Department of Labor Withdraws Independent Contractor Rule

The U.S. Department of Labor announced the withdrawal – effective May 6 – of the “Independent Contractor Rule,” to protect workers’ rights to the minimum wage and overtime compensation protections of the Fair Labor Standards Act (FLSA). The Department is withdrawing the rule for several reasons, including: The independent contractor rule was in tension with the FLSA’s text and…

Department of Labor Withdraws Independent Contractor Rule

The U.S. Department of Labor announced the withdrawal – effective May 6 – of the “Independent Contractor Rule,” to protect workers’ rights to the minimum wage and overtime compensation protections of the Fair Labor Standards Act (FLSA).

The Department is withdrawing the rule for several reasons, including:

  • The independent contractor rule was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.
  • The rule’s prioritization of two “core factors” for determining employee status under the FLSA 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.
  • The rule would have narrowed the facts and considerations comprising the analysis whether a worker is an employee or an independent contractor, resulting in workers losing FLSA protections.

Withdrawing the independent contractor rule will help preserve essential workers’ rights. The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime compensation at not less than one-and-one-half times their regular rate of pay for every hour over 40 in a workweek. FLSA protections do not apply to independent contractors.

In addition to preserving access to the FLSA’s wage and hour protections, the department anticipates that withdrawing the independent contractor rule will also avoid other disruptive economic effects that would have been harmful to workers had the rule gone into effect.

Dept of Labor Plans to Rescind Rules on Independent Contractors, Joint Employer Relationships

The U.S. Department of Labor today announced plans to rescind two final rules under the Fair Labor Standards Act.

The first Notice of Proposed Rulemaking proposes the withdrawal of the Independent Contractor Final Rule issued by the department on issued on Jan. 7, 2021, for several reasons. They include the following:

  • The rule adopted a new “economic reality” test to determine whether a worker is an employee or an independent contractor under the FLSA.
  • Courts and the department have not used the new economic reality test, and FLSA text or longstanding case law does not support the test.
  • The rule would narrow or minimize other factors considered by courts traditionally; making the economic test less likely to establish that a worker is an employee under the FLSA.

Among its provisions, the FLSA requires covered employers to pay employees at least the federal minimum wage for every hour worked and overtime premium pay of at least one and one-half times their regular rate of pay for every hour worked over 40 in a workweek. An independent contractor has no FLSA protections.

The second Notice of Proposed Rulemaking seeks to rescind a current regulation on joint employer relationships under the Fair Labor Standards Act, published in the Federal Register and which took effect on March 16, 2020. In February 2020, 17 states and the District of Columbia filed a lawsuit in the U.S. District Court for the Southern District of New York against the department, arguing that the Joint Employer Rule violated the Administrative Procedure Act. The court vacated the majority of the Joint Employer Rule on Sept. 8, 2020, stating that the rule was contrary to the FLSA and was “arbitrary and capricious” due to its failure to explain why the department had deviated from all prior guidance or consider the effect of the rule on workers.

The department invites comments from the public on both proposed rules at www.regulations.gov. The comment periods end on April 12, 2021.

Anyone who submits a comment (including duplicate comments) should understand and expect that the comment, including any personal information provided, will become a matter of public record. The division will post comments without change at www.regulations.gov and include any personal information provided. The division posts comments gathered and submitted by a third-party organization as a group, using a single document ID number at the site.

More information about the proposed rules is available at https://www.dol.gov/agencies/whd/flsa/2021-independent-contractor and at https://www.dol.gov/agencies/whd/flsa/2020-joint-employment.

Littler “Ask the Experts”: Payroll Audit Independent Determination Program

Through NAHC’s partnership with Littler Mendelson P.C Labor & Employment Law Solutions, we are excited to share the “Ask the Experts” Article. Each week, we will feature a new question, from you our members, related to workplace issues and topics that will be answered from our experts and partners at Littler.

This week’s question comes from our private duty home care advisory board members and concerns the recent announcement about the Department of Labor’s PAID program.

Question: What does it mean that the U.S. Department of Labor (DOL) has ended its Payroll Audit Independent Determination (PAID) program last Friday (January 29, 2021)?

