The Labor Department is rescinding a rule that made it harder for “gig economy” and 1099 contract workers to argue they were employees and, thus, entitled to employee and minimum wage and overtime protections from the business that was paying them. The withdrawal of the “Independent Contractor” rule is consistent with the Biden administration’s push to undo many of the Trump-era U.S. Department of Labor rules and regulations and foreshadows a harder burden of proof for employers and businesses who classify workers as 1099.

“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” Labor Secretary Marty Walsh said in a statement. “Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors. We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”

Under the Biden administration, the U.S. Labor Department could find that many 1099 workers are misclassified, exposing employers to liability for failure to pay wages, provide benefits, withhold and remit taxes, provide workers’ compensation coverage and other similar employer obligations.

Jessica Looman, principal deputy administrator for the Labor Department’s Wage and Hour Division, stated, “When it comes to digital workers and app-based workers — they’re workers. And so we want to make sure we continue to look at their needs, and how they are interacting with their individual employer and whether they have protection.”

In view of the rescission of the Independent Contractor Rule, employers that engage independent contractors should take the time to review their classification of these workers as non-employees, to ensure that those workers are not incorrectly classified as independent contractors.

If you have any questions about this topic or the classification of workers as employees or independent contractors generally, please reach out to us.