[Federal Register Volume 86, Number 47 (Friday, March 12, 2021)]
[Proposed Rules]
[Pages 14027-14038]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-05256]
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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;
Withdrawal
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: This notice of proposed rulemaking (NPRM) proposes to withdraw
the final rule titled ``Independent Contractor Status under the Fair
Labor Standards Act,'' which was published on January 7, 2021 and the
effective date of which is currently May 7, 2021.
DATES: Submit written comments on or before April 12, 2021.
ADDRESSES: You may submit comments, identified by Regulatory
Information Number (RIN) 1235-AA34, by either of the following methods:
Electronic Comments: Submit comments through the Federal eRulemaking
Portal at http://www.regulations.gov. Follow the instructions for
submitting comments. Mail: Address written submissions to 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. Instructions: Please submit only one copy of your
comments by only one method. Commenters submitting file attachments on
www.regulations.gov are advised that uploading text-recognized
documents--i.e., documents in a native file format or documents which
have undergone optical character recognition (OCR)--enable staff at the
Department to more easily search and retrieve specific content included
in your comment for consideration. Anyone who submits a comment
(including duplicate comments) should understand and expect that the
comment will become a matter of public record and will be posted
without change to https://www.regulations.gov, including any personal
information provided. The Department will post comments gathered and
submitted by a third-party organization as a group under a single
document ID number on https://www.regulations.gov. All comments must be
received by 11:59 p.m. EST on April 12, 2021 for consideration. The
Department strongly recommends that commenters submit their comments
electronically via http://www.regulations.gov to ensure timely receipt
prior to the close of the comment period, as the Department continues
to experience delays in the receipt of mail. Submit only one copy of
your comments by only one method. Docket: For access to the docket to
read background documents or comments, go to the Federal eRulemaking
Portal at http://www.regulations.gov.
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 proposal 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.
SUPPLEMENTARY INFORMATION:
I. Background
A. Statutory and Legal Background
The Fair Labor Standards Act (FLSA or Act) requires all covered
employers to pay nonexempt employees at least the federal minimum wage
for every hour worked in a non-overtime workweek.\1\ In an overtime
workweek, for all hours worked in excess of 40 in a workweek, covered
employers must pay a
[[Page 14028]]
nonexempt employee at least one and one-half times the employee's
regular rate.\2\ The FLSA also requires covered employers to make,
keep, and preserve certain records regarding employees.\3\
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\1\ 29 U.S.C. 206(a).
\2\ 29 U.S.C. 207(a).
\3\ 29 U.S.C. 211(c).
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The FLSA's minimum wage and overtime pay requirements apply only to
employees.\4\ Section 3(e) generally defines ``employee'' to mean ``any
individual employed by an employer.'' \5\ Section 3(d) of the Act
defines ``employer'' to ``include[ ] any person acting directly or
indirectly in the interest of an employer in relation to an employee.''
\6\ Section 3(g) defines ``employ'' to ``include[ ] to suffer or permit
to work.'' \7\
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\4\ See 29 U.S.C. 206 (minimum wage) and 207 (overtime pay).
\5\ 29 U.S.C. 203(e)(1).
\6\ 29 U.S.C. 203(d).
\7\ 29 U.S.C. 203(g).
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The Supreme Court, in interpreting these definitions, has stated
that ``[a] broader or more comprehensive coverage of employees within
the stated categories would be difficult to frame,'' and that ``the
term `employee' had been given `the broadest definition that has ever
been included in any one act.' '' \8\ The Supreme Court has further
stated that the ``striking breadth'' of the FLSA's definition of
``employ''--``to suffer or permit to work''--``stretches the meaning of
`employee' to cover some parties who might not qualify as such under a
strict application of traditional agency law principles.'' \9\ Thus,
the FLSA expressly rejects the common law standard for determining
whether a worker is an employee.\10\
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\8\ United States v. Rosenwasser, 323 U.S. 360, 362, 363 n.3
(1945) (quoting 81 Cong. Rec. 7657 (statement of Senator Black)).
\9\ Nationwide Mut. Ins. v. Darden, 503 U.S. 318, 326 (1992).
\10\ See id.; Walling v. Portland Terminal Co., 330 U.S. 148,
150-51 (1947) (``But in determining who are `employees' under the
Act, common law employee categories or employer-employee
classifications under other statutes are not of controlling
significance. This Act contains its own definitions, comprehensive
enough to require its application to many persons and working
relationships, which prior to this Act, were not deemed to fall
within an employer-employee category.'' (citation omitted)).
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Though the FLSA's definition of employee is broader than the common
law definition, the Supreme Court has also recognized that the Act was
``not intended to stamp all persons as employees.'' \11\ The Supreme
Court has acknowledged that even a broad definition of employee ``does
not mean that all who render service to an industry are employees.''
\12\ One category of workers that has been recognized as being outside
the FLSA's broad definition of ``employees'' is ``independent
contractors.'' \13\ Courts have thus recognized a need to delineate
between employees, who fall under the protections of the FLSA, and
independent contractors, who do not.
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\11\ Portland Terminal, 330 U.S. at 152; see also Rutherford
Food Corp. v. McComb, 331 U.S. 722, 729 (1947) (workers may not be
employees when their work does not ``in its essence . . . follow[ ]
the usual path of an employee'').
\12\ United States v. Silk, 331 U.S. 704, 712 (1947) (analyzing
the definition of employee under the Social Security Act).
\13\ Rutherford Food, 331 U.S. at 729 (``There may be
independent contractors who take part in production or distribution
who would alone be responsible for the wages and hours of their own
employees.'').
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The Supreme Court has repeatedly emphasized that the test for
whether an individual is an employee under the FLSA is one of
``economic reality.'' \14\ Under this test, the ``technical concepts''
used to label a worker as an employee or independent contractor do not
drive the analysis, but rather it is the economic realities of the
relationship between the worker and the employer that is
determinative.\15\
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\14\ Tony & Susan Alamo Found. v. Sec'y of Labor, 471 U.S. 290,
301 (1985) (quoting Goldberg v. Whitaker House Coop., Inc., 366 U.S.
28, 33 (1961)).
\15\ Goldberg, 366 U.S. at 32-33.
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In United States v. Silk, 331 U.S. 704, 712 (1947), an early case
applying an economic realities test under the Social Security Act, the
Supreme Court acknowledged that ``[p]robably it is quite impossible to
extract from the statute a rule of thumb'' regarding the distinction
between employees and independent contractors.\16\ The Court suggested
that federal agencies and courts ``will find that degrees of control,
opportunities for profit or loss, investment in facilities, permanency
of relation and skill required in the claimed independent operation are
important for decision.'' \17\ The Court cautioned that no single
factor is controlling and that the list is not exhaustive.\18\ The
Court went on to note that the workers in that case were ``from one
standpoint an integral part of the businesses'' of the employer,
supporting a conclusion that some of the workers in that case were
employees.\19\
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\16\ 331 U.S. at 716. At the time, the Supreme Court noted that
``[d]ecisions that define the coverage of the employer-[e]mployee
relationship under the Labor and Social Security acts are persuasive
in the consideration of a similar coverage under the Fair Labor
Standards Act.'' Rutherford Food Corp. v. McComb, 331 U.S. 722, 723-
23 (1947). However, Congress amended the Social Security Act in
1948.
\17\ 331 U.S. at 716.
\18\ See id.
\19\ Id.
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The same day that the Supreme Court issued its decision in Silk, it
also issued Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), in
which it affirmed a circuit court decision that analyzed an FLSA
employment relationship based on its economic realities.\20\ The Court
rejected an approach based on ``isolated factors'' and again considered
``the circumstances of the whole activity.'' \21\ The Court considered
several of the factors that it listed in Silk as they related to meat
boners on a slaughterhouse's production line, ultimately determining
that the boners were employees.\22\ The Court noted, among other
things, that the boners did a specialty job on the production line, had
no business organization that could shift to a different slaughter-
house, and were best characterized as ``part of the integrated unit of
production under such circumstances that the workers performing the
task were employees of the establishment.'' \23\
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\20\ See Rutherford Food, 331 U.S. at 727.
\21\ Id. at 730.
\22\ See id.
\23\ Id. at 729-30.
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Since Silk and Rutherford Food, federal courts of appeals have
applied the economic realities test to distinguish independent
contractors from employees who are entitled to the FLSA's protections.
Recognizing that the common law concept of ``employee'' had been
rejected for FLSA purposes, courts of appeals followed the Supreme
Court's instruction that ```employees are those who as a matter of
economic realities are dependent upon the business to which they render
service.' '' \24\
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\24\ Usery v. Pilgrim Equip. Co., 527 F.2d 1308, 1311 (5th Cir.
1976) (quoting Bartels v. Birmingham, 332 U.S. 126, 130 (1947)).
