[Federal Register Volume 86, Number 41 (Thursday, March 4, 2021)]
[Rules and Regulations]
[Pages 12535-12537]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-04608]
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Parts 780, 788, and 795
RIN 1235-AA34
Independent Contractor Status Under the Fair Labor Standards Act
(FLSA): Delay of Effective Date
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule; delay of effective date.
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SUMMARY: Consistent with the Presidential directive as expressed in the
memorandum of January 20, 2021, from the Assistant to the President and
Chief of Staff, titled ``Regulatory Freeze Pending Review,'' this
action finalizes the Department of Labor's proposal to delay until May
7, 2021, the effective date of the rule titled Independent Contractor
Status Under the Fair Labor Standards Act (``Independent Contractor
Rule'' or ``January 2021 Rule''), which was published in the Federal
Register on January 7, 2021, to allow the Department to review issues
of law, policy, and fact raised by the rule before it takes effect.
DATES: As of March 4, 2021, the effective date of the Independent
Contractor Rule published January 7, 2021 at 86 FR 1168 is delayed
until May 7, 2021.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Division of
Regulations, Legislation, and Interpretation, Wage and Hour Division,
U.S. Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210; telephone: (202) 693-0406 (this is not a toll-
free number). Copies of this final rule may be obtained in alternative
formats (Large Print, Braille, Audio Tape or Disc), upon request, by
calling (202) 693-0675 (this is not a toll-free number). TTY/TDD
callers may dial toll-free 1-877-889-5627 to obtain information or
request materials in alternative formats. Questions of interpretation
or enforcement of the agency's existing regulations may be directed to
the nearest Wage and Hour Division (``WHD'') district office. Locate
the nearest office by calling the WHD's toll-free help line at (866)
4US-WAGE ((866) 487-9243) between 8 a.m. and 5 p.m. in your local time
zone, or log onto WHD's website at https://www.dol.gov/agencies/whd/contact/local-offices for a nationwide listing of WHD district and area
offices.
SUPPLEMENTARY INFORMATION:
I. Background
On January 7, 2021, the U.S. Department of Labor (``the
Department'') published the Independent Contractor Rule in the Federal
Register with an effective date of March 8, 2021. See 86 FR 1168. The
Independent Contractor Rule would, among other actions, introduce into
title 29 of the Code of Federal Regulations a new part (part 795)
titled ``Employee or Independent Contractor Classification Under the
Fair Labor Standards Act.'' See id. In a memorandum dated January 20,
2021, and titled ``Regulatory Freeze Pending Review,'' published in the
Federal Register on January 28, 2021 (86 FR 7424) (``Regulatory Freeze
Memorandum''), the Assistant to the President and Chief of Staff, on
behalf of the President, directed the heads of Executive Departments
and Agencies to consider delaying the effective dates of all
regulations that had been published in the Federal Register but had not
yet taken effect. The Independent Contractor Rule fell within this
category. The Regulatory Freeze Memorandum states that the purpose of
such delays is for agencies to review any questions of fact, law, and
policy that the rules may raise, noting certain exceptions that do not
apply to the Independent Contractor Rule. On January 20, 2021, the
Office of Management and Budget (OMB) also published OMB Memorandum M-
21-14, Implementation of Memorandum Concerning Regulatory Freeze
Pending Review, which provides guidance regarding the Regulatory Freeze
Memorandum. See OMB Memorandum M-21-14, Implementation of Memorandum
Concerning Regulatory Freeze Pending Review, https://www.whitehouse.gov/wp-content/uploads/2021/01/M-21-14-Regulatory-Review.pdf (last visited February 25, 2021). OMB Memorandum M-21-14
explains that pursuant to the Regulatory Freeze Memorandum, agencies
``should consider postponing the effective dates for 60 days and
reopening [the] rulemaking processes'' for ``rules that have not yet
taken effect and about which questions involving law, fact, or policy
have been raised.'' Id.
