In a surprising move, a federal court has thrown out the Biden administration’s attempt to throw out the Trump administration’s new rule to determine when workers are traditional employees and when they are contractors. This is good news because the Trump administration’s proposed rule updating the Fair Labor Standards Act (FLSA) provided a short, simple and clear standard that protected the rights of freelance workers. The Biden administration would prefer to retain the FLSA’s older, more confusing version, but for now, at least, the Trump version is the official rule.
The Biden administration’s effort failed because it didn’t follow the correct bureaucratic procedure. They may try again, but properly rewriting the rule will take months if not longer. In the meantime, freelancers and managers alike will have more freedom to conduct business without interference.
The issue of when a worker is a contractor—that is, a freelancer—is significant because most so-called gig economy companies rely on contractors as their main workforce. App-based rideshare companies Uber and Lyft are probably the best-known examples. The companies argue that the flexibility of contract work is crucial to their operations.
It is an important issue because the government’s attempt to rein in app-based employers threatens the ability of all workers to do freelance work. Attempting to draw a distinction between freelancing and what app-based companies do has proven to be extremely difficult because, legally-speaking, there really isn’t a difference. App-based companies may rely on relatively new technology, but that’s it. California lawmakers discovered how tricky the issue can be when they tried to bring Uber and Lyft to heel with the state’s AB5 law, which sparked a statewide backlash.
Critics, especially unions, claim the companies are misclassifying workers as contractors to circumvent federal regulations on things like health insurance and overtime, which apply mainly to traditional employees. Contractors are legally considered to be independent businesses. As it happens, contract workers are also much harder for unions to organize. The National Labor Relations Act, the law covering union organizing, mainly applies to traditional employees.
Amazingly, the FLSA until recently had no clear rule for when a worker was an employee or a contractor. Instead, the Department of Labor used six factors that indicate whether a worker might be an employee and none of them was considered definitive.
The Trump administration attempted to fix this with a new guideline stating that two of the six factors the FLSA used—an individual’s degree or control over the work and his or her ability to profit or make a loss from it—were the “core factors” to be considered. The guideline was just that, a guideline, not a regulation with a bright line. Courts and regulators could have still considered the FLSA’s other four factors. States still had the ability of setting higher standards than the federal government.
The Biden administration and its union allies disliked the rule because it limited the authority of federal regulators. As Secretary of Labor Marty Walsh put it, the simplified rule “would have undermined the longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.” In short, regulators had a lot more authority to fudge things under the old six-point test. That might have been good for the regulators but ideally the purpose of a rule should be to provide clarity to the public. The Trump version is unambiguously better in that regard. The Biden administration should just leave it be.