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All of the courts of appeals have followed the economic realities
test, and nearly all of them analyze the economic realities of an
employment relationship using the factors identified in Silk.\25\ No
court of appeals considers any factor or combination of factors to
universally predominate over the others in every case.\26\ For example,
the Ninth Circuit
[[Page 14029]]
has explained that some of the factors ``which may be useful in
distinguishing employees from independent contractors for purposes of
social legislation such as the FLSA'' are: (1) The degree of the
employer's right to control the manner in which the work is to be
performed; (2) the worker's opportunity for profit or loss depending
upon his or her managerial skill; (3) the worker's investment in
equipment or materials required for his or her task, or employment of
helpers; (4) whether the service rendered requires a special skill; (5)
the degree of permanence of the working relationship; and (6) whether
the service rendered is an integral part of the employer's
business.\27\ The Ninth Circuit repeated the Supreme Court's
instruction that no individual factor is conclusive and that the
ultimate determination depends upon the circumstances of the whole
activity.\28\
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\25\ See Baystate Alternative Staffing, Inc. v. Herman, 163 F.3d
668, 675 (1st Cir. 1998); Brock v. Superior Care, Inc., 840 F.2d
1054, 1058-59 (2d Cir. 1988); Donovan v. DialAmerica Mktg., Inc.,
757 F.2d 1376, 1382-83 (3d Cir. 1985); McFeeley v. Jackson Street
Entm't, LLC, 825 F.3d 235, 241 (4th Cir. 2016); Acosta v. Off Duty
Police Services, Inc., 915 F.3d 1050, 1055 (6th Cir. 2019);
Secretary of Labor, U.S. Dep't of Labor v. Lauritzen, 835 F.2d 1529,
1534 (7th Cir. 1987); Karlson v. Action Process Service & Private
Investigation, LLC, 860 F.3d 1089, 1092 (8th Cir. 2017); Real v.
Driscoll Strawberry Associates, Inc., 603 F.2d 748, 754 (9th Cir.
1979); Acosta v. Paragon Contractors Corp., 884 F.3d 1225, 1235
(10th Cir. 2018); Scantland v. Jeffry Knight, Inc., 721 F.3d 1308,
1311 (11th Cir. 2013); Morrison v. Int'l Programs Consortium, Inc.,
253 F.3d 5, 11 (D.C. Cir. 2001).
\26\ See, e.g., Parrish v. Premier Directional Drilling, L.P.,
917 F.3d 369, 380 (5th Cir. 2019) (stating that it ``is impossible
to assign to each of these factors a specific and invariably applied
weight'' (citation omitted)); Martin v. Selker Bros., 949 F.2d 1286,
1293 (3d Cir. 1991) (``It is a well-established principle that the
determination of the employment relationship does not depend on
isolated factors . . . neither the presence nor the absence of any
particular factor is dispositive.''); Scantland, 721 F.3d at 1312
n.2 (the relative weight of each factor ``depends on the facts of
the case'').
\27\ Real, 603 F.2d at 754.
\28\ See id.
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Some courts of appeals have applied the factors with some
variations. For example, the Fifth Circuit typically does not list the
``integral part'' factor as one of the considerations that guides the
analysis.\29\ Nevertheless, the Fifth Circuit--recognizing that the
listed factors are not exhaustive--has considered the extent to which a
worker's function is integral to a business as part of its economic
realities analysis.\30\ The Second Circuit varies in that it treats the
employee's opportunity for profit or loss and the employee's investment
as a single factor, but it still uses the same considerations as the
other circuits to inform its economic realities analysis.\31\
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\29\ See Usery, 527 F.2d at 1311.
\30\ See Hobbs v. Petroplex Pipe and Constr., Inc., 946 F.3d
824, 836 (5th Cir. 2020).
\31\ See, e.g., Franze v. Bimbo Bakeries USA, Inc., 826 F. App'x
74, 76 (2d Cir. 2020).
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In sum, since the 1940s, federal courts have consistently analyzed
the question of employee status under the FLSA by examining the
economic realities of the employment relationship to determine whether
the worker is dependent on the employer for work or is in business for
him or herself.\32\ In doing so, courts have looked to the six factors
first articulated in Silk as useful guideposts while acknowledging that
those factors are not exhaustive and should not be applied
mechanically.\33\
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\32\ See, e.g., Franze, 826 F. App'x at 76; Razak v. Uber
Techs., Inc., 951 F.3d 137, 142-43 (3d Cir. 2020); Gilbo v. Agment,
LLC, 831 F. App'x 772, 775 (6th Cir. 2020).
\33\ See, e.g., Superior Care, 840 F.2d at 1054.
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B. Prior Wage and Hour Division Guidance
Since at least 1954, the Wage and Hour Division (WHD) has applied
variations of this multifactor analysis when considering whether a
worker is an employee under the FLSA or an independent contractor.\34\
In a guidance document issued in 1964, WHD stated, ``The Supreme Court
has made it clear that an employee, as distinguished from a person who
is engaged in a business of his own, is one who as a matter of economic
reality follows the usual path of an employee and is dependent on the
business which he serves.'' \35\ Like the courts, WHD has consistently
applied a multifactor economic realities analysis when determining
whether a worker is an employee under the FLSA or an independent
contractor.\36\
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\34\ See WHD Opinion Letter (Aug. 13, 1954) (applying six
factors very similar to the six economic realities factors currently
used by courts of appeals).
\35\ WHD Opinion Letter FLSA-795 (Sept. 30, 1964).
\36\ See, e.g., WHD Opinion Letter, 2002 WL 32406602, at *2
(Sept. 5, 2002); WHD Opinion Letter, 2000 WL 34444342, at *3 (Dec.
7, 2000); WHD Opinion Letter, 2000 WL 34444352, at *1 (Jul. 5,
2000); WHD Opinion Letter, 1999 WL 1788137, at *1 (Jul. 12, 1999);
WHD Opinion Letter, 1995 WL 1032489, at *1 (June 5, 1995); WHD
Opinion Letter, 1995 WL 1032469, at *1 (Mar. 2, 1995); WHD Opinion
Letter, 1986 WL 740454, at *1 (June 23, 1986); WHD Opinion Letter,
1986 WL 1171083, at *1 (Jan. 14, 1986); WHD Opinion Letter WH-476,
1978 WL 51437, at *2 (Oct. 19, 1978); WHD Opinion Letter WH-361,
1975 WL 40984, at *1 (Oct. 1, 1975); WHD Opinion Letter (Sept. 12,
1969); WHD Opinion Letter (Oct. 12, 1965).
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The Department's primary sub-regulatory guidance addressing this
topic, WHD Fact Sheet #13, ``Employment Relationship Under the Fair
Labor Standards Act (FLSA),'' similarly states that, when determining
whether an employment relationship exists under the FLSA, the test is
the ``economic reality'' rather than an application of ``technical
concepts,'' and that status ``is not determined by common law standards
relating to master and servant.'' \37\ Instead, ``it is the total
activity or situation which controls,'' and ``an employee, as
distinguished from a person who is engaged in a business of his or her
own, is one who, as a matter of economic reality, follows the usual
path of an employee and is dependent on the business which he or she
serves.'' The fact sheet identifies seven economic realities factors;
in addition to factors that are similar to the six factors used by the
federal courts of appeals and discussed above, it also identifies the
worker's ``degree of independent business organization and operation.''
The fact sheet identifies certain other factors that are immaterial to
determining whether a worker is an employee covered under the FLSA or
independent contractor, including the place where work is performed,
the absence of a formal employment agreement, and whether an alleged
independent contractor is licensed by a State or local government.\38\
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\37\ Fact Sheet #13 is available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs13.pdf (last visited March 9,
2021).
\38\ WHD maintains additional sub-regulatory guidance addressing
whether a worker is an employee or independent contractor under the
FLSA. For example, WHD's Field Operations Handbook, in its section
titled ``Test of the employment relationship,'' cross-references
Fact Sheet #13. See Section 10b05 of Chapter 10 (``FLSA Coverage:
Employment Relationship, Statutory Exclusions, Geographical
Limits'') of WHD's Field Operations Handbook, available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch10.pdf (last
visited March9, 2021); see also https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/misclassification-facts.pdf (last visited
March9, 2021). And the section of WHD's elaws Advisor compliance-
assistance materials addressing independent contractors provides
guidance very similar to that of Fact Sheet #13. See https://webapps.dol.gov/elaws/whd/flsa/scope/ee14.asp (last visited March9,
2021).
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In 1969 and 1972, WHD promulgated regulations relevant to specific
industries after Congress amended the FLSA to change the way it applied
to those industries.\39\ Those regulations applied a multifactor
analysis under the FLSA for determining whether a worker is an employee
or independent contractor in those specific contexts.\40\ Further, WHD
promulgated a regulation in 1997 applying a multifactor economic
realities analysis for distinguishing between employees and independent
contractors under the Migrant and Seasonal Agricultural Worker
Protection Act (MSPA).\41\
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\39\ See 37 FR 12084 (explaining that Part 780 was revised in
order to adapt to the changes made by the Fair Labor Standards
Amendments of 1966 (80 Stat. 830) and implementing 29 CFR 780.330(b)
to apply a six-factor economic realities test to determine whether a
sharecropper or tenant is an employee under the Act or an
independent contractor); 34 FR 15794 (explaining that Part 788 was
revised in order to adapt to the changes made by the 1966 Amendments
and implementing 29 CFR 788.16(a) to apply a six-factor economic
realities test to determine whether workers in certain forestry and
logging operations are employees under the Act or independent
contractors).
\40\ See id.
\41\ See 62 FR 11734 (amending 29 CFR 500.20(h)(4)).
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On July 15, 2015, WHD issued Administrator's Interpretation No.
2015-1, ``The Application of the Fair Labor Standards Act's `Suffer or
Permit'
[[Page 14030]]
Standard in the Identification of Employees Who Are Misclassified as
Independent Contractors'' (AI 2015-1).\42\ AI 2015-1 reiterated that
the economic realities of the relationship are determinative and that
the ultimate inquiry is whether the worker is economically dependent on
the employer or truly in business for him or herself. It identified six
economic realities factors that followed the six factors used by most
federal courts of appeals: (1) The extent to which the work performed
is an integral part of the employer's business; (2) the worker's
opportunity for profit or loss depending on his or her managerial
skill; (3) the extent of the relative investments of the employer and
the worker; (4) whether the work performed requires special skills and
initiative; (5) the permanency of the relationship; and (6) the degree
of control exercised or retained by the employer. AI-2015-1 further
emphasized that the factors should not be applied in a mechanical
fashion and that no one factor was determinative. AI 2015-1 was
withdrawn on June 7, 2017.\43\
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\42\ AI 2015-1 is available at 2015 WL 4449086.