On February 5, 2021, the Department issued a notice of proposed
rulemaking (NPRM) in accordance with the Regulatory Freeze Memorandum
and OMB Memorandum M-21-14 proposing to delay the effective date of the
Independent Contractor Rule to May 7, 2021, which would be 60 days
beyond its original effective date. See 86 FR 8326.
In the NPRM, the Department explained that delaying the effective
date of the Independent Contractor Rule would give the Department
additional opportunity to review and consider the Independent
Contractor Rule, as the Regulatory Freeze Memorandum and OMB Memorandum
M-21-14 contemplate. The Department noted that the Independent
Contractor Rule would be its first generally applicable regulation
addressing the question of who is an independent contractor and thus
not an employee under the FLSA, and would adopt a new legal standard
for determining employee and independent contractor status under the
FLSA. In light of the significance of this change, the Department
proposed to allow itself more time to further review and consider,
among other important issues, the legal, policy, and/or enforcement
implications of adopting that standard, such as: Whether the January
2021 Rule effectuates the
[[Page 12536]]
FLSA's purpose, recognized repeatedly by the Supreme Court, to broadly
cover workers as employees; the costs and benefits attributed to the
January 2021 Rule, including the assertion that workers as a whole will
benefit from the January 2021 Rule; and/or whether the January 2021
Rule's explanation of the standard provides clarity for stakeholders
and for the purposes of enforcement, as was intended.\1\
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\1\ See generally 86 FR 8327.
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In the NPRM, the Department explained that it believed a 60-day
delay would not be disruptive. The Department noted that the
Independent Contractor Rule is not yet effective, and the Department
has not implemented the Independent Contractor Rule. The Department
further explained that its public guidance, including the longstanding
Fact Sheet #13, titled ``Employment Relationship Under the Fair Labor
Standards Act (FLSA),'' https://www.dol.gov/agencies/whd/fact-sheets/13-flsa-employment-relationship, does not contain the Independent
Contractor Rule's new standard for determining whether a worker is an
employee or independent contractor and will continue to be publicly
available. Moreover, the Department explained that federal courts
across the country have developed and applied legal analyses for
determining employee and independent contractor status under the FLSA.
Therefore, employers and workers are already familiar with the legal
standard that the Department and courts will apply when determining a
worker's employment status under the FLSA during any delay of the
January 2021 Rule's effective date.
The Department sought comment on its proposal to delay the
effective date of the Independent Contractor Rule. The period for
providing comment expired on February 24, 2021.
II. Comments and Decision
The Department received 1,512 comments in response to the NPRM.
Many workers and representatives of workers supported delaying the
effective date of the Independent Contractor Rule, stating that the
delay would allow the Department to further consider whether the
Independent Contractor Rule was inconsistent with the intent of the
FLSA, as well as relevant case law, and evaluate the extent to which
the Independent Contractor Rule may not have fully considered
additional costs to workers. For example, numerous commenters,
including A Better Balance, the American Federation of State, County
and Municipal Employees, the Center for Law and Social Policy, The
Leadership Conference on Civil and Human Rights, the National
Employment Law Project, NETWORK Lobby for Catholic Social Justice, the
Service Employees International Union (SEIU), the Shriver Center on
Poverty Law, and the United Brotherhood of Carpenters & Joiners of
America, asked the Department to delay the January 2021 Rule to
consider, among other issues, the January 2021 Rule's deviation from
statutory text and relevant case law as well as the January 2021 Rule's
impact on workers. Many of these comments noted that the January 2021
Rule will have a $3.3 billion cost to workers each year, and will cause
the most harm to workers of color in low-paying jobs in industries,
such as janitorial services, home care, and agriculture, in which
independent contractor misclassification is common. The Attorneys
General of New York, Pennsylvania, California, Colorado, Connecticut,
Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland,
Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, North
Carolina, Oregon, Rhode Island, Vermont, Virginia, and Washington also
submitted a comment supporting the proposed delay, asserting that the
January 2021 Rule would impose costs on states and does not increase
clarity regarding the standard for determining who is an employee and
who is an independent contractor. The Department agrees with these
commenters that allowing more time for consideration of the January
2021 Rule is reasonable given the significant and complex issues the
January 2021 Rule raises, including whether the January 2021 Rule is
consistent with the statutory intent to broadly cover workers as
employees as well as the costs and benefits of the rule, including its
effect on workers. Moreover, allowing the Independent Contractor Rule
to go into effect while the Department undertakes a further review of
the Independent Contractor Rule could lead to confusion and uncertainty
among workers and businesses in the event that the Department proposes
changes to the Independent Contractor Rule following its review.