Answer by Will Vail of Littler Mendelson

The PAID program began in March 2018 and allowed employers an alternative method to rectify overtime and minimum wage violations of the federal Fair Labor Standards Act (FLSA) without the worry of an extended statute of limitations, penalties, and threat of private litigation or attorneys’ fees.  The Wage Hour Division repeatedly touted the program’s success (the most recent numbers – from this past summer – show that it collected more than $7 Million in wages for 11,000 workers).  In its press release announcing the end of the program, however, the DOL indicated that the resources and outreach provided by the Wage and Hour Division to employers are sufficient to help employers comply with the FLSA “without relieving them of their legal obligations.”

Under the PAID program, employers were able to self-report a wage violation, submit a calculation of back wages to the DOL, and enter into an agreement to pay 100% of back wages owed over a two-year period. In turn, the DOL would supervise and approve the settlement permitting employees to issue a valid release of the claim, limited to the reported issue. The DOL agreed not to seek a third year of back wages, liquidated damages, or civil money penalties, and kept the identity of reporting employers confidential, subject to FOIA requests. As an additional incentive for employers to participate in the PAID program, the DOL agreed not to investigate the underlying merits of the issue that the employer self-reported; instead, its review was limited to the back wage calculations prepared by the employer for accuracy.

Without the self-reporting PAID program, the only two options available to release FLSA claims are through a court-approved settlement or as a result of a DOL-initiated investigation.  The PAID program did not release any state law claims, which was why some employers did not avail themselves of it, but the program did allow for significant relief for employers to correct issues without the threat of additional litigation or negative publicity.

Even without the added benefits of the PAID program, employers should continue to be proactive to audit pay records and correct potential wage issues if identified.  This is particularly true for the at-home care industry (home health, hospice and home care).  Even under the previous administration, there was substantial litigation against companies in this industry.

Big picture, this likely is an example of the new administration’s stance on employment matters generally.  It is likely going to take a stricter enforcement posture with companies.  Indeed, the new administration has already added more than a dozen new political appointees to the DOL, including in the Solicitor’s office (the part of the DOL that litigates against employers).

Do you have a question for our experts at Littler?

As part of our commitment to you as our members we want to make sure to support you with the information and leadership expertise you need to provide quality private duty home care and services.

If you have a question for our experts at Littler, please feel free to send your question to erb@nahc.org and we will work to get your question answered as quickly as possible and then featured in an upcoming Ask the Experts section of the Private Duty Source.

About Littler

At Littler, we understand that workplace issues can’t wait. With access to more than 1,500 employment attorneys in over 80 offices around the world, our clients don’t have to. We aim to go beyond best practices, creating solutions that help clients navigate a complex business world. With deep experience and resources that are local, everywhere, we are fully focused on your business. With a diverse team of the brightest minds, we foster a culture that celebrates original thinking. And with powerful proprietary technology, we disrupt the status quo – delivering groundbreaking innovation that prepares employers not just for what’s happening today, but for what’s likely to happen tomorrow. For over 75 years, our firm has harnessed these strengths to offer fresh perspectives on each matter we advise, litigate, mediate, and negotiate. Because at Littler, we’re fueled by ingenuity and inspired by you.

About Will Vail, Special Council

William Vail brings a wealth of private practice and in-house experience to every matter he handles. For nearly seven years, he was lead employment counsel two separate divisions of largest post-acute health care provider in the nation (the home health, hospice and community care division and nursing center division). He later was lead employment and litigation counsel for the largest home health and hospice provider in the nation following a corporate reorganization. In addition to a wide variety of employment issues, Will is familiar with False Claims Act, professional liability and general liability matters related to healthcare operations.

Will is a core member of Littler’s healthcare practice group. He has experience litigating across the United States, providing advice and counsel to both legal and non-legal stakeholders, performing due diligence related to mergers and acquisitions, helping start-ups begin operations in a compliant method, winding down operations, conducting management training, and assisting in the integration of new entities into going concerns.

William Vail began his legal career in 2004 as a law clerk to a federal judge sitting in the Western District of Virginia. He then transitioned to private practice in Louisville, Kentucky, for a regional full-service firm and later a national labor and employment boutique firm. At Littler, Will is based in Louisville as well as Atlanta.

*Not licensed to practice law in Georgia

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