\43\ See News Release 17-0807-NAT, ``US Secretary of Labor
Withdraws Joint Employment, Independent Contractor Informal
Guidance'' (Jun. 7, 2017), available at https://www.dol.gov/newsroom/releases/opa/opa20170607 (last visited March9, 2021).
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In 2019, WHD issued an opinion letter, FLSA2019-6, regarding
whether workers who worked for companies operating self-described
``virtual marketplaces'' were employees covered under the FLSA or
independent contractors.\44\ Like WHD's prior guidance, the letter
stated that the determination depended on the economic realities of the
relationship and that the ultimate inquiry was whether the workers
depend on someone else's business or are in business for
themselves.\45\ The letter identified six economic realities factors
that differed slightly from the factors typically articulated by WHD
previously: (1) The nature and degree of the employer's control; (2)
the permanency of the worker's relationship with the employer; (3) the
amount of the worker's investment in facilities, equipment, or helpers;
(4) the amount of skill, initiative, judgment, and foresight required
for the worker's services; (5) the worker's opportunities for profit or
loss; and (6) the extent of the integration of the worker's services
into the employer's business.\46\ Opinion Letter FLSA2019-6 was
withdrawn for further review on February 19, 2021.\47\
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\44\ See WHD Opinion Letter FLSA2019-6, 2019 WL 1977301 (Apr.
29, 2019) (withdrawn February 19, 2021).
\45\ See id. at *3.
\46\ See id. at *4.
\47\ See note at https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA (last visited March 9, 2021).
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C. The January 2021 Independent Contractor Rule
On January 7, 2021, the Department published a final rule entitled
``Independent Contractor Status under the Fair Labor Standards Act''
with an effective date of March 8, 2021 (Independent Contractor Rule or
Rule).\48\ The Independent Contractor Rule would 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'' that would provide a new generally applicable
interpretation of employee or independent contractor status under the
FLSA.\49\ The Rule would also revise WHD's prior interpretations of
independent contractor status in 29 CFR 780.330(b) and 29 CFR
788.16(a), both of which apply in limited contexts.\50\
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\48\ See 86 FR 1168. WHD had published a notice of proposed
rulemaking requesting comments on a proposal. See 85 FR 60600 (Sept.
25, 2020). The final rule adopted ``the interpretive guidance set
forth in [that proposal] largely as proposed.'' 86 FR 1168.
\49\ See id.
\50\ See id.
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The Department explained that the purpose of the Independent
Contractor Rule would be to establish an economic realities test that
improved on prior articulations that the Rule viewed as ``unclear and
unwieldy.'' \51\ It stated that the existing economic realities test
applied by WHD and courts suffered from confusion regarding the meaning
of ``economic dependence,'' a lack of focus in the multifactor
balancing test, and confusion and inefficiency caused by overlap
between the factors.\52\ The Rule explained that the shortcomings and
misconceptions associated with the test were more apparent in the
modern economy and that additional clarity would promote innovation in
work arrangements.\53\
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\51\ 86 FR 1172.
\52\ 86 FR 1172-75.
\53\ See 86 FR 1175.
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The Independent Contractor Rule explained that independent
contractors are not employees under the FLSA and are therefore not
subject to the Act's minimum wage, overtime pay, or recordkeeping
requirements.\54\ The Rule would adopt an ``economic dependence'' test
under which a worker is an employee of an employer if that worker is
economically dependent on the employer for work.\55\ In contrast, the
worker would be an independent contractor if the worker is in business
for him or herself.\56\
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\54\ See 86 FR 1246 (section 795.105(a)).
\55\ See 86 FR 1246 (section 795.105(b)).
\56\ See id.
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The Rule's new economic realities test would identify five economic
realities factors that would guide the inquiry into a worker's status
as an employee or independent contractor.\57\ These factors would not
be exhaustive, no one factor would be dispositive, and additional
factors would be considered if they ``in some way indicate whether the
[worker] is in business for him- or herself, as opposed to being
economically dependent on the potential employer for work.'' \58\ Two
of the identified factors would be designated as ``core factors'' that
would carry greater weight in the analysis. If both of those factors
indicated the same classification, as either an employee or an
independent contractor, there would be a ``substantial likelihood''
that classification is the worker's correct classification.\59\
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\57\ See 86 FR 1246 (section 795.105(c)).
\58\ 86 FR 1246-47 (sections 795.105(c) & (d)(2)(iv)).
\59\ 86 FR 1246 (section 795.105(c)).
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The first core factor would be the nature and degree of control
over the work, which would indicate independent contractor status to
the extent that the worker exercised substantial control over key
aspects of the performance of the work, such as by setting his or her
own schedule, by selecting his or her projects, and/or through the
ability to work for others, which might include the potential
employer's competitors.\60\ Requiring the worker to comply with
specific legal obligations, satisfy health and safety standards, carry
insurance, meet contractually agreed upon deadlines or quality control
standards, or satisfy other similar terms that are typical of
contractual relationships between businesses (as opposed to employment
relationships) would not constitute control.\61\
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\60\ See 86 FR 1246-47 (section 795.105(d)(1)(i)).
\61\ See id.
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The second core factor would be the worker's opportunity for profit
or loss.\62\ This factor would weigh towards the worker being an
independent contractor to the extent the worker has an opportunity to
earn profits or incur losses based on either his or her exercise of
initiative (such as managerial skill or business acumen or judgment) or
his or her management of investment in or capital expenditure on, for
example, helpers or equipment or material to
[[Page 14031]]
further the work.\63\ While the effects of the worker's exercise of
initiative and management of investment would both be considered under
this factor, the worker would not need to have an opportunity for
profit or loss based on both initiative and management of investment
for this factor to weigh towards the worker being an independent
contractor.\64\ This factor would weigh towards the worker being an
employee to the extent the worker is unable to affect his or her
earnings or is only able to do so by working more hours or faster.\65\
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\62\ See 86 FR 1247 (section 795.105(d)(1)(ii)).
\63\ See id.
\64\ See id.
\65\ See id.
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The Rule would also identify three other factors: The amount of
skill required for the work, the degree of permanence of the working
relationship between the worker and the employer, and whether the work
is part of an integrated unit of production (which is distinct from the
concept of the importance or centrality of the worker's work to the
employer's business).\66\ The Rule would provide that these other
factors would be ``less probative and, in some cases, [would] not be
probative at all'' and would be ``highly unlikely, either individually
or collectively, to outweigh the combined probative value of the two
core factors.'' \67\
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\66\ See 86 FR 1247 (section 795.105(d)(2)).
\67\ 86 FR 1246 (section 795.105(c)).
---------------------------------------------------------------------------
The Rule would further provide that the actual practice of the
parties involved is more relevant than what may be contractually or
theoretically possible.\68\ The Rule would also provide five examples
illustrating how different factors would inform the analysis.\69\
---------------------------------------------------------------------------
\68\ See 86 FR 1247 (section 795.110).
\69\ See 86 FR 1247-48 (section 795.115).
---------------------------------------------------------------------------
WHD issued Opinion Letters FLSA2021-8 and FLSA2021-9 on January 19,
2021 applying the Rule's analysis to specific factual scenarios, and
then withdrew those opinion letters on January 26, 2021, explaining
that the letters were issued prematurely because they were based on a
Rule that had yet to take effect.\70\
---------------------------------------------------------------------------
\70\ See https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA (last visited March 9, 2021), noting the withdrawal of
Opinion Letters FLSA2021-8 and FLSA2021-9.
---------------------------------------------------------------------------
D. Delay of Rule's Effective Date
On February 5, 2021, the Department published a proposal to delay
the Independent Contractor Rule's effective date until May 7, 2021, 60
days after the original effective date of March 8, 2021.\71\ On March
4, 2021, after considering the approximately 1,500 comments received in
response to that proposal, the Department published a final rule
delaying the effective date of the Independent Contractor Rule as
proposed.\72\ The Department explained that the delay was consistent
with a January 20, 2021 memorandum from the Assistant to the President
and Chief of Staff, titled ``Regulatory Freeze Pending Review.'' \73\
The Department further explained that a delay would allow it additional
time to consider ``significant and complex'' issues associated with the
Rule, including whether the rule effectuates the FLSA's purpose to
broadly cover workers as employees as well as the costs and benefits
attributed to the rule, including its effect on workers.\74\
---------------------------------------------------------------------------
\71\ See 86 FR 8326.
\72\ 86 FR 12535.
\73\ Id. (citing January 20, 2021 memo from the Assistant to the
President and Chief of Staff, titled ``Regulatory Freeze Pending
Review,'' 86 FR 7424).
\74\ Id.
---------------------------------------------------------------------------
II. Proposal To Withdraw
The Department proposes to withdraw the Independent Contractor
Rule, which has not yet taken effect. The Department's reasons for
proposing to withdraw the Rule are explained below, and the Department
requests comments on its proposal.
A. The Rule's Standard Has Never Been Used by Any Court or by WHD, and
Is Not Supported by the Act's Text or Case Law
WHD recognizes that the cornerstone of the FLSA is the Act's broad
definition of ``employ,'' which provides that an employee under the Act
is any individual whom an employer suffers, permits, or otherwise
employs to work.\75\ Rather than being derived from the common law of
agency, the FLSA's ``suffer or permit'' definition of ``employ''
originally came from state laws regulating child labor.\76\ This
standard was intended to expand coverage beyond employers who
controlled the means and manner of performance.\77\ The FLSA's breadth
in defining the employment relationship, as well as its clear remedial
purpose, comes from the statutory text itself as well as the
legislative history.\78\ This standard ``stretches the meaning of
`employee' [under the FLSA] to cover some parties who might not qualify
as such under a strict application of traditional agency law
principles.'' \79\ The FLSA's overarching inquiry of economic
dependence thus establishes a broader scope of employment than that
which exists under the common law of agency.
