Court Vacates DOL’s Withdrawal of FLSA Independent Contractor Regulations

In 2021, the DOL withdrew regulations on determining whether a worker is an independent contractor for purposes of the Fair Labor Standards Act (FLSA) (see our Checkpoint article). The regulations had been issued in final form in January 2021 with a March 8, 2021 effective date but were almost immediately subject to a regulatory freeze (see our Checkpoint article), and then delayed to May 7, 2021 (see our Checkpoint article). The withdrawal was effective May 6, 2021.

A federal trial court has now concluded that the DOL’s actions in delaying and then withdrawing the regulations failed to comply with federal administrative procedure requirements. The court has vacated the withdrawal, holding that the regulations became effective as of their original effective date (March 8, 2021) and remain in effect.

EBIA Comment: Interested parties should watch for further developments, keeping in mind that the FLSA has limited direct applicability to employee benefit plans. Most employee benefit plan rules determine employee status under ERISA or the Code, often in conjunction with the common-law standard. Employers must be careful to apply the correct standard when determining an individual’s status for a specific purpose. Improper classification can be particularly problematic under Code rules applicable to retirement plans, cafeteria plans, and employer shared responsibility penalties. For more information, see EBIA’s Health Care Reform manual at Sections XXI.E.3.a (“Exchange Notice: Who Is an Employee for FLSA Purposes?”) and XXVIII.C (“Penalty Tax Hinges on Whether Employer Offers Coverage to Full-Time Employees”). See also EBIA’s ERISA Compliance manual at Section IX.I (“Eligibility Issues Involving Independent Contractors, Leased Employees, and Others”); EBIA’s Cafeteria Plans manual at Section IX (“Who Can Participate in a Cafeteria Plan?”); EBIA’s Self-Insured Health Plans manual at Section XIV.C (“Which Employees and Other Workers Will Be Allowed to Participate?”); and EBIA’s 401(k) Plans manual at Section VII.B (“Eligibility Condition #1: Participation Limited to Common-Law Employees, Partners and Sole Proprietors, Some Leased and Statutory Employees”).

Contributing Editors: EBIA Staff.