Federal Court Rules against DOL, Reinstates Independent Contractor Rule

March 30, 2022

During the Trump Administration, the U.S. Department of Labor (DOL) promulgated a rule simplifying the analysis used to determine whether a worker is an independent contractor or an employee. For a refresher on this topic, see my October 14, 2020, article below, U.S. DOL Proposes New Rule for Determining Independent Contractor Status. The new rule was to become effective March 8, 2021, but the Biden administration delayed the effective date and later completely rescinded the rule. See the updates dated February 14, 2021, and June 21, 2021, below.

Several business groups filed a civil action in the U.S. District Court for the Eastern District of Texas, challenging the Biden administration’s actions (Coalition for Workforce Innovation v. Walsh). The judge found that the DOL violated the Administrative Procedures Act (APA) when it delayed the effective date of the rule and again when it rescinded the rule.

As to the proposed delay, the court found that the DOL erred in three ways. First, when it proposed delaying the rule’s effective date, the DOL allowed only 19 days for public comment, even though multiple courts have said a comment period of less than 30 days is rarely warranted. In this case, the judge found that “the DOL did not provide a meaningful opportunity for comment.” Second, the DOL restricted public comment to the “binary choice” of whether to delay the new rule’s effective date, thereby precluding public comment on other alternatives. Third, after expiration of the 19-day notice and comment period, the DOL issued a Final Rule that immediately implemented the delay, disregarding a 30-day waiting period required by the APA.

Regarding the withdrawal of the new rule, the court held that the DOL’s procedure was arbitrary and capricious under the APA because it restricted comments solely to the question of whether to rescind the rule, instead of permitting the public to propose other alternatives such as modifying the rule. The court said, “By refusing to consider alternatives to the total withdrawal of the Independent Contractor Rule, the DOL failed to ‘consider important aspects of the problem before [it]’—the lack of clarity of the economic realities test and the need for regulatory certainty.”

As a result of this analysis, the judge vacated the Biden administration’s actions and held that the Independent Contractor Rule became effective March 8, 2021 (its original effective date) and remains in effect.

What is the Biden administration’s next move? It can file an appeal with the U.S. Court of Appeals for the Fifth Circuit, which seems likely. Alternatively – or concurrently – the DOL can begin the process of complying with the APA in its efforts to reverse the Trump administration’s Independent Contractor Rule.