---------------------------------------------------------------------------
\75\ See 29 U.S.C. 203(e)(1), (g).
\76\ See Rutherford Food, 331 U.S. at 728 & n.7.
\77\ See generally People ex rel. Price v. Sheffield Farms-
Slawson-Decker Co., 225 N.Y. 25, 29-31 (N.Y. 1918).
\78\ See, e.g., Parrish, 917 F.3d at 378 (``Given the remedial
purposes of the [FLSA], an expansive definition of `employee' has
been adopted by the courts.'' (citation omitted)); Off Duty Police,
915 F.3d at 1054-55 (noting, directly under the heading ``Employment
Relationship,'' that ``[t]he FLSA is `a broadly remedial and
humanitarian statute . . . designed to correct labor conditions
detrimental to the maintenance of the minimum standard of living
necessary for health, efficiency, and general well-being of
workers''' (quoting Donovan v. Brandel, 736 F.2d 1114, 1116 (6th
Cir. 1984) (some internal quotation marks omitted)). The FLSA's
broad scope of employment, broader than the common law, was not
changed by the Supreme Court's decision in Encino Motorcars, LLC v.
Navarro, 138 S. Ct. 1134 (2018), which explained that the Act's
statutory exemptions should be interpreted fairly because there is
no textual indication that the exemptions should be construed
narrowly. See 138 S. Ct. at 1142. Here, the Act's definition of
``employ'' as including ``to suffer or permit to work'' gives a
clear textual basis for the breadth of employment under the FLSA. 29
U.S.C. 203(g); see Off Duty Police, 915 F.3d at 1062 (``[T]hese
[economic reality] factors must be balanced in light of the FLSA's
strikingly broad definition of employee.'' (quotations and citation
omitted)).
\79\ Darden, 503 U.S. at 326; see also Portland Terminal, 330
U.S. at 150 (in determining employee status under the FLSA, ``common
law employee categories or employer-employee classifications under
other statutes are not of controlling significance'').
---------------------------------------------------------------------------
Among the reasons the Department is proposing to withdraw the Rule
is that, upon further review and consideration of the Rule, the
Department questions whether the Rule is fully aligned with the FLSA's
text and purpose or case law describing and applying the economic
realities test.
1. The Choice To Elevate Control and Opportunity for Profit or Loss as
the ``Most Probative'' Factors in Determining Employee Status Under the
FLSA
The Rule would elevate two ``core'' factors, control and
opportunity for profit or loss, above all other factors, and would
provide that only in ``rare'' cases would the other factors outweigh
the core factors.\80\ For decades, WHD, consistent with case law, has
applied a multi-factor balancing test to assess whether the worker, as
a matter of economic reality, is economically dependent on the employer
or is in business for him or herself.\81\ Courts universally apply this
analysis as well and have explained that ``economic reality'' rather
than ``technical concepts'' is the test of employment
[[Page 14032]]
under the FLSA.\82\ WHD and the courts of appeals generally consider
and balance the following economic realities factors--derived from the
Supreme Court's decisions in Silk, 331 U.S. at 716, and Rutherford
Food, 331 U.S. at 729-30: The nature and degree of the employer's
control over the work; the permanency of the worker's relationship with
the employer; the degree of skill, initiative, and judgment required
for the work; the worker's investment in equipment or materials
necessary for the work; the worker's opportunity for profit or loss;
whether the service rendered by the worker is an integral part of the
employer's business; and the degree of independent business
organization and operation.\83\
---------------------------------------------------------------------------
\80\ 86 FR 1201, 1246-47 (sections 795.105(c) and (d)).
\81\ See, e.g., Fact Sheet #13 (July 2008), available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs13.pdf (last
visited March 9, 2021).
\82\ Goldberg, 366 U.S. at 33; see also Tony & Susan Alamo, 471
U.S. at 301 (``The test of employment under the Act is one of
`economic reality.' '') (quoting Goldberg, 366 U.S. at 33).
\83\ See, e.g., Razak, 951 F.3d at 142-43; Karlson, 860 F.3d at
1092; Keller v. Miri Microsystems LLC, 781 F.3d 799, 807 (6th Cir.
2015); Lauritzen, 835 F.2d at 1534; Real, 603 F.2d at 754; Fact
Sheet #13 (July 2008), available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs13.pdf (last visited March
[insert], 2021).
---------------------------------------------------------------------------
The Rule would set forth a new analysis elevating two factors
(control and opportunity for profit or loss) as ``core'' factors above
the other factors, and designating them as having greater probative
value.\84\ The Rule would further provide that if both core factors
point towards the same classification--that the worker is either an
employee or an independent contractor--then there would be a
substantial likelihood that this is the worker's correct
classification.\85\ In addition, the preamble to the Rule disagreed
that the economic realities test ``requires factors to be unweighted or
equally weighted.'' \86\ Although the Rule did identify three other
factors, it made clear that these ``other factors are less probative
and, in some cases, may not be probative at all, and thus are highly
unlikely, either individually or collectively, to outweigh the combined
probative value of the two core factors.'' \87\ The Rule underscored
that it ``is quite unlikely for the other, less probative factors to
outweigh the combined weight of the core factors. In other words, where
the two core factors align, the bulk of the analysis is complete, and
anyone who is assessing the classification may approach the remaining
factors and circumstances with skepticism, as only in unusual cases
would such considerations outweigh the combination of the two core
factors.'' \88\ Similarly, the Rule would provide that unlisted
additional factors may be considered, but that they are ``unlikely to
outweigh either of the core factors.'' \89\ The Rule noted that
``[w]hile all circumstances must be considered, it does not follow that
all circumstances or categories of circumstance, i.e., factors, must
also be given equal weight.'' \90\ Rather, the Rule would emphasize the
control and opportunity for profit or loss factors as more probative
than other factors in determining whether an individual is in business
for him or herself, and provide that ``other factors are less probative
and may have little to no probative value in some circumstances.'' \91\
---------------------------------------------------------------------------
\84\ 86 FR 1246-47 (sections 795.105(c) & (d)).
\85\ See id.
\86\ Id. at 1197.
\87\ Id. at 1246 (section 795.105(c)).
\88\ Id. at 1197 (referencing the NPRM).
\89\ Id.
\90\ Id. at 1201 (internal quotation marks omitted).
\91\ Id. at 1202.
---------------------------------------------------------------------------
WHD understands that no court has taken the Rule's approach in
analyzing whether a worker is an employee or an independent contractor
under the FLSA, and that the Rule would mark a departure from WHD's own
longstanding approach. In view of this elevation of only two factors,
the Department is concerned that the Rule's approach may be
inconsistent with the position, expressed by the Supreme Court and
federal courts of appeals, that no single factor in the analysis is
dispositive.\92\ WHD is not aware of any court that has, as a general
and fixed rule, elevated a subset of the economic realities factors,
and there is no clear statutory basis for such a predetermined
weighting of the factors. Rather, WHD is cognizant of the voluminous
case law that emphasizes that it `` `is impossible to assign to each of
these factors a specific and invariably applied weight.' '' \93\
Undeniably, courts have generally refused to assign universal weights
to certain factors; rather, courts emphasize that the analysis
considers the totality of the circumstances and neither the presence
nor absence of any particular factor is dispositive.\94\
---------------------------------------------------------------------------
\92\ See, e.g., Silk, 331 U.S. at 716 (explaining that ``[n]o
one [factor] is controlling'' in the economic realities test,
including ``degrees of control''); Parrish, 917 F.3d at 380 (stating
that it ``is impossible to assign to each of these factors a
specific and invariably applied weight'' (citation omitted)); Selker
Bros., 949 F.2d at 1293 (``It is a well-established principle that
the determination of the employment relationship does not depend on
isolated factors . . . neither the presence nor the absence of any
particular factor is dispositive.'').
\93\ Parrish, 917 F.3d at 380 (quoting Hickey v. Arkla Indus.,
Inc., 699 F.2d 748, 752 (5th Cir. 1983)); see also Scantland, 721
F.3d at 1312 n.2 (the relative weight of each factor ``depends on
the facts of the case'').
\94\ See Razak, 951 F.3d at 143 (citing DialAmerica Mktg., 757
F.2d at 1382); see also McFeeley, 825 F.3d at 241 (``While a six-
factor test may lack the virtue of providing definitive guidance to
those affected, it allows for flexible application to the myriad
different working relationships that exist in the national economy.
In other words, the court must adapt its analysis to the particular
working relationship, the particular workplace, and the particular
industry in each FLSA case.''); Ellington v. City of East Cleveland,
689 F.3d 549, 555 (6th Cir. 2012) (``This `economic reality'
standard, however, is not a precise test susceptible to formulaic
application. . . . It prescribes a case-by-case approach, whereby
the court considers the `circumstances of the whole business
activity.' '') (quoting Brandel, 736 F.2d at 1116); Morrison v.
