The Department of Labor (DOL) sent its final rule imposing new restrictions on independent contracting to the Office of Management and Budget (OMB)–a last step to finalizing proposed regulations.
The Biden Administration proposed rule changes in late 2022 that would make it more difficult for American workers to operate as independent contractors under the Fair Labor Standards Act (FLSA).
Independent contractors are not employees but individual small businesses. They determine how many clients to take as well as when, where, and how to work. This offers immense flexibility that traditional employees do not enjoy. The tradeoff though is that they do not receive benefits such as healthcare nor are they covered by other workplace regulations such as overtime, minimum wage, and unemployment.
Independent contractors happily choose flexibility to manage other priorities such as raising children, caring for sick and aging parents, managing their own health issues, or pursuing entrepreneurship. Women overwhelmingly prefer to be freelancers.
As IWF fellow Gabriella Hoffman explained previously:
The DOL claims workers are grossly misclassified as independent contractors by employers and should therefore be reclassified as employees. They assert worker misclassification is a “serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.” But in reality, the DOL rule changes will restrict worker freedom and choice because they seek to correct a non-existent problem of worker classification. Existing laws already identify and address misclassification in the workplace. If the DOL proceeds here, they’ll erase independent workers by rewriting them out of existence.
IWF believes that the DOL’s proposed rules would lead to devastating impacts for women and independent contractors. When similar regulations were implemented by the California legislature through Assembly Bill 5 (AB5), freelancers lost incomes, businesses, and livelihoods. The Biden Administration’s sweeping new rule would have national impacts.
OMB’s review process could take up to 90 days leading to the finalization of the rule before the end of 2023.
Timeline of DOL’s independent contractor regulation reforms:
Over the past three years, the independent status of freelancers has been batted from side to side like a tennis ball. The Trump and Biden Administrations have taken competing approaches to setting the standards to determine which workers are classified as independent contractors.
Here is a timeline of those regulatory measures:
- On January 7, 2021, the Department of Labor under President Trump published a final rule on independent contractor status under the Fair Labor Standards Act (FLSA). This rule set a definition that was more favorable to independent contractors.
- The DOL under President Biden delayed and withdrew the 2021 IC Rule on March 4, 2021, and May 6, 2021, respectively.
- On March 14, 2022, a federal district court in Texas vacated the Department’s Delay and Withdrawal Rules, concluding that the 2021 IC Rule had become effective as of March 8, 2021. The Department has appealed the district court’s decision.
- The Biden DOL published its new proposed rule to replace the Trump-era rule on October 13, 2022.
It is critical that policymakers protect worker freedom. Alarmingly, the Biden Adminisitration is working against the freedom of workers to choose the type of work that best fits their situations.