What the Second Trump Presidency Could Mean for Worker Classification Guidance

With the recent US election results confirming a second Trump presidency, the business community is anticipating potential shifts in regulatory policy. One area poised for change is worker classification guidance under the Department of Labor (DOL). The March 2024 rule enacted by the Biden administration emphasized stricter criteria for defining independent contractor status. Based on historical precedent, it is highly likely this guidance will shift towards a more business-friendly stance under the incoming administration.

Historical Shifts in Worker Classification Policy

The pendulum of worker classification policy often swings with changes in administration:

• Obama Administration: Implemented guidance favoring employee classification, emphasizing worker protections.
• Trump Administration (First Term): Reversed Obama-era policies, adopting a more lenient interpretation that facilitated independent contractor classifications.
• Biden Administration: Reinstated stricter oversight, culminating in the March 2024 DOL rule.

Given this history, a second term of Trump administration policies is expected to revisit and potentially repeal the Biden-era DOL rule in favor of guidance that prioritizes business flexibility and reduces regulatory burdens.

The Role of State Laws in Worker Classification

While federal rules play an important role, their impact often takes a backseat to state-level regulations. Blue-leaning states, such as New York and Massachusetts with stricter tests such as the ABC test or AB5, set a high bar for worker classification, posing challenges for businesses relying on independent contractors, in the name of protecting workers from potential abuse or exploitation. On the other hand, republican-leaning states like Texas and Florida offer more relaxed standards, often defaulting to the “Common-law Test” standard, seen as a more business-friendly approach.

Based on industry experience, misclassification claims most commonly stem from worker-level actions tied to state agencies. A common trigger is deferred unemployment claims. When independent contractors file for unemployment benefits—despite being ineligible—it can initiate investigations that uncover potential misclassification, often leading to broader audits.

Preparing for the Likely Policy Shift

As the new administration takes office, businesses should anticipate changes to the federal classification framework but remain vigilant about state-level compliance requirements. The combination of federal and state activity creates a complex regulatory environment that demands a proactive approach.

Recommendations for Businesses

To navigate these potential changes effectively:

1. Engage Compliance Experts: Leverage external expertise to navigate the nuanced and evolving regulatory landscape.
2. Educate Your Team: Equip hiring managers and HR professionals with up-to-date knowledge on classification laws. Training should also address broader workplace issues, including employee benefits like health insurance and overtime pay.
3. Review Current Practices: Examine the company’s new vendor intake process to ensure it includes a compliance check specific to worker classification for any 1-person companies or freelancers.
4. Stay Updated: Monitor policy announcements from the DOL, Supreme Court rulings, and state and local labor agencies.

Conclusion

While the federal regulatory landscape is likely to shift under the second Trump presidency, state-level activity and worker-initiated claims will remain key drivers of compliance risk. By staying informed and proactive, businesses can position themselves to adapt to these changes while minimizing potential disruptions.