Int'l Programs Consortium, Inc., 253 F.3d 5, 11 (D.C. Cir. 2001)
(``No one factor standing alone is dispositive and courts are
directed to look at the totality of the circumstances and consider
any relevant evidence.''); Dole v. Snell, 875 F.2d 802, 805 (10th
Cir. 1989) (``It is well established that no one of these factors in
isolation is dispositive; rather, the test is based upon a totality
of the circumstances.''); Superior Care, 840 F.2d at 1059 (``No one
of these factors is dispositive; rather, the test is based on a
totality of the circumstances. . . . Since the test concerns the
totality of the circumstances, any relevant evidence may be
considered, and mechanical application of the test is to be
avoided.''); Lauritzen, 835 F.2d at 1534 (``Certain criteria have
been developed to assist in determining the true nature of the
relationship, but no criterion is by itself, or by its absence,
dispositive or controlling.''); Hickey, 699 F.2d at 752 (``It is
impossible to assign to each of these factors a specific and
invariably applied weight.''); Usery, 527 F.2d at 1311-12 (``No one
of these considerations can become the final determinant, nor can
the collective answers to all of the inquiries produce a resolution
which submerges consideration of the dominant factor--economic
dependence.'').
---------------------------------------------------------------------------
Accordingly, the Department is concerned that the Rule's approach
is in tension with the language of the Act as well as the position,
expressed by the Supreme Court and in appellate cases from across the
Circuits, that no single factor is determinative in the analysis of
whether a worker is an employee or independent contractor and, as such,
questions whether the Rule's ``core factor'' approach is supportable.
2. The Role of Control in the Rule's Analysis
As explained, the Independent Contractor Rule would identify two
factors as ``core'' factors, would designate them as ``the most
probative'' of whether a worker is an employee or independent
contractor, and would provide that each core factor ``typically carries
greater weight in the analysis than any other factor.'' \95\ The nature
and degree of control over the work would be one of the two core
factors.\96\ According to the Rule, ``review of case law indicates that
courts of appeals have effectively been affording the control and
opportunity factors greater weight, even if they did not always
explicitly acknowledge doing so.'' \97\ The Rule
[[Page 14033]]
addressed and rejected comments which opined that focusing the analysis
on two core factors--one of which would be control--would narrow the
analysis to a common law control test.\98\
---------------------------------------------------------------------------
\95\ 86 FR 1246 (section 795.105(c)).
\96\ See id. at 1246-47 (section 795.105(d)(1)). The worker's
opportunity for profit or loss would be the other core factor.
\97\ Id. at 1198 (citing 85 FR 60619).
\98\ See id. at 1200-01.
---------------------------------------------------------------------------
Although the standard for determining who is an employee and who is
an independent contractor under the Rule is not the same as the common
law control analysis, the Department is concerned that significant
legal and policy implications could result from making control one of
only two factors that would be ascribed greater weight. For example,
the Supreme Court has repeatedly stated that the FLSA's definition of
``employ'' in section 3(g) means that the scope of employment under the
Act is broader than under a common law control (i.e., agency)
analysis.\99\ In light of the directive to consider as employment
relationships under the FLSA a broader scope of relationships than
those where the employer sufficiently controls the work, the outsized--
even if not exclusive--role that control would have if the Rule's
analysis were to apply may be contrary to the Act's text and case law.
These considerations are further reasons the Department is proposing to
withdraw the Rule.
---------------------------------------------------------------------------
\99\ See Darden, 503 U.S. at 326 (``[T]he FLSA . . . defines the
verb `employ' expansively to mean `suffer or permit to work.' This .
. . definition, whose striking breadth we have previously noted,
stretches the meaning of `employee' to cover some parties who might
not qualify as such under a strict application of traditional agency
law principles.'' (citations omitted)); Portland Terminal, 330 U.S.
at 150-51 (``But in determining who are `employees' under the Act,
common law employee categories or employer-employee classifications
under other statutes are not of controlling significance. This Act
contains its own definitions, comprehensive enough to require its
application to many persons and working relationships, which prior
to this Act, were not deemed to fall within an employer-employee
category.'' (citations omitted)); Rutherford Food, 331 U.S. at 728
(``The [FLSA] definition of `employ' is broad.''); Rosenwasser, 323
U.S. at 362-63 (``A broader or more comprehensive coverage of
employees [than that of the FLSA] . . . would be difficult to
frame.'').
---------------------------------------------------------------------------
3. The Rule's Narrowing of the Factors
The Department is also concerned that the Independent Contractor
Rule's treatment of the factors would improperly narrow the application
of the economic realities test. For example, the Rule would provide
that the opportunity for profit or loss factor indicates independent
contractor status if the worker has that opportunity based on either
his or her exercise of initiative (such as managerial skill or business
judgment) or management of his or her investment in or capital
expenditure on helpers or equipment or material to further his or her
work.\100\ The worker ``does not need to have an opportunity for profit
or loss based on both for this factor to weigh towards the individual
being an independent contractor.'' \101\ In other words, the factor
would indicate independent contractor status if the worker either: (1)
Made no capital investment but exercised managerial skill or (2) had a
capital investment but exercised no managerial skill. The Rule would
therefore erase from the analysis in certain situations the worker's
lack of capital investment or lack of managerial skill--both of which
are longstanding and well-settled indicators of employee status. The
worker's investment and managerial skill would be considered only as
the two prongs comprising the opportunity for profit or loss factor
under the Rule, so if one indicates an opportunity for profit or loss,
the other could not reverse or weigh against that finding even if it
indicates employee status as a matter of economic reality.
---------------------------------------------------------------------------
\100\ See 86 FR 1247 (section 795.105(d)(1)(ii)).
\101\ Id.
---------------------------------------------------------------------------
In addition, the preamble to the Rule provided that ``comparing the
individual worker's investment to the potential employer's investment
should not be part of the analysis of investment.'' \102\ In support,
the Rule cited decisions from the Fifth and Eighth Circuits in which
courts gave little weight to the comparison of the potential employer's
investment in its business to the worker's investment in the work in
light of the facts presented in those cases.\103\ However, the
decisions cited did make the comparison of the investments a part of
the analysis, but found that the comparison had little relevance or
accorded it little weight under those particular facts.\104\ In any
event, numerous other courts of appeals consider the worker's
investment in the work in comparison to the potential employer's
investment in its business,\105\ as does WHD in enforcement actions.
Despite this authority, the Rule would preclude comparing the worker's
investment to the potential employer's investment.
---------------------------------------------------------------------------
\102\ Id. at 1188.
\103\ See id. The Fifth Circuit decisions cited were Parrish v.
Premier Directional Drilling, L.P., 917 F.3d 369, 383 (5th Cir.
2019), and Hopkins v. Cornerstone America, 545 F.3d 338, 344-46 (5th
Cir. 2008).
\104\ See Parrish, 917 F.3d at 383; Hopkins, 545 F.3d at 344-46.
Indeed, the Fifth Circuit recently again articulated the investment
factor as ```the extent of the relative investments of the worker
and the alleged employer.''' Hobbs, 946 F.3d at 829 (quoting
Hopkins, 545 F.3d at 343). In Hobbs, the Fifth Circuit affirmed the
district court's finding that the relative investments--the
potential employer's ``overall investment in the pipe construction
projects'' as compared to the workers' individual investments--
favored employee status. Id. at 831-32. The Fifth Circuit agreed
with the district court's conclusion to give the factor ``little
weight in its analysis'' in that case given the nature of the
industry and work involved. Id. at 832 (citing Parrish, 917 F.3d at
383). In sum and contrary to what the Rule would provide, the Fifth
Circuit routinely considers the relative investments of the worker
and the potential employer even if the factor may ultimately be
accorded little weight depending on the circumstances.
\105\ See, e.g., McFeeley, 825 F.3d at 243 (comparing the
potential employers' payment of rent, bills, insurance, and
advertising expenses to the workers' ``limited'' investment in their
work); Keller, 781 F.3d at 810 (``We agree that courts must compare
the worker's investment in the equipment to perform his job with the
company's total investment, including office rental space,
advertising, software, phone systems, or insurance.''); Baker v.
Flint Eng'g & Constr. Co., 137 F.3d 1436, 1442 (10th Cir. 1998)
(``In making a finding on this factor, it is appropriate to compare
the worker's individual investment to the employer's investment in
the overall operation.''); Lauritzen, 835 F.2d at 1537 (disagreeing
that ``the overall size of the investment by the employer relative
to that by the worker is irrelevant'' and finding that ``that the
migrant workers' disproportionately small stake in the pickle-
farming operation is an indication that their work is not
independent of the defendants''); see also Iontchev v. AAA Cab
Service, Inc., 685 Fed. Appx. 548, 550 (9th Cir. 2017) (noting that
the drivers ``invested in equipment or materials and employed
helpers to perform their work'' but concluding that the investment
factor was ``neutral'' because the cab company ``leased taxicabs and
credit card machines to most of the [drivers]'').
---------------------------------------------------------------------------
The Rule would also recast the factor examining whether the
worker's work ``is an integral part'' of the employer's business as
whether the work ``is part of an integrated unit of production.'' \106\
The Rule would reject as irrelevant to this factor whether the work is
important or central (i.e., integral) to the employer's business.\107\
Instead, the Rule would provide that ``the relevant facts are the
integration of the worker into the potential employer's production
processes'' because ``[w]hat matters is the extent of such integration
rather than the importance or centrality of the functions performed''
by the worker.\108\ The Rule asserted that this recast articulation is
supported by Supreme Court precedent,\109\ but WHD and courts often
consider whether the work is important or central, as the Rule
acknowledges.\110\
---------------------------------------------------------------------------
\106\ See 86 FR at 1193-96, 1247 (section 795.105(d)(2)(iii)).
\107\ See id. at 1193-95.
\108\ Id. at 1195.
\109\ See id. at 1193-94. The Rule's discussion of precedent
failed to consider a passage from the Supreme Court's decision in
Silk, finding that ``unloaders'' were employees of a retail coal
company as a matter of economic reality in part because they were
``an integral part of the businesses of retailing coal or
transporting freight.'' 331 U.S. at 716 (emphasis added).
