The Biden administration has begun to dive into policymaking with short-sighted executive orders and staff memorandum. One of the first casualties is the Department of Labor’s independent contractor rule, which was published in early January and slated to go into effect on March 8.
Even though the independent contractor rule was finalized according to the rulemaking process, the Biden administration has ordered a “freeze” of its implementation. What does this mean?
For years, the Obama administration declined to publish a rule related to independent contractors, instead using agency guidance to shape policy. Guidance documents are exempt from the important notice-and-comment procedure that is statutorily required for formal rules, effectively allowing agencies rulemaking power outside the rulemaking process. Instead of regulating independent contractors through memos, the Department of Labor under the Trump administration chose the more transparent and democratic approach of a formal rule, giving the public a fair opportunity for input and providing the regulated community a more precise understanding of their legal obligations.
Regulatory compliance is critical to building business reputation, avoiding penalties, and protecting the workforce. But inconsistencies between federal courts have created uncertainty for business owners and independent workers. Complicated interpretations of the Fair Labor Standards Act (FLSA) were resolved with this clarifying, formal independent contractor rule.
Common sense tells us there is a difference between a worker economically dependent on someone else’s business and a worker who is in business for themselves. Under the FLSA, a worker is an independent contractor if she is in business for herself. This is called the “economic reality” test.
The independent contractor rule—frozen by the Biden administration—doesn’t undo the “economic reality” test. Instead, it clarifies the existing test by identifying the factors to determine whether a worker is economically dependent or independent. Complicated labor laws mean less economic opportunity. The rule is designed to promote more work opportunities by simplifying compliance.
The rule also explains two core factors: a worker’s control over her work and the opportunity for profit or loss resulting from the worker’s own investment or initiative. It’s important to give greater weight to these factors because they best demonstrate whether a worker is economically dependent or their own boss. And this is a smart rule because people like being their own boss.
Overwhelmingly, the majority of independent contractors prefer their work arrangements. If implemented, the rule would make the test more adaptable to work relationships, and it is important for labor laws to reflect the real world. Flexible work schedules allow independent contractors the opportunity to spend more time with their families and loved ones. Workers with additional health care needs that may prevent participation in the workforce can generate income that would normally be unavailable. A constant struggle for single parents is finding the right balance between work and parenting—something remedied with much more ease as an independent contractor.
Setting aside the enormous value to individuals, their families, and the economy by allowing workers to engage in work as an independent contractor, it’s important to recognize the ability for independent workers to be confident in their earning capabilities.
The independent contractor rule should be implemented, since it would have provided consistency in a time of particular uncertainty. It would have ensured greater worker freedom, empowering entrepreneurs and making it easier for people from all walks of life to provide for their families. Biden’s directive rendered the improved approach to independent contractors an unfortunate casualty, setting up more confusion and uncertainty while limiting work opportunities for entrepreneurial Americans.