The times they are changing – Wage and Hour under the Biden administration

Not surprisingly, President Joe Biden’s administration has acted quickly to counteract many of the regulations and interpretive guidance issued by the previous administration in various areas. The U.S. Department of Labor’s (DOL, or “Department”) Wage and Hour Division is certainly one of the agencies that is experiencing those changes.  

On Jan. 29, 2021, the day of Biden’s inauguration, White House Chief of Staff Ron Klain issued a memo to all federal agencies directing them to take a series of actions that would have the effect of halting all regulations published by the Trump administration that had not yet become effective.

The memo directed that all work on pending regulations was to stop until Biden-appointed officials review and approve the rule. Additionally, all final rules not yet published in the Federal Register were to be withdrawn. And lastly, agencies were instructed to consider imposing a 60-day freeze on the effective dates of any rules already published in the Federal Register but not yet effective so the regulations could be reviewed.

The last instruction in this directive was immediately used to freeze the Trump administration’s independent contractor rule and its tip-pooling regulation, both of which were to have become effective in March. The effective date for these two regulations was extended for 60 days so that they could be reviewed. In addition, the DOL revoked three opinion letters that referenced these two rules. Another two opinion letters were withdrawn in February, one dealing with independent contractor status and one dealing with compensable time for long-haul truck drivers.

Independent Contractors and Joint Employers. The review of these two regulations resulted in a proposal on March 11, 2001, to rescind Trump’s regulatory guidance on independent contractors plus its final rule on joint employers.

A.        The reasons provided for withdrawing the final rule on independent contractors included the following:

  • The rule adopted a new “economic reality” test to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act (FLSA).
  • Courts and the Department have not used the new economic reality test, and FLSA text or longstanding case law does not support the test.
  • The rule would narrow or minimize other factors traditionally considered by courts, making the economic test less likely to establish that a worker is an employee under the FLSA.

The Biden administration is not proposing an immediate substitute, which means previous rules are back in effect. Practically speaking, this means that it will remain more difficult to classify a worker as an independent contractor than it would have been under Trump’s proposed rule.

B.        On the same day, a second notice was issued to rescind the current regulation on joint employer relationships under the FLSA, which took effect on March 16, 2020. In February 2020, 17 states and the District of Columbia filed a lawsuit in the Southern district of New York against the Department, arguing that the joint employer rule violated the Administrative Procedure Act. The court vacated the majority of the joint employer rule on Sept. 8, 2020, stating that the rule was contrary to the FLSA and was “arbitrary and capricious” due to its failure to explain why the Department had deviated from all prior guidance or to consider the effect of the rule on workers. Again, rescinding this rule makes it more difficult for employers to avoid a finding of joint employment when two or more employers effectively share an employee.

Tipped Workers. With respect to Trump’s regulation related to tipped workers, the Biden administration has decided to let parts of the rule go into effect while proposing a reconsideration of other parts of the rule.  

A.        The parts of the rule that will be allowed to go into effect on April 30, 2021, are portions that implemented the 2018 Consolidated Appropriations Act passed by Congress. These portions include a prohibition on employers keeping any tips received by tipped workers, regardless of whether the workers are paid the full minimum wage or whether they are paid $2.13 per hour (with tip credit being taken for the additional $5.12 per hour). A second implemented section allows an employer who pays tipped workers the full minimum wage of $7.25 per hour, to require tipped workers to share their tips with non-tipped workers, such as cooks and dishwashers.  Owners, managers and supervisors may not share in the tips.

B.        The portions of the regulation that will not go into effect and that will go through a full new rule-making process deal with the assessment of civil monetary penalties, the definition of “managers or supervisors” who may not participate in tip pools, and when a tipped worker who also performs non-tipped duties can still be paid $2.13 per hour.

PAID Program. A final change which has been made is the cancellation of the Payroll Audit Independent Determination (PAID) program. The PAID program began in March 2018 as a pilot program to allow employers an alternative method to rectify overtime and minimum wage violations of the FLSA. Under the PAID program, employers were able to self-report a wage violation, submit a calculation of back wages to the DOL and enter into an agreement to pay the back wages owed.  

It is almost a certainty that further changes will be coming, a reflection of the administration’s more employee-friendly inclinations.

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