\110\ See id. at 1193.
---------------------------------------------------------------------------
Finally, in stressing the primacy of actual practice by providing
that ``the actual practice of the parties involved is
[[Page 14034]]
more relevant than what may be contractually or theoretically
possible,'' \111\ the Rule would advise that ``a business' contractual
authority to supervise or discipline an individual may be of little
relevance if in practice the business never exercises such authority.''
\112\ In support of this guidance, the Rule's preamble asserted that
``the common law control test does not establish an irreducible
baseline of worker coverage for the broader economic reality test
applied under the FLSA,'' and that the FLSA ``does not necessarily
include every worker considered an employee under the common law.''
\113\ This understanding of the FLSA's scope of employment seems
inconsistent with the Supreme Court's observations that ``[a] broader
or more comprehensive coverage of employees'' than that contemplated
under the FLSA ``would be difficult to frame,' '' \114\ and that the
FLSA ``stretches the meaning of `employee' to cover some parties who
might not qualify as such under a strict application of traditional
agency law principles.'' \115\
---------------------------------------------------------------------------
\111\ Id. at 1247 (section 795.110).
\112\ Id.; but see Razak, 951 F.3d at 145 (``[A]ctual control of
the manner of work is not essential; rather, it is the right to
control which is determinative.'').
\113\ 86 FR 1205.
\114\ Rosenwasser, 323 U.S. at 362.
\115\ Darden, 503 U.S. at 326.
---------------------------------------------------------------------------
In the each of the ways identified above, the Rule would narrow the
scope of facts and considerations comprising the analysis of whether
the worker is an employee or independent contractor. The Department
proposes to withdraw the Rule in part because it eliminates from the
economic realities test several facts and concepts that have deep roots
in both the courts' and WHD's application of the analysis. The
Department is further concerned that for this reason, the Rule's
approach is inconsistent with the court-mandated totality-of-the-
circumstances approach to determining whether a worker is an employee
or an independent contractor.\116\ In addition to these legal concerns,
the Department is concerned, as a policy matter, that the Rule's
narrowing of the analysis would result in more workers being classified
as independent contractors not entitled to the FLSA's protections,
contrary to the Act's purpose of broadly covering workers as employees.
To the extent that women and people of color are overrepresented in
low-wage independent contractor positions, as some commenters asserted
as part of the Independent Contractor Rule rulemaking, this result
could have a disproportionate impact on low-wage and vulnerable
workers. For example, a report from the U.S. Treasury Department Office
of Tax Analysis shows that independent contractors are more likely to
be low-income than those who are primarily employees. The report finds
that 42 percent of what it calls ``gig economy or platform workers''
and 45 percent of ``self-employed sole proprietors'' make less than
$20,000 a year, compared to 14 percent of those who are employees
earning wages.\117\
---------------------------------------------------------------------------
\116\ See footnote 94, supra.
\117\ Emilie Jackson, Adam Looney, and Shanthi Ramnath, ``The
Rise of Alternative Work Arrangements: Evidence and Implications for
Tax Filing and Benefit Coverage,'' The Department of the Treasury;
Office of Tax Analysis (January 2017), available at https://home.treasury.gov/system/files/131/WP-114.pdf (last visited March 9,
2021).
---------------------------------------------------------------------------
B. Whether the Rule Would Provide the Intended Clarity
One of the Independent Contractor Rule's primary stated purposes
would be to ``significantly clarify to stakeholders how to distinguish
between employees and independent contractors under the Act.'' \118\
Although the intent of the Rule would be to provide clarity, it would
also (as discussed above) introduce several concepts to the analysis
that neither courts nor WHD have previously applied. The Department's
proposal to withdraw the Rule arises in part from a concern regarding
the possibility that these changes will cause confusion or lead to
inconsistent outcomes rather than provide clarity or certainty, as
intended.
---------------------------------------------------------------------------
\118\ 86 FR 1168.
---------------------------------------------------------------------------
For example, the Rule would identify two factors as ``core''
factors, would designate them as ``the most probative,'' and would
provide that they carry ``greater weight'' than other factors.\119\ The
Rule would also provide that, if both core factors ``point towards the
same classification . . . , there is a substantial likelihood that is
the individual's accurate classification,'' and other factors would be
``highly unlikely, either individually or collectively, to outweigh''
the core factors.\120\ Because neither courts nor WHD have previously
pre-assigned certain factors a greater weight than other factors or
grouped the factors into categories of ``core'' and ``other'' factors,
it may not be clear to courts, WHD, and/or the regulated community how
the analysis and weighing of factors would work, and there could be
inconsistent approaches and/or outcomes as a result.
---------------------------------------------------------------------------
\119\ Id. at 1246 (section 795.105(c)).
\120\ Id.
---------------------------------------------------------------------------
In addition, the Rule would recast several factors as discussed
above. As one example, the factor that many courts articulate as
whether the work ``is an integral part'' of the employer's business
would be recast as whether the work ``is part of an integrated unit of
production.'' \121\ The Rule asserts that this revision is supported by
Supreme Court precedent.\122\ However, as the Rule acknowledges,\123\
this more limited articulation has not generally been applied by courts
or WHD and would thus be unfamiliar to employers, workers, courts, and
WHD. As a result, there could be inconsistent approaches and/or
outcomes in its application.
---------------------------------------------------------------------------
\121\ See id. at 1170, 1193-96, 1247 (section
795.105(d)(2)(iii)).
\122\ See id. at 1193-94.
\123\ See id. at 1193.
---------------------------------------------------------------------------
In sum, the Rule would make numerous changes to an economic
realities test that courts and WHD are familiar with applying. Given
that courts and WHD could struggle with applying the new concepts
introduced by the Rule, the Department is uncertain whether the Rule
would provide the clarity that it intends.
C. The Costs and Benefits of the Rule, Particularly the Assertion That
the Rule Will Benefit Workers as a Whole
As part of its analysis of possible costs, transfers, and benefits,
the Independent Contractor Rule quantified some possible costs
(regulatory familiarization) and some possible cost savings (increased
clarity and reduced litigation).\124\ The Rule identified and
discussed--but did not quantify--numerous other costs, transfers, and
benefits possibly resulting from the Rule, including ``possible
transfers among workers and between workers and businesses.'' \125\ The
Rule ``acknowledge[d] that there may be transfers between employers and
employees, and some of those transfers may come about as a result of
changes in earnings,'' but determined that these transfers cannot ``be
quantified with a reasonable degree of certainty for purposes of [the
Rule].'' \126\ The Economic Policy Institute (EPI) had submitted a
comment during the rulemaking estimating that the annual transfers from
workers to employers as a result of the Rule would be $3.3 billion in
pay, benefits, and tax payments.\127\ The Rule discussed its
disagreements with various assumptions underlying EPI's estimate and
explained its reasons for not adopting the estimate.\128\ The Rule
concluded that
[[Page 14035]]
``workers as a whole will benefit from [the Rule], both from increased
labor force participation as a result of the enhanced certainty
provided by [the Rule], and from the substantial other benefits
detailed [in the Rule].'' \129\ Although the Rule did not use EPI's
analysis to quantify transfers, upon further consideration, the
Department believes that the analysis may be useful in illustrating the
types of impacts that the Rule would have on workers.
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\124\ See id. at 1211.
\125\ Id. at 1214-16.
\126\ Id. at 1223.
\127\ See id. at 1222.
\128\ See id. at 1222-23.
\129\ Id. at 1223.
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Upon review, the Department does not believe the Rule fully
considered the likely costs, transfers, and benefits that could result
from the Rule. This concern is premised in part on WHD's role as the
agency responsible for enforcing the FLSA and its experience with cases
involving the misclassification of employees as independent
contractors. The consequence for a worker of being classified as an
independent contractor is that the worker is excluded from the
protections of the FLSA. Without the protections of the FLSA, workers
need not be paid at least the federal minimum wage for all hours
worked, and are not entitled to overtime compensation for hours worked
over 40 in a workweek. These impacts can be significant and must be
evaluated further. In addition, a recent Presidential Memorandum began
a process for agencies to better ``take into account the distributional
consequences of regulations.'' \130\ WHD also questions whether a rule
that could increase the number of independent contractors,\131\
effectuates the FLSA's purpose, recognized repeatedly by the Supreme
Court, to broadly provide employees with its protections.\132\ These
concerns are an additional reason that the Department is proposing to
withdraw the Rule.
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\130\ Modernizing Regulatory Review: Memorandum for the Heads of
Executive Departments and Agencies (Jan. 20, 2021), published at 86
FR 7223 (Jan. 26, 2021).
\131\ See 86 FR 1210.
\132\ See, e.g., Rutherford Food, 331 U.S. at 729 (```This Act
contains its own definitions, comprehensive enough to require its
application to many persons and working relationships, which prior
to this Act, were not deemed to fall within an employer-employee
category.''') (quoting Portland Terminal, 330 U.S. at 150);
Rosenwasser, 323 U.S. at 362-63 (``A broader or more comprehensive
coverage of employees [than that of the FLSA] . . . would be
difficult to frame.'').
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D. Withdrawal Would Not Be Disruptive Because the Rule Has Yet to Take
Effect
Because the Independent Contractor Rule has yet to take effect, the
Department does not believe that withdrawing it would be disruptive.
