[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