Federal Court in Texas Resurrects Business-Friendly Independent Contractor Rule Under FLSA

Misclassification of workers as independent contractors has been a hot button issue with state and federal departments of labor (DOLs) for years.  Under the Fair Labor Standards Act (FLSA), the federal wage and hour law, non-exempt employees must be paid overtime at a rate of time and one half their regular rate for hours worked in excess of 40.  Correctly classified independent contractors are not entitled to overtime pay under the FLSA.

The Trump Administration issued a new Independent Contractor Rule under the FLSA that was slated to take effect on March 8, 2021.  The purpose in revising the US DOL’s interpretation of independent contractor status under the FLSA was “to promote certainty for stakeholders, reduce litigation, and encourage innovation in the economy.”  The new rule is widely viewed as much more business friendly making it easier to satisfy the test to classify workers as independent contractors. 

With the change in administration associated with President Biden’s election, the US DOL reversed course on the new independent contractor rule. On March 4, 2021, the rule’s implementation was delayed, then withdrawn altogether on May 6, 2021.  On March 14, 2022, in a challenge to those actions, the United States District Court for the Eastern District of Texas in Coalition for Workforce Innovation v. Walsh, 2002 U.S. Dist. Leis 68401 (E.D. Tex. 2022) resurrected the Trump-Era independent contractor rule.  The ruling declared that the actions of the US DOL to delay, and then withdraw, the rule violated the Administrative Procedures Act and were ineffective.  As such, the rule became effective as planned on March 8, 2021. 

At least on the federal level, this is good news for businesses subject to the more favorable rule now in effect under FLSA that are looking to hire independent contractors to address workforce issues.  In addition to evaluating whether proposed workers satisfy the requirements of the new rule, businesses will also need to assess whether the workers will pass muster under any other applicable tests, including but not limited to any state DOL tests.  At this time, it is unclear whether the US DOL will appeal the decision or engage in further rulemaking to revise the rule.

P|K Tuned-In provides general legal information, not legal advice.  You should consult your attorney for guidance specific to your particular situation.