Courts have not applied the Rule in deciding cases. Moreover, WHD has
not implemented the Rule. For example, WHD's Fact Sheet #13, titled
``Employment Relationship Under the Fair Labor Standards Act (FLSA)''
and dated July 2008, does not contain the Rule's analysis for
determining whether a worker is an employee or independent
contractor.\133\ WHD's Field Operations Handbook addresses independent
contractor status by simply cross-referencing Fact Sheet #13 and
likewise does not contain the Rule's new economic realities test.\134\
WHD's elaws Advisor compliance-assistance information regarding
independent contractors likewise does not contain the Rule's
analysis.\135\ And on January 26, 2021, Wage and Hour withdrew two
opinion letters that it had issued on January 19, 2021 applying the
Rule's analysis to several factual scenarios.\136\ WHD explained that
the letters were ``issued prematurely because they are based on [a
Rule] that ha[s] not gone into effect.'' \137\ Accordingly, the
regulated community has been functioning under the current state of the
law and the Department does not believe that it would be negatively
affected by continuing to do so were the Rule to be withdrawn. In
particular, any businesses currently engaging independent contractors
or individuals who are now independent contractors would be able to
continue to operate without any effect brought about by the absence of
new regulations. Even if the Department withdraws the Rule, businesses
that had taken steps in preparation for the Rule taking effect will not
be precluded from adjusting their relationships with workers or paying
for new services from workers, and can rely on past court decisions and
WHD guidance to determine whether those workers are employees under the
FLSA or independent contractors.
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\133\ Fact Sheet #13 is available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/whdfs13.pdf (last visited March 9,
2021).
\134\ Chapter 10 of Wage and Hour's Field Operations Handbook,
entitled ``FLSA Coverage: Employment Relationship, Statutory
Exclusions, Geographical Limits'', is available at https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/FOH_Ch10.pdf (last
visited March 9, 2021). The relevant provision, Section 10b05
(``Test of the employment relationship''), is on page 6.
\135\ See https://webapps.dol.gov/elaws/whd/flsa/scope/ee14.asp
(last visited March 9, 2021).
\136\ See https://www.dol.gov/agencies/whd/opinion-letters/search?FLSA (last visited March 9, 2021), noting the withdrawal of
Opinion Letters FLSA2021-8 and FLSA2021-9.
\137\ Id.
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E. Effect of Proposed Withdrawal
If the Independent Contractor Rule is withdrawn as proposed: (1)
The guidance that the Rule would have introduced as Part 795 of Title
29 of the Code of Federal Regulations will not be introduced and Part
795 will be reserved; and (2) the revisions that the Rule would have
made to 29 CFR 780.330(b) and 29 CFR 788.16(a) will not occur and their
text will remain unchanged. The Department is not proposing any
regulatory guidance to replace the guidance that the Independent
Contractor Rule would have introduced as Part 795, so any commenter
feedback addressing or suggesting such a replacement or otherwise
requesting that the Department adopt any specific guidance if the Rule
is withdrawn will be considered to be outside the scope of this NPRM.
In addition to the reasons for the proposed withdrawal explained above,
withdrawal of the Rule would allow WHD an additional opportunity to
consider legal and policy issues relating to the FLSA and independent
contractors.
III. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (PRA) and its attendant
regulations require an agency to consider its need for any information
collections, their practical utility, as well as the impact of
paperwork and other information collection burdens imposed on the
public, and how to minimize those burdens. The PRA typically requires
an agency to provide notice and seek public comments on any proposed
collection of information contained in a proposed rule. This NPRM does
not contain a collection of information subject to Office of Management
and Budget approval under the PRA.
IV. Executive Order 12866, Regulatory Planning and Review; and
Executive Order 13563, Improved Regulation and Regulatory Review
A. Introduction
Under Executive Order 12866, OMB's Office of Information and
Regulatory Affairs determines whether a regulatory action is
significant and, therefore, subject to the requirements of the
Executive Order and OMB review.\138\ Section 3(f) of Executive Order
12866 defines a ``significant regulatory action'' as a regulatory
action that is likely to result in a rule that may: (1) Have an annual
effect on the economy of $100 million or more, or adversely affect in a
material way a sector of the economy, productivity, competition, jobs,
the environment, public health or safety, or state, local or tribal
governments or communities (also referred to as economically
significant); (2) create serious inconsistency or otherwise
[[Page 14036]]
interfere with an action taken or planned by another agency; (3)
materially alter the budgetary impact of entitlements, grants, user
fees or loan programs or the rights and obligations of recipients
thereof; or (4) raise novel legal or policy issues arising out of legal
mandates, the President's priorities, or the principles set forth in
the Executive Order. This proposed withdrawal will be economically
significant under section 3(f) of Executive Order 12866 because it is
withdrawing an economically significant rule.
---------------------------------------------------------------------------
\138\ See 58 FR 51735 (Sept. 30, 1993).
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Executive Order 13563 directs agencies to, among other things,
propose or adopt a regulation only upon a reasoned determination that
its benefits justify its costs; that it is tailored to impose the least
burden on society, consistent with obtaining the regulatory objectives;
and that, in choosing among alternative regulatory approaches, the
agency has selected those approaches that maximize net benefits.\139\
Executive Order 13563 recognizes that some costs and benefits are
difficult to quantify and provides that, when appropriate and permitted
by law, agencies may consider and discuss qualitatively values that are
difficult or impossible to quantify, including equity, human dignity,
fairness, and distributive impacts. The analysis below outlines the
impacts that the Department anticipates may result from this proposed
withdrawal and was prepared pursuant to the above-mentioned executive
orders.
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\139\ See 76 FR 3821 (Jan. 21, 2011).
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B. Background
On January 7, 2021, WHD published a final rule titled ``Independent
Contractor Status under the Fair Labor Standards Act'' (Independent
Contractor Rule or Rule).\140\ The Department is proposing to withdraw
the Rule, which has not taken effect. If this withdrawal goes forward
as proposed, the Rule will never have been in effect. Aside from
minimal rule familiarization costs, the Department also provides below
a qualitative discussion of the transfers that may be avoided by
withdrawing the Rule.
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\140\ See 86 FR 1168. WHD had published a notice of proposed
rulemaking requesting comments on a proposal. See 85 FR 60600 (Sept.
25, 2020). The final rule adopted ``the interpretive guidance set
forth in [that proposal] largely as proposed.'' 86 FR 1168.
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C. Costs
1. Rule Familiarization Costs
Withdrawing the Independent Contractor Rule would impose direct
costs on businesses that will need to review the withdrawal. To
estimate these regulatory familiarization costs, the Department
determined: (1) The number of potentially affected entities, (2) the
average hourly wage rate of the employees reviewing the withdrawal, and
(3) the amount of time required to review the withdrawal. It is
uncertain whether these entities would incur regulatory familiarization
costs at the firm or the establishment level.\141\ For example, in
smaller businesses there might be just one specialist reviewing the
withdrawal, while larger businesses might review it at corporate
headquarters and determine policy for all establishments owned by the
business. To avoid underestimating the costs of the withdrawal, the
Department uses both the number of establishments and the number of
firms to estimate a potential range for regulatory familiarization
costs. The lower bound of the range is calculated assuming that one
specialist per firm will review the withdrawal, and the upper bound of
the range assumes one specialist per establishment.
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\141\ An establishment is a single physical location where one
predominant activity occurs. A firm is an establishment or a
combination of establishments.
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The most recent data on private sector entities at the time this
NPRM was drafted are from the 2017 Statistics of U.S. Businesses
(SUSB), which reports 5,996,900 private firms and 7,860,674 private
establishments with paid employees.\142\ Because the Department is
unable to determine how many of these businesses are interested in
using independent contractors, this analysis assumes all businesses
will undertake review.
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\142\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html,
2016 SUSB Annual Data Tables by Establishment Industry.
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The Department believes ten minutes per entity, on average, to be
an appropriate review time here. This rulemaking would withdraw the
Independent Contractor Rule and would not set forth any new regulations
in its place. Additionally, the Department believes that many entities
do not use independent contractors and thus would not spend any time
reviewing the withdrawal. Therefore, the ten-minute review time
represents an average of no time for the entities that do not use
independent contractors, and potentially more than ten minutes for
review by some entities that might use independent contractors.
The Department's analysis assumes that the withdrawal would be
reviewed by Compensation, Benefits, and Job Analysis Specialists (SOC
13-1141) or employees of similar status and comparable pay. The median
hourly wage for these workers was $31.04 per hour in 2019, the most
recent year of data available.\143\ The Department also assumes that
benefits are paid at a rate of 46 percent \144\ and overhead costs are
paid at a rate of 17 percent of the base wage, resulting in a fully
loaded hourly rate of $50.60.
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\143\ Occupational Employment and Wages, May 2019, https://www.bls.gov/oes/current/oes131141.htm.
\144\ The benefits-earnings ratio is derived from the Bureau of
Labor Statistics' Employer Costs for Employee Compensation data
using variables CMU1020000000000D and CMU1030000000000D.
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The Department estimates that the lower bound of regulatory
familiarization cost range would be $50,675,004 (5,996,900 firms x
$50.60 x 0.167 hours), and the upper bound, $66,424,267 (7,860,674
establishments x $50.60 x 0.167 hours). The Department estimates that
all regulatory familiarization costs would occur in Year 1.
Additionally, the Department estimated average annualized costs of
this proposed withdrawal over 10 years. Over 10 years, it would have an
average annual cost of $6.7 million to $8.8 million, calculated at a 7
percent discount rate ($5.8 million to $7.6 million calculated at a 3
percent discount rate). All costs are in 2019 dollars.
2. Other Costs
In the Independent Contractor Rule, the Department estimated cost
savings associated with increased clarity, as well as cost savings
associated with reduced litigation. The Department does not anticipate
that this withdrawal would increase costs in these areas, or result in
greater costs as compared to the Rule. Although the intent of the Rule
would be to provide clarity, it would also introduce several concepts
to the analysis that neither courts nor WHD have previously applied.
