Mark Pestronk
Q: One of most important contractual relationships in the retail travel business is the one between hosts and independent contractors. There are a couple of Biden administration regulations that directly affect this relationship. Will those regulations change under the new Trump administration, and if so, how?
A: The new administration is certain to repeal two regulatory achievements of the Biden administration: One is the Federal Trade Commission prohibition on noncompetes. The new rule has already been set aside by a federal court, but the government has appealed that decision. The appeal is certain to be dropped.
The absence of federal regulation will mean that each state's noncompete laws will govern the host-IC relationship. As you probably know, those rules and court precedents are different in each state.
California and a few other states totally outlaw noncompetes for employees and (in some cases) independent contractors, but most states don't do so if the clauses are "reasonable" as to scope, duration and geographic area.
If a host has ICs in several states, their relationships must pass muster not only in the host's home state but also in each IC's state. You can avoid these complexities and risks of illegality by restricting post-termination activity in other ways, as most hosts have done.
The second Biden achievement is the Labor Department's new test of employee vs. independent contractor for purposes for minimum wages and the like. It became effective March 11, and it uses six criteria to decide whether a given IC relationship is really one of employment.
The six criteria are pretty vague, and the department can consider "any other factors that indicate whether the worker is in business for themselves, as opposed to being economically dependent on the potential employer for work."
Labor will probably revert to the somewhat clearer test articulated by the first Trump administration. Those criteria focused on two "core" factors: "the nature and degree of the individual's control over the work" and "the individual's opportunity for profit or loss." If these two factors are inconclusive, then three other factors were to be considered: the skill or expertise required by the individual; the permanency of the relationship between the parties; and whether the work is "part of an integrated unit of production."
In my view, the typical host-IC relationship was more likely to pass muster under the test of the first Trump administration, so hosts and ICs should probably welcome its restoration.
Over at the IRS, there has been no indication that its own test of IC status will change. However, there is no doubt that the Biden administration's efforts to step up tax enforcement is in danger of being defunded or even reversed.
Although my focus here is on the host-IC relationship itself, the broader issues of tariffs, immigration policy, international relations and business and individual taxation could well affect the retail travel business much more profoundly.