Mark Pestronk
Q: In your Feb. 10 column, you predicted that the Trump administration would repeal the Labor Department's rules governing what constitutes an independent contractor versus an employee. Those rules, adopted during the Biden administration, established rather difficult criteria for true IC status. Has the repeal happened? If not, has the Biden rule been upheld in court? If so, would the court's decision now be affected by the Supreme Court's recent case holding that nationwide injunctions are generally not allowed?
A: The Trump administration has made clear that it intends to roll back the Biden‑era Labor Department independent contractor rule (finalized in March 2024) and revert to the more host‑friendly test effective during Trump's first term. The staff at the Labor Department has even been instructed to stop enforcing the Biden rule.
However, as of now, the 2024 Biden rule remains in effect for private lawsuits because the Trump administration has not yet repealed it or adopted any new rule. Recently, a federal court in New Mexico upheld the Biden rule against various legal challenges from employers.
So, host agencies are confronted with the unusual legal circumstance where an IC or a group of ICs can sue for minimum wages and overtime under the Biden rule, but the federal agency in charge of minimum wages and overtime will not do so or help the plaintiffs.
In a nutshell, the Biden rule requires a company to treat workers as employees when they are "economically dependent" on the company for work. A relationship under which an IC depends on the host for training, marketing or referrals might well fail the Biden test. This means that the IC could successfully sue for employee benefits, at least for the time being.
The more employer-friendly Trump test applied an "economic-reality test" that primarily considers just two main factors: the nature and degree of the individual's control over the work and the individual's opportunity for profit or loss. A relationship under which an IC can decide how, when and where to work would probably pass muster.
So which rule should a host try to comply with right now? Fortunately, it is possible to comply with both rules, and that is what I advise my host agency clients to try to do. For example, hostees should be required to develop their own clientele and should not be told how, when or where to work.
That said, there is another set of host agency legal considerations that are frankly more important than the ever-changing Labor Department rules: To prevent fraudulent activities affecting clients, suppliers and the host itself, hosts need to prohibit activities such as depositing client funds into the IC's own bank account, even though such a prohibition tells the IC "how" to work. In general, fraud prevention is more important than reclassification prevention.
The Supreme Court's recent precedent limiting nationwide injunctions does not apply to challenges brought under the Administrative Procedure Act, which governs appeals from federal rules. So a federal court can still enjoin rules nationwide.