Washington Report

Advocacy Updates from Washington D.C.

Court Reinstates Independent Contractor Rule

On March 15, 2022, the U.S. District Court for the Eastern District of Texas vacated the Department of Labor (DOL) actions delaying and withdrawing the independent contractor regulation issued in January 2021, under the previous administration. The independent contractor regulation updated the definition of “employer” under the Fair Labor Standards Act (FLSA), adopting an economic realities test for classifying workers as employees or independent contractors. As a result of this ruling, the independent contractor rule is in effect.

For real estate professionals, the rule (and subsequent withdraw that was vacated by the court) did not change their classification as independent contractors under the Internal Revenue Code, nor did it preempt the many states laws classifying real estate professionals as independent contractors. Rather, the final independent contractor rule outlined two core factors to determine whether a worker is an employee based on an economic dependence on someone else’s business (nature and degree of control; worker’s opportunity for profit or loss) and three other guideposts to use in the support of that analysis (amount of skill; degree of permanence; integrated unit of production). The final rule also included a fact specific analysis for all.

In this case, the court held that DOL violated the Administrative Procedures Act (APA) when taking actions to delay and withdraw the independent contractor rule in 2021, vacating both with this decision. More specifically, the “Delay Rule” issued on March 4, 2021, violated the procedural requirements of the APA by failing to provide a meaningful public comment period (19 days rather than a typical 30 days). The “Withdrawal Rule” issued on May 6, 2021, was deemed arbitrary and capricious due to a failure to consider policy alternatives to rescission, such as changes to the existing policy. The case was brought by coalitions and associations representing industries that rely on independent contractor workforces, including gig-economy workers, builders, contractors, and financial services firms. For more background the rule’s history, see below.

  • January 7, 2021 - DOL, under the Trump Administration, promulgated the independent contractor rule, with a scheduled effective date of March 8, 2021. NAR supported this rule, submitting a comment. Read more.
  • February 5, 2021 - DOL, under the Biden Administration, issued a notice of proposed rulemaking (“NPRM”), proposing a 60-day delay of the rule’s effective date, requesting public comments by February 24, 2021. Read more.
  • March 4, 2021 - DOL issued the final rule (the “Delay Rule”), effective immediately and postponing the effective date of the independent contractor rule until May 7, 2021. Read more.
  • March 12, 2021 - DOL issued a NPRM proposing to withdraw the independent contractor rule altogether, with public comments due April 12, 2021. NAR opposed this withdraw, submitting a comment. Read more.
  • May 6, 2021 - DOL issued the final rule (the “Withdrawal Rule”), withdrawing the independent contractor rule, effective immediately. Read more.

In granting the plaintiffs’ motion for summary judgment, setting aside the “Delay” and “Withdraw” rules, and reinstating the independent contractor rule, the court has provided needed regulatory certainty for many industries relying on independent contractor workforces. For more on this issue, visit nar.realtor/independent-contractor-status.

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