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Federal Register / Vol. 86, No. 86 / Thursday, May 6, 2021 / Rules and Regulations
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multifactor balancing test, with core factors given more weight than enumerated other factors, and enumerated other factors given more weight than unspecified additional factors. Rather than weighing all factors against each other in a holistic fashion depending on the facts of a particular work arrangement, courts and the regulated community would have had to evaluate factors within and across groups in a new hierarchical structure, which would have likely caused confusion and inconsistency. Adding to the confusion, the Rule collapses some factors into each other, so that investment and initiative are only considered as a part of the opportunity for profit or loss factor, requiring courts and the regulated community to reconsider how they have evaluated those factors.
In other words, the Independent Contractor Rules guidance would complicate rather than simplify the analysis for determining whether a worker is an employee or independent contractor under the FLSA. Given the likelihood that many courts would ignore, reject, or not defer to the Rules guidance for the reasons explained above, the Department believes that the Rule would have introduced substantial confusion and uncertainty on the topic of independent contractor status, to the detriment of workers and businesses alike.
C. Whether the Rule Would Have Benefitted Workers as a Whole As part of its analysis of possible costs, transfers, and benefits, the Independent Contractor Rule quantified some possible costs regulatory familiarization and some possible cost savings increased clarity and reduced litigation.163 The Rule identified and discussedbut did not quantify numerous other costs, transfers, and benefits possibly resulting from the Rule, including possible transfers among workers and between workers and businesses. 164 The Rule acknowledged that there may be transfers between employers and employees, and some of those transfers may come about as a result of changes in earnings, but determined that these transfers cannot be quantified with a reasonable degree of certainty for purposes of the Rule. 165 The Economic Policy Institute EPI had submitted a comment during the rulemaking estimating that the annual transfers from workers to employers as id. at 1211.
at 121416.
165 Id. at 1223.

a result of the Rule would be $3.3
billion in pay, benefits, and tax payments.166 The Rule discussed its disagreements with various assumptions underlying EPIs estimate and explained its reasons for not adopting the estimate.167 The Rule concluded that workers as a whole will benefit from the Rule, both from increased labor force participation as a result of the enhanced certainty provided by the Rule, and from the substantial other benefits detailed in the Rule. 168
The Departments view, upon further consideration, of the value of EPIs analysis is addressed below in section IV, in the analysis of costs and benefits of this withdrawal. As a general matter, the Department notes here that it does not believe the Rule fully considered the likely costs, transfers, and benefits that could result from the Rule. This concern is premised in part on WHDs role as the agency responsible for enforcing the FLSA and its experience with cases involving the misclassification of employees as independent contractors.
The consequence for a worker of being classified as an independent contractor is that the worker is excluded from the protections of the FLSA. Without the protections of the FLSA, workers need not be paid at least the federal minimum wage for all hours worked, and are not entitled to overtime compensation for hours worked over 40 in a workweek.
Workers would also lose the FLSAs protection against retaliation for complaining about a violation of the FLSA. The Department concludes that, to the extent the Rule would result in the reclassification or misclassification of employees as independent contractors, the resulting denial of FLSA
protections would harm the affected workers. The Departments decision to withdraw the Rule is the result in part of its belief that doing so will benefit workers as a whole.
The Washington Legal Foundation commented that the Department should not consider only the distributional effects of withdrawal. It argued that the Rule would still benefit workers even if it benefitted businesses more. As an initial matter, the Department believes that the distributional consequences of withdrawal are appropriate to consider.
Moreover, it finds that the Rule would not merely benefit workers less than business owners, butfor the reasons noted above and those explained belowwould actually harm workers.
Many commenters expressed concerns that the Rules effects would
163 See
166 See
164 Id.

167 See
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id. at 1222.
id. at 122223.
168 Id. at 1223.

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have harmed workers. For example, a number of individual commenters, including independent contractors, employees, and employers who supported withdrawing the Independent Contractor Rule believed that the Rule would give businesses more power to force workers to accept independent contractor status. As several commenters said in comments that used template language, in times of high unemployment like today, individual workers have even less market power than usual to demand fair conditions, especially in jobs that historically have been undervalued; they are forced to accept take-it-or-leave-it job conditions. Other of these commenters worried the Rule would stack the deck against workers and enable employers to misclassify more and more employees as independent contractors. The Rule would, according to some, fuel a race to the bottom. One commenter who self-identified as an actual independent contractor believed that the only effect of the Rule would be to allow massive companies to deny workers the benefits of employment status and squeeze extra profits for shareholders, with the result that misclassified workers would end up on public assistance for basic needs like healthcare, meaning corporations are passing the true cost of business on to taxpayers. Some commenters were also worried about the effect of the Rule on businesses. The Construction Employers of America commented that the Rule will make it harder for employers providing middle class careers in our industry to compete and provide good wages, benefits, and the protections that have been part of the employer/
employee relationship since the 1930s.
Other commenters also said that the Rule harms companies that play by the rules and treat workers fairly.
Companies that take shortcuts are allowed under the rule to misclassify their employees, undercut responsible employers and drag down the wages and labor standards across essential industries.
Commenters opposed to the withdrawal saw independent contractor status in a more positive light. In particular, a number of individual commenters expressed a desire to maintain their status as independent contractors, articulating general support for the concept of independent contractor status, especially the concept of flexible work schedules. The Department appreciates these commenters perspective, however, these comments do not demonstrate the Rules benefit to workers. A worker
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