regulatory familiarization cost of
$8.43, or the fully loaded mean hourly
wage of a Compensation, Benefits, and
Job Analysis Specialist ($50.60)
multiplied by
1
6
hour (ten minutes).
Because this cost is minimal for small
business entities, and well below one
percent of their gross annual revenues,
which is typically at least $100,000 per
year for the smallest businesses, the
Department certifies that this proposed
withdrawal would not have a significant
economic impact on a substantial
number of small entities. The
Department welcomes any comments
and data on this Regulatory Flexibility
Act Analysis, including the costs and
benefits of this proposed withdrawal on
small entities.
VI. Unfunded Mandates Reform Act of
1995
The Unfunded Mandates Reform Act
of 1995 (UMRA)
151
requires agencies to
prepare a written statement for rules
with a federal mandate that may result
in increased expenditures by state,
local, and tribal governments, in the
aggregate, or by the private sector, of
$165 million ($100 million in 1995
dollars adjusted for inflation) or more in
at least one year.
152
This statement
must: (1) Identify the authorizing
legislation; (2) present the estimated
costs and benefits of the rule and, to the
extent that such estimates are feasible
and relevant, its estimated effects on the
national economy; (3) summarize and
evaluate state, local, and tribal
government input; and (4) identify
reasonable alternatives and select, or
explain the non-selection, of the least
costly, most cost-effective, or least
burdensome alternative. This proposed
withdrawal is not expected to result in
increased expenditures by the private
sector or by state, local, and tribal
governments of $165 million or more in
any one year.
VII. Executive Order 13132, Federalism
The Department has (1) reviewed this
proposed withdrawal in accordance
with Executive Order 13132 regarding
federalism and (2) determined that it
does not have federalism implications.
The proposed withdrawal would not
have substantial direct effects on the
States, on the relationship between the
national government and the States, or
on the distribution of power and
responsibilities among the various
levels of government.
VIII. Executive Order 13175, Indian
Tribal Governments
This proposed withdrawal would not
have substantial direct effects on one or
more Indian tribes, on the relationship
between the Federal Government and
Indian tribes, or on the distribution of
power and responsibilities between the
Federal Government and Indian tribes.
Signed this 10th day of March, 2021.
Jessica Looman,
Principal Deputy Administrator, Wage and
Hour Division.
[FR Doc. 2021–05256 Filed 3–11–21; 8:45 am]
BILLING CODE 4510–27–P
DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 791
RIN 1235–AA37
Rescission of Joint Employer Status
Under the Fair Labor Standards Act
Rule
AGENCY
: Wage and Hour Division,
Department of Labor.
ACTION
: Notice of proposed rulemaking;
request for comments.
SUMMARY
: This notice of proposed
rulemaking (NPRM) proposes to rescind
the final rule entitled ‘‘Joint Employer
Status Under the Fair Labor Standards
Act,’’ which published on January 16,
2020 and took effect on March 16, 2020.
The proposed rescission would remove
the regulations established by that rule.
DATES
: Submit written comments on or
before April 12, 2021.
ADDRESSES
: You may submit comments,
identified by Regulatory Information
Number (RIN) 1235–AA37 by either of
the following methods: Electronic
Comments: Submit comments through
the Federal eRulemaking Portal at
http://www.regulations.gov. Follow the
instructions for submitting comments.
Mail: Address written submissions to
Division of Regulations, Legislation, and
Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S–
3502, 200 Constitution Avenue NW,
Washington, DC 20210. Instructions:
Please submit only one copy of your
comments by only one method.
Commenters submitting file attachments
on www.regulations.gov are advised that
uploading text-recognized documents—
i.e., documents in a native file format or
documents which have undergone
optical character recognition (OCR)—
enable staff at the Department to more
easily search and retrieve specific
content included in your comment for
consideration. Anyone who submits a
comment (including duplicate
comments) should understand and
expect that the comment will become a
matter of public record and will be
posted without change to https://
www.regulations.gov, including any
personal information provided. The
Department will post comments
gathered and submitted by a third-party
organization as a group under a single
document ID number on https://
www.regulations.gov. All comments
must be received by 11:59 p.m. EST on
April 12, 2021 for consideration. The
Department strongly recommends that
commenters submit their comments
electronically via http://
www.regulations.gov to ensure timely
receipt prior to the close of the comment
period, as the Department continues to
experience delays in the receipt of mail.
Submit only one copy of your comments
by only one method. Docket: For access
to the docket to read background
documents or comments, go to the
Federal eRulemaking Portal at http://
www.regulations.gov.
FOR FURTHER INFORMATION CONTACT
:
Amy DeBisschop, Division of
Regulations, Legislation, and
Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S–
3502, 200 Constitution Avenue NW,
Washington, DC 20210; telephone: (202)
693–0406 (this is not a toll-free
number). Copies of this NPRM may be
obtained in alternative formats (Large
Print, Braille, Audio Tape or Disc), upon
request, by calling (202) 693–0675 (this
is not a toll-free number). TTY/TDD
callers may dial toll-free 1–877–889–
5627 to obtain information or request
materials in alternative formats.
SUPPLEMENTARY INFORMATION
:
I. Background
The Fair Labor Standards Act (FLSA
or Act) requires all covered employers
to pay nonexempt employees at least the
federal minimum wage for every hour
worked in a non-overtime workweek.
1
In an overtime workweek, for all hours
worked in excess of 40 in a workweek,
covered employers must pay a
nonexempt employee at least one and
one-half times the employee’s regular
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