Numerous businesses, trade associations, individuals who identified
themselves as freelancers or independent contractors, and their
representatives opposed the NPRM because they believe the new standard
created in the Independent Contractor Rule will provide clarity, and
they would like it to take effect on its original effective date. For
example, the American Council of Life Insurers, the Center for
Workplace Compliance, the Coalition to Promote Independent
Entrepreneurs, the National Association of Home Builders, the Harbor
Trucking Association and Association of Bi-State Motor Carriers, and
the Washington Legal Foundation took this stance; many of these
commenters asserted that the Department fully considered the January
2021 Rule during the initial rulemaking process, and others stated that
they had undertaken preparations in anticipation of the January 2021
Rule going into effect.\2\ The Department also received hundreds of
nearly identical comments from individuals who identified themselves as
``a financial professional, small business owner and an independent
contractor'' affiliated with LPL Financial, who expressed a desire to
be able to continue to choose to be independent contractors. The
Department has considered the comments opposing the delay of the
effective date of the January 2021 Rule, but does not agree with them.
The maintenance of the current state of the law would not be disruptive
to current business practices, so the regulated community would not be
significantly affected by the continuation of the longstanding status
quo for 60 additional days. In addition, individuals who are currently
independent contractors will not be affected by a delay of the
Independent Contractor Rule, because they are already not employees
under the FLSA. Although the Department understands that some
commenters favor the January 2021 Rule and may have chosen to prepare
to make adjustments to their operations in anticipation of it, the
Department does not believe that the delay is significant enough to
overcome its interest in carefully considering the January 2021 Rule
pursuant to the Regulatory Freeze Memorandum and OMB Memorandum M-21-
14.\3\
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\2\ Commenters such as the Chamber of Commerce and Seyfarth Shaw
on behalf of the Coalition for Workforce Innovation also asserted
that the Department's fundamental basis for a delay--that the
Independent Contractor Rule would create a new standard for
determining who is an employee under the FLSA versus an independent
contractor, and that this significant change merits further
consideration--is incorrect. They note that the Independent
Contractor Rule sets forth an economic realities test, which courts
have used for decades. Although these commenters are correct that
courts and the Department have previously applied an economic
realities test for this purpose, the substance of the test in the
January 2021 Rule--for example, giving two factors greater weight in
the analysis and nearly dispositive weight if they both point toward
the same classification--is different in a number of significant
ways from the existing analysis.
\3\ Some commenters opposed to the proposed delay, including the
U.S. Chamber of Commerce and Seyfarth Shaw on behalf of the
Coalition for Workforce Innovation, argued that the Department had
not based its reasons for proposing a delay on those enumerated in
OMB Memorandum M-21-14. But the issues the Department indicated it
would consider if allowed additional time, including the FLSA's
purpose, the costs and benefits of the rule, and the clarity the
rule does or does not provide, are among the types of issues
referenced in the memorandum. See OMB Memorandum M-21-14 (directing
agencies to consider in deciding whether delay of a rule's effective
date is appropriate, among other things, whether ``the rule
reflected proper consideration of all relevant facts,'' ``the rule
reflected due consideration of the agency's statutory or other legal
obligations,'' ``the rule is based on a reasonable judgment about
the legally relevant policy considerations,'' and ``objections to
the rule were adequately considered'').