Because the Rule would be unfamiliar and could lead to inconsistent
approaches and/or outcomes, and because withdrawal would maintain the
status quo, the Department does not believe that a withdrawal of the
Independent Contractor Rule would result in decreased clarity for
stakeholders.
One of the main benefits discussed in the Rule was the increased
flexibility associated with independent contractor status. The
Department acknowledges that although many independent contractors
report that they value the flexibility in hours and work, employment
and flexibility are not mutually exclusive. Many employees
[[Page 14037]]
similarly value and enjoy such flexibility.
The Department welcomes any comments and data on other costs
associated with this proposed withdrawal.
D. Transfers
The Department believes that it is important to provide a
qualitative discussion of the transfers that would have occurred under
the Rule. In the economic analysis accompanying the Rule, the
Department assumed that the Rule would lead to an increase in the
number of independent contractor arrangements, and acknowledged that
some of this increase could be due to businesses reclassifying
employees as independent contractors. As discussed in the Rule and
again below, an increase in independent contracting could have resulted
in transfers associated with employer-provided fringe benefits, tax
liabilities, and minimum wage and overtime pay. By withdrawing the
Rule, these transfers from employees (and, in some cases, from state or
local governments) to employers are avoided. The Department welcomes
any comments and data on the transfer impacts associated with this
proposed withdrawal.
1. Employer Provided Fringe Benefits
The reclassification of employees as independent contractors, or
the use of independent contracting relationships as opposed to
employment, decreases access to employer-provided fringe benefits such
as health care or retirement benefits. According to the BLS Current
Population Survey (CPS) Contingent Worker Supplement (CWS), 79.4
percent of self-employed independent contractors have health insurance,
compared to 88.3 percent of employees.\145\ This gap between
independent contractors and employees is also true for low-income
workers. Using CWS data, the Department compared health insurance rates
for workers earning less than $15 per hour and found that 71.0 percent
of independent contractors have health insurance compared with 78.5
percent of employees.
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\145\ Bureau of Labor Statistics, ``Contingent and Alternative
Employment Arrangements--May 2017,'' USDL-18-0942 (June 7, 2018),
https://www.bls.gov/news.release/pdf/conemp.pdf.
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Additionally, a major source of retirement savings is employer-
sponsored retirement accounts. According to the CWS, 55.5 percent of
employees have a retirement account with their current employer; in
addition, the BLS Employer Costs for Employee Compensation (ECEC) found
that employers pay 5.3 percent of employees' total compensation in
retirement benefits on average ($1.96/$37.03). If a worker shifts from
employee to independent contractor status, that worker may no longer
receive employer-provided retirement benefits.
2. Tax Liabilities
As self-employed workers, independent contractors are legally
obligated to pay both the employee and employer shares of the Federal
Insurance Contributions Act (FICA) taxes. Thus, as discussed in the
Rule, if workers' classifications change from employees to independent
contractors, there may be a transfer in federal tax liabilities from
employers to workers.\146\ Although the Rule only addressed whether a
worker is an employee or an independent contractor under the FLSA, the
Department assumes in this analysis that employers are likely to keep
the status of most workers the same across all benefits and
requirements, including for tax purposes.\147\ These payroll taxes
include the 6.2 percent employer component of the Social Security tax
and the 1.45 percent employer component of the Medicare tax.\148\ In
sum, independent contractors are legally responsible for an additional
7.65 percent of their earnings in FICA taxes (less the applicable tax
deduction for this additional payment).
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\146\ See 86 FR 1218.
\147\ Courts have noted that the FLSA has the broadest
conception of employment under federal law. See, e.g., Darden, 503
U.S. at 326. To the extent that businesses making employment status
determinations base their decisions on the most demanding federal
standard, a rulemaking addressing the standard for determining
whether a worker is an FLSA employee or an independent contractor
may affect the businesses' classification decisions for purposes of
benefits and legal requirements under other federal laws.
\148\ Internal Revenue Service, ``Publication 15, (Circular E),
Employer's Tax Guide'' (Dec. 23, 2019), https://www.irs.gov/pub/irs-pdf/p15.pdf. The social security tax has a wage base limit of
$137,700 in 2020. An additional Medicare Tax of 0.9 percent applies
to wages paid in excess of $200,000 in a calendar year for
individual filers.
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In addition to affecting tax liabilities for workers, some
commenters claimed that the Rule would have an impact on state tax
revenue and budgets. In their comment to the NPRM proposing the
Independent Contractor Rule, several States' Attorneys General asserted
that misclassifying employees as independent contractors leads to
losses in unemployment insurance and workers' compensation funds, as
well as increases in the cost of providing health care coverage to
uninsured workers. Because independent contractors do not receive
benefits like health insurance, workers compensation, and retirement
plans from an employer, these commenters suggested that a rule that
increases the prevalence of independent contracting could shift this
burden to State and Federal governments.
3. Minimum Wage and Overtime Requirements
When workers are shifted from employee to independent contractor
status, the minimum wage and overtime pay requirements of the FLSA no
longer apply. Independent contractors are more likely to earn less than
the minimum wage: The 2017 CWS data indicate that independent
contractors are more likely than employees to report earning less than
the FLSA minimum wage of $7.25 per hour (8 percent for self-employed
independent contractors, 5 percent for other independent contractors,
and 2 percent for employees). Research on drivers who work for online
transportation companies in California and New York also finds that
many drivers receive significantly less than the applicable state
minimum wages.\149\
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\149\ M. Reich. ``Pay, Passengers and Profits: Effects of
Employee Status for California TNC Drivers.'' University of
California, Berkeley (October 5, 2020), https://irle.berkeley.edu/files/2020/10/Pay-Passengers-and-Profits.pdf; L. Moe, et al. ``The
Magnitude of Low-Paid Gig and Independent Contract Work in New York
State,'' The New School Center for New York City Affairs (February
2020), https://static1.squarespace.com/static/53ee4f0be4b015b9c3690d84/t/5e424affd767af4f34c0d9a9/1581402883035/Feb112020_GigReport.pdf.
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V. Regulatory Flexibility Act (RFA) Analysis
The Regulatory Flexibility Act of 1980 (RFA), 5 U.S.C. 601 et seq.,
as amended by the Small Business Regulatory Enforcement Fairness Act of
1996, Public Law 104-121 (1996), requires federal agencies engaged in
rulemaking to consider the impact of their proposals on small entities,
consider alternatives to minimize that impact, and solicit public
comment on their analyses. The RFA requires the assessment of the
impact of a regulation on a wide range of small entities, including
small businesses, not-for-profit organizations, and small governmental
jurisdictions. Accordingly, the Department examined this proposed
withdrawal to determine whether it would have a significant economic
impact on a substantial number of small entities.
The most recent data on private sector entities at the time this
NPRM was drafted are from the 2017 Statistics of U.S. Businesses
(SUSB), which reports 5,996,900 private firms and 7,860,674 private
establishments with paid
[[Page 14038]]
employees.\150\ Of these, 5,976,761 firms and 6,512,802 establishments
have fewer than 500 employees. The per-entity cost for small business
employers is the regulatory familiarization cost of $8.43, or the fully
loaded mean hourly wage of a Compensation, Benefits, and Job Analysis
Specialist ($50.60) multiplied by \1/6\ hour (ten minutes). Because
this cost is minimal for small business entities, and well below one
percent of their gross annual revenues, which is typically at least
$100,000 per year for the smallest businesses, the Department certifies
that this proposed withdrawal would not have a significant economic
impact on a substantial number of small entities. The Department
welcomes any comments and data on this Regulatory Flexibility Act
Analysis, including the costs and benefits of this proposed withdrawal
on small entities.
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\150\ Statistics of U.S. Businesses 2017, https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html,
2016 SUSB Annual Data Tables by Establishment Industry.
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VI. Unfunded Mandates Reform Act of 1995
The Unfunded Mandates Reform Act of 1995 (UMRA) \151\ requires
agencies to prepare a written statement for rules with a federal
mandate that may result in increased expenditures by state, local, and
tribal governments, in the aggregate, or by the private sector, of $165
million ($100 million in 1995 dollars adjusted for inflation) or more
in at least one year.\152\ This statement must: (1) Identify the
authorizing legislation; (2) present the estimated costs and benefits
of the rule and, to the extent that such estimates are feasible and
relevant, its estimated effects on the national economy; (3) summarize
and evaluate state, local, and tribal government input; and (4)
identify reasonable alternatives and select, or explain the non-
selection, of the least costly, most cost-effective, or least
burdensome alternative. This proposed withdrawal is not expected to
result in increased expenditures by the private sector or by state,
local, and tribal governments of $165 million or more in any one year.
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\151\ See 2 U.S.C. 1501.
\152\ Calculated using growth in the Gross Domestic Product
deflator from 1995 to 2019. Bureau of Economic Analysis. Table
1.1.9. Implicit Price Deflators for Gross Domestic Product.
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VII. Executive Order 13132, Federalism
The Department has (1) reviewed this proposed withdrawal in
accordance with Executive Order 13132 regarding federalism and (2)
determined that it does not have federalism implications. The proposed
withdrawal would not have substantial direct effects on the States, on
the relationship between the national government and the States, or on
the distribution of power and responsibilities among the various levels
of government.
VIII. Executive Order 13175, Indian Tribal Governments
This proposed withdrawal would not have substantial direct effects
on one or more Indian tribes, on the relationship between the Federal
Government and Indian tribes, or on the distribution of power and
responsibilities between the Federal Government and Indian tribes.
Signed this 10th day of March, 2021.
Jessica Looman,
Principal Deputy Administrator, Wage and Hour Division.
[FR Doc. 2021-05256 Filed 3-11-21; 8:45 am]
BILLING CODE 4510-27-P