October 20, 2022

DOL’s rule change for independent contractors would affect restaurant industry

Current regulation from Trump Administration favorable to restaurants
Woman receiving food order

In what’s been a hot potato tossed between the changing policies of the Obama, Trump, and Biden Administrations, the Department of Labor’s (DOL) classification of employees and independent contractors under the Fair Labor Standards Act (FLSA) could soon get revised again.

The proposed rule change titled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” would rescind a rule implemented during the Trump Administration in January 2021. DOL believes its proposed rule would provide guidance on classifying workers and combat employee misclassification—a serious violation that the department claims results in wage theft, unfair advantages, and denial of workers’ rights and protections.

In general, the proposed rule orders employers to examine several more criteria, instead of the current 2, when classifying a worker as an employee or as a contractor.

Alarmed by the agency’s relentless pursuit to change interpretations of the independent contractor standard, Congress is intervening not only on the merits and effectiveness of the current rule but also on the Wage and Hour Division’s insufficient comment period of fewer than 60 days. 

In a letter to Secretary of Labor Marty Walsh on October 14, Sens. Richard Burr (R-NC) and Mike Braun (R-IN), ranking members of the Senate Committee on Health, Education, Labor, and Pensions, and the Subcommittee on Employment and Workplace Safety, respectively, warned that “the never-ending revolving door of regulatory proposals on the issues of worker classification and independent contractor status must stop.” 

Previously, DOL changed the independent contractor classification in January 2021, incorporating recommendations from comments submitted by the Association’s Restaurant Law Center. At that time, the rule, which was lauded for its certainty and consistency, specified that two “core” factors—a worker’s control over their work, and their opportunity for profit or loss—were critical elements for employers to consider when making an independent contractor determination. 

Just two months later in March 2021, the DOL rescinded that rule. A legal battle ensued, and a district court in Texas in March 2022 vacated that rule’s withdrawal, ordering that the classification changes finalized in January 2021 were legal and effective since March 2021.

The Association is currently preparing comments for the latest proposed rule change, which are due Nov. 28, 2022. Legal experts feel certain that DOL’s next interpretation of the independent contractor standard will be the focus of legal challenges yet again.