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[[Page 12537]]
Some commenters raised procedural objections to the Department's
proposed delay. The Associated Builders and Contractors, the Financial
Services Institute, and Littler Mendelson, P.C.'s Workplace Policy
Institute asserted that the 19-day comment period for this rulemaking
was insufficient, and critiqued the Department's statement in the NPRM
that ``WHD will consider only comments about its proposal to delay the
rule's effective date.'' 86 FR 8327. The Department believes that the
19-day comment period did provide a meaningful opportunity to comment
on the proposed delay. The Department received over 1,500 comments in
response to the NPRM proposing to delay the January 2021 Rule's
effective date, comparable to the approximately 1,800 comments it
received in response to the substantive notice of proposed rulemaking
that it published in September 2020. See 85 FR 60600. Moreover, given
the Independent Contractor Rule's original March 8, 2021 effective
date, it would have been impracticable to afford a longer comment
period. Had the Department allowed for a longer comment period, the
Independent Contractor Rule would have taken effect before the delay
could begin, which would have defeated the purpose of this rule and
caused additional confusion for regulated entities. As to the issue of
the scope of comments sought in this rulemaking, the Department sought
comments about, and considered whether, issues of policy, law, and fact
warrant an extension of the Independent Contractor Rule's original
effective date by 60 days. If after having had additional time to
consider the January 2021 Rule, the Department decides to propose any
changes to the January 2021 Rule, it will at that point solicit
comments on its substantive proposal.
Other commenters, including Littler Mendelson, P.C. and the
National Federation of Independent Business, asserted that any delay to
the Independent Contractor Rule's March 8, 2021 effective date must be
published at least 30 days before such a delay takes effect. The
Department disagrees. Section 553(d) of the Administrative Procedure
Act provides that substantive rules should take effect not less than 30
days after the date they are published in the Federal Register unless
``otherwise provided by the agency for good cause found.'' 5 U.S.C.
553(d)(3). Even if this provision were to apply, the Department finds
that it would have good cause to make this rule effective immediately
upon publication. Like allowing for a longer comment period, allowing
for a 30-day delay between publication and the effective date of this
rulemaking would result in the January 2021 Rule taking effect before
the delay begins, which would undermine this rule's fundamental purpose
of delaying the effective date before the Independent Contractor Rule
takes effect in accord with the Regulatory Freeze Memorandum and result
in additional confusion for regulated entities. The Regulatory Freeze
Memorandum was issued on January 20, 2021, only 47 days before the
rule's original effective date of March 8, 2021. It would not have been
practicable to issue an NPRM proposing to delay the Independent
Contractor Rule and allow for ample time for public comment on that
proposal in time to publish a final rule not less than 30 days before
March 8. Moreover, this rulemaking merely implements a 60-day delay of
the Independent Contractor Rule, rather than itself imposing any new
compliance obligations on the regulated community. Therefore, the
Department finds that a lapse between publication and the effective
date of this rule delaying the Independent Contractor Rule's effective
date is unnecessary. Because allowing for a 30-day period between
publication and the effective date of this rulemaking is both
unnecessary and impracticable, there is good cause to make this final
rule delaying the Independent Contractor Rule's effective date
effective immediately upon publication.
After reviewing timely comments submitted, the Department has
decided to delay the Independent Contractor Rule's effective date from
March 8, 2021, to May 7, 2021, as proposed. This delay will allow the
Department additional time to review the multiple issues of law,
policy, and fact that warrant additional review and consideration in
accordance with the Regulatory Freeze Memorandum before the Independent
Contractor Rule goes into effect.
Signed this 2nd day of March, 2021.
Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-04608 Filed 3-2-21; 4:15 pm]
BILLING CODE 4510-27-P