March 7, 2024

Legislation Proposed in Congress to Repeal DOL’s Final Rule on Independent Contractor Classification

Rep. Kevin Kiley, a Republican from California, together with Sen. Bill Cassidy from Louisiana, launched initiatives under the Congressional Review Act (CRA) aimed at reversing the Department of Labor’s (DOL) updated regulation, which imposes stricter criteria for classifying workers as independent contractors rather than employees.

The regulation, set to take effect on March 11, is currently facing opposition and legal challenges from various business organizations. This rule supersedes a 2021 framework that primarily relied on two key factors—the degree of control over the work and the chance for profit or loss—to determine a worker’s status. It introduces a more complex six-factor assessment as per the U.S. Chamber of Commerce, which is actively contesting the rule.

Emily M. Dickens, the Chief of Staff and Head of Public Affairs at SHRM, voiced strong support for the CRA’s effort to retract the worker classification rule under the Fair Labor Standards Act (FLSA) and revert to the guidelines established in 2021. Dickens expressed concerns that the current rule introduces confusion and may prevent companies from providing critical training to independent contractors, potentially harming both parties. In her view, the 2021 rule offered a balanced approach that enhanced business flexibility while minimizing the risks of misclassifying employees.

The new rule has been criticized for possibly limiting American workers’ opportunities to work as independent contractors, with Rep. Kiley highlighting the adverse impacts on countless independent professionals and those preferring flexible work setups.

Furthermore, the rule introduces ambiguity and complexity for businesses, particularly small ones, as they navigate the process of correctly classifying their workforce. Critics argue that such ambiguity could undermine the independent contractor model that benefits both businesses and workers by allowing operational scalability and work flexibility.

Rule’s Six Factors

Six factors to be considered under the new test are:

  • The degree to which the employer controls how the work is done.
  • The worker’s opportunity for profit or loss.
  • The amount of skill and initiative required for the work.
  • The degree of permanence of the working relationship.
  • The worker’s investment in equipment or materials required for the task.
  • The extent to which the service rendered is an integral part of the employer’s business.

During a House Committee on Education and the Workforce hearing on February 14, Rep. Kiley called for the withdrawal of this rule, seeking clearer distinctions between employees and independent contractors from the DOL’s Wage and Hour Division. Despite being challenged on several fronts through lawsuits alleging its contradiction to the Administrative Procedure Act and deviations from the original FLSA text, overturning the rule via the CRA in a Democrat-majority Senate and bypassing a potential presidential veto poses significant hurdles.

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