It is often said that when it comes to rules and officiating in sports, teams do not care if the game is called loosely or tightly, they just want consistency.
The same can be said in the business world when it comes to employment laws and regulations. Employers want consistency. They want to know what they can and can’t do. Unfortunately, employers are going to experience a lot of changes in employment laws and regulations in the coming weeks, months and years.
President Biden and Anticipated Changes
President Biden has vowed to be the strongest presidential supporter of labor, and the actions he has taken already in his term show that he plans to make good on his promise.
I recently attended a three-day national continuing legal education seminar for labor and employment attorneys. After discussing many of the developments that have occurred since President Bident took office, an interesting question from the audience was raised about wage and hour rules:
Q: Given all the changes, proposed changes, and withdraws of DOL opinion letters, what are the safest agency rules and regulations an employer can rely on?
A: This was a great question, with a discouraging answer. The panelists correctly cautioned employers that many (if not all) of the rules, regulations and opinion letters under the Trump administration, including wage and hour rules, are under attack and may be uprooted. Employers should expect major changes to current and pending rules and regulations.
Three Rules Not to Count On
Three specific Department of Labor (“DOL”) rules that employers should NOT rely on at this point are as follows:
- Independent Contractors. On January 6, 2021, the DOL issued a final rule on determining independent contractor status under the Fair Labor Standards Act (“FLSA”). The final rule reaffirmed an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor); or, is economically dependent on a potential employer for work (FLSA employee).
The rule identified two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself: the nature and degree of control over the work and the worker’s opportunity for profit or loss based on initiative and/or investment.
The final rule was to take effect March 8, 2021. However, the DOL announced on March 2, 2021 that it is delaying the effective date of an independent contractor classification test from March 8 to May 7. On March 11, 2021, the Department of Labor announced a notice of proposed rulemaking (NPRM) proposing to rescind the Independent Contractor Rule.
2. Joint Employer. In January 2020, the DOL announced a new rule for determining joint employer status. A joint employer is any additional “person” (i.e., an individual or entity) who is jointly and severally liable with the employer for the employee’s wages.
The DOL adopted a four-factor balancing test to determine whether the potential joint employer is directly or indirectly controlling the employee, assessing whether the potential joint employer:
(i) hires or fires the employee;
(ii) supervises and controls the employee’s work schedule or conditions of employment to a substantial degree;
(iii) determines the employee’s rate and method of payment; and
(iv) maintains the employee’s employment records.
The new rule took effect on March 16, 2020, but the rule was challenged, and a federal court struck down some of its provisions. On March 11, 2021, the DOL announced a NPRM to rescind its regulations interpreting joint employer status under the FLSA. The DOL proposes to rescind the rule and remove the regulations established by the rule.
3. Tip Rule. In March 2018, the Budget Reconciliation Act had a provision that amended the FLSA to allow employers to force tip sharing among non-tipped, non-management employees, provided that the employer did not utilize the tip credit.
Another DOL rule was issued in December 2020 confirming that the DOL would not apply the “80/20 Rule” when considering whether an employee performing both tipped and non-tipped duties could negate the employer’s use of the tip credit.
As with other DOL regulations, President Biden directed that the DOL review this regulation and other newly passed regulations. This regulation is certainly in jeopardy.
Can an Employer Rely on Opinion Letters?
The Wage and Hour Division (WHD) of the DOL issues guidance primarily through Opinion Letters, Ruling Letters, Administrator Interpretations, and Field Assistance Bulletins. Opinion Letters issued by the Administrator may be relied upon as a good faith defense to wage claims arising under the FLSA.
The DOL, during Trump’s presidency, issued several employer-friendly Opinion Letters. WHD has already withdrawn three Opinion Letters (FLSA 2021-4, FLSA2021-8, and FLSA2021-9) on the grounds that they were issued prematurely because they are based on rules that have not gone into effect.
It is likely that several other Opinion Letters are at risk of being withdrawn. Until they are withdrawn, employers can continue to rely on them. However, once they are withdrawn, they may not be relied upon as statements of agency policy as of the date of withdrawal. Employers, therefore, should carefully monitor any Opinion Letters they plan to rely on.
Wage and Hour Rules & Employer Takeaways
Employers can expect major changes from the DOL concerning wage and hour rules and regulations. These changes are going to be employee-friendly. Expect the DOL to be more aggressive in their enforcement efforts under the Biden Administration. Accordingly, employers should consider taking a conservative approach when it comes to matters with significant potential liability, such as independent contractor misclassification errors and errors regarding the exempt status of employees.
As always, please let me know if I can help.