DOL Withdraws Regulations

The U.S. Department of Labor (DOL) notified a U.S. federal Circuit Court on June 2 that it intends to withdraw the “persuader” rule, and asked that the pending federal court case concerning the rule be held in abeyance. Five days later, on June 7, the department announced it was rescinding two controversial interpretations of labor regulations made in the final years of the Obama Administration. The actions by DOL demonstrate the Trump Administration’s commitment to improving the regulatory climate for businesses.

A coalition of states and business groups had filed suit challenging the persuader rule arguing that DOL had exceeded its authority under the Labor Management Reporting and Disclosure Act. A federal district court in Texas issued a temporary injunction against the persuader rule on June 27, only four days before it was set to take effect. The federal district court issued a permanent injunction on November 16, 2016.

Originally scheduled to take effect on July 1, 2016, the persuader rule would have required employers to report to DOL each time they engage a consultant to directly or indirectly persuade workers concerning their rights to organize and bargain collectively, regardless of whether the consultant had direct contact with workers.

Historically, the advice of attorneys and consultants has been exempt from the reporting requirements as privileged and confidential attorney-client communications, if 1) the attorney or consultant limits his or her services to advice, which the client is free to accept or reject, and 2) the attorney or consultant avoids direct communications with bargaining unit employees. DOL is now seeking comments through August 10 on rescinding the persuader rule.  

During the final two years of the Obama Administration, DOL also issued Administrative Interpretations (AI) under the Fair Labor Standards Act (FLSA) on both independent contractor classification and the joint employer standard.

On July 15, 2015, DOL’s Wage and Hour Division issued a new interpretation concerning whether a worker should be classified as an independent contractor or an employee. In its AI, the department reiterated its use of the six-part economic realities test in determining whether a worker is an employee or independent contractor, but also stated that most workers should be classified as employees under FLSA. Under the six-part test, the six factors are supposed to be looked at collectively in making a determination regarding independent contractor status.

The six factors are 1) the extent to which the work performed is an integral part of the employer’s business; 2) whether the worker’s managerial skills affect his or her opportunity for profit and loss; (the worker’s opportunity for profit or loss; 3) the relative investments in facilities and equipment by the worker and employer; 4) the worker’s skill and initiative; 5) the permanency of the worker’s relationship with the employer; and, 6) the nature and degree of control by the employer. 

Under the more aggressive interpretation in 2015, DOL rejected the long-held emphasis by courts on employer control in favor of determining whether the worker was economically dependent on the employer. By rescinding this more aggressive interpretation, DOL is returning to its traditional focus on employer control in determining independent contractor status.

Last year, on January 20, 2016, DOL’s Wage and Hour Division changed its interpretation of the joint employer standard, which focuses on contract employees shared by more than one employer. At issue was who is liable for the worker’s wages and benefits under FLSA. Historically, the joint employer standard only applied to horizontal joint employment relationships where a company had direct control over the work and employment conditions.

Under the reinterpretation, the joint employer standard was expanded to vertical joint employment relationships where a company exercises substantial indirect control over a worker that is economically dependent on the business. Industries relying on joint employer relationships were disproportionately affected.

The intent of the joint employer standard reinterpretation was to expand the number of companies classified as employers, thereby subjecting more companies to wage and hour violations. By withdrawing the reinterpretation, DOL will focus on direct control in applying the joint employer standard and subject fewer companies to wage and hour violations.

Recent decisions by DOL to rescind some Obama-era regulations improved the regulatory climate for businesses. BSCAI government affairs staff continues to monitor developments with DOL and provide updated guidance to its members regarding labor laws so companies can effectively manage their business operations.