Groups Seek Withdrawal of Independent Contractor Rule

Litigation challenging the new independent contractor rule issued by the Department of Labor has been filed. The Biden Administration announced several actions designed to advance pay equity that will prevent federal contractors and federal agencies from using prior salary history when setting pay. The Employee Benefits Security Administration of the Department of Labor has issued guidance on pension-linked emergency savings accounts that were authorized in the SECURE 2.0 Act that became law in 2022. The Bureau of Labor Statistics reported that the percentage of employees who are union members remained unchanged in 2023.


Legal Challenges to the Independent Contractor Rule Filed – A lawsuit has been filed in the US District Court for the Northern District of Georgia by a group of freelance writers and editors challenging the revised independent contractor rule. The lawsuit, Karon Warren v. US Department of Labor alleges that the revised rule, “obscures the line between contractor and employee in an impenetrable fog.” The lawsuit asks the court to set aside the revised rule since it violates the Administrative Procedure Act.

The Coalition for Workforce Innovation, a group of businesses and associations filed a motion in the United States Court of Appeals for the Fifth Circuit requesting that the appellate court send back a case, Coalition for Workforce Innovation v. Julie Su to the United States District Court for the Eastern District of Texas to determine if the new independent contractor rule violates the Administrative Procedure Act. The motion states that the new rule “adopts a standard that is so vague, amorphous and context-dependent, it provides virtually no certainty or assurance that any given worker is classified correctly as an employee or independent contractor.” The Coalition for Workforce Innovation had previously obtained a judgment from the United States District Court for the Eastern District of Texas that reinstated an independent contract rule finalized in January 2021 that was withdrawn by the Biden Administration. The appeal by the Department of Justice of the Eastern District’s ruling had been stayed by the Fifth Circuit Court of Appeals until the issuance of a new rule by the Labor Department. The Justice Department has filed a motion with the Fifth Circuit seeking to dismiss the case since “The publication of the new final rule on January 10, 2024, rendered moot the question whether the prior independent contractor rule was properly delayed and withdrawn.”

The Department of Labor (DOL) issued a final rule that takes effect on March 11, 2024, and revises how to determine whether an individual is an employee or independent contractor under the Fair Labor Standards Act (FLSA). The final rule rescinds a previous independent contractor rule that was issued on January 7, 2021. The final rule provides that workers would not be considered as independent contractors if they are, as a matter of economic reality, economically dependent on an employer for work. The final rule identifies six factors that should be used to determine employee or independent contractor status under the FLSA.


Administration Issues Pay Equity Rules – On the fifteenth anniversary of the passage of the Lily Ledbetter Fair Pay Act, the Biden Administration announced several actions designed to advance pay equity. The law overturned the decision by the United States Supreme Court in Ledbetter v. Goodyear Tire & Rubber Company by amending Title VII of the Civil Rights Act of 1964 to provide that the 180-day statute of limitations for filing a pay discrimination lawsuit resets with each paycheck that is affected by the discriminatory action.


The actions taken by the Biden Administration include a final rule issued by the Office of Personnel Management (OPM), prohibiting the use of previous pay when setting pay for federal employees, the Federal Acquisition Regulatory Council will be issuing a proposal to prohibit federal contractors and subcontractors from considering information about the compensation history of job applicants when hiring or setting pay for those working on federal contracts, and the Office of Federal Contract Compliance Programs (OFCCP) will be releasing guidance clarifying existing protections against discrimination in hiring or pay decisions. President Biden stated, “These new actions adopt commonsense policies that will help pay millions of workers fairly, close gender and racial wage gaps, and yield tangible benefits for the federal government and federal contractors.”


The OPM final rule that federal agencies need to comply with by October 1, 2024, provides that in order to advance pay equity in setting pay for federal employees, federal agencies will no longer be able to set pay based on the previous pay of job applicants from outside the federal government, which could vary among equally qualified candidates. Federal agencies also are required to develop policies regarding pay setting based on a previous federal salary. According to OPM, “Pay setting based on salary history may be inequitable, can perpetuate biases from job to job, and may contribute to a pay gap between the earnings of men and women.”


Guidance Issued on Pension-Linked Emergency Savings Accounts – The Employee Benefits Security Administration of the Department of Labor (DOL) and the Internal Revenue Service (IRS) have issued separate guidance on pension-linked emergency savings accounts (PLESAs). The SECURE 2.0 Act of 2022 amended the Employee Retirement Income Security Act (ERISA) to authorize the establishment of these short-term savings accounts that can be maintained as part of an individual’s retirement savings plan for 401(K), 403(B), and 457 plans.  


The DOL guidance notes that ERISA allows employees who are not considered highly compensated to make Roth IRA contributions, which are after-tax contributions to a PLESA. Employees can withdraw their funds as often as monthly without reducing their retirement savings and also without incurring tax penalties. Employee contributions may not exceed $2,500, which will be indexed periodically for inflation. Participants can replenish the account funds if withdrawals drop the balance below $2,500. Withdrawals are made at the discretion of the participants without demonstrating an emergency.


The IRS guidance, which is contained in Notice 2024-22, provides examples of anti-abuse procedures that are not reasonable and cannot be used to limit the frequency or amount of matching contributions made to a PLESA. The IRS is seeking comments on the guidance that must be submitted by April 5, 2024.


Unionization Rate Stable in 2023 – The Bureau of Labor Statistics (BLS) reported that the percentage of workers who were union members in 2023 was 10%, which was little changed from 2022 when the percentage was 10.1%. The number of union workers in the private sector increased by 193,000 – the percentage didn’t increase due to the overall jobs growth. There are 14.4 million workers who are union members. Of the total, 7.4 million work in the private sector and 7 million are employed in the public sector.  The unionization rate in the private sector is 6%, while the union membership rate of public sector workers is 32.5%.  Private sector industries with high unionization rates included utilities, transportation and warehousing, educational services, and motion picture and sound recording industries. The highest public sector unionization rates were among those working in education, training and library occupations, and protective services.


The median weekly earnings of union members were $1,263 as compared to $1,090 for nonunion members. Hawaii and New York were the states with the highest unionization rate and North Carolina and South Carolina were the least unionized states. According to a recent survey by Gallup, unions remain popular with 61% saying unions help rather than hurt the U.S. economy, 43% wanting unions to have more influence in the country, and 34% predicting unions will become stronger than they are today.


Neil Reichenberg is the former executive director of the International Public Management Association for Human Resources. He is an attorney, a frequent writer and speaker on public policy and human resource issues and was an adjunct faculty member at George Mason University. For questions or additional information, contact Reichenberg at

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