In a recent post, we provided a status update on the California Trucking Association’s lawsuit against the state’s new AB5 law. Since that post, oral arguments have been heard and the industry awaits a determination by the court. But in our nation’s capital, the federal government is attempting to take matters into its own hands.
On Sept. 25, a Notice of Proposed Rulemaking (NPRM) from the Department of Labor (DOL), titled “Independent Contractor Status Under the Fair Labor Standards Act” was published in the Federal Register. This notice outlines changes the DOL plans to make to its interpretation of independent contractor status “in order to promote certainty for stakeholders, reduce litigation, and encourage innovation in the economy.”
The DOL clarifies that there is a need for this rulemaking because the Fair Labor Standards Act (FLSA) – the federal law regarding minimum wage, overtime pay, recordkeeping, and other related matters – does not define what an independent contractor is. However, it does define employer, employee, and what it means to employ. The last term, “employ,” is defined as “includ[ing] to suffer or permit to work,” which has traditionally been interpreted as requiring an evaluation of the extent of the worker’s economic dependence on the potential employer.
While the DOL and the courts have traditionally relied on tests to determine whether a worker is an employee or an independent contractor, these tests have never been enshrined in federal law and therefore continue to be open to interpretation and changes. Now, the DOL seeks to add more clarity to the type of test that should be used by proposing an “economic reality” test which would consider whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee).
This is in contrast to the far more restrictive ABC test which has been adopted in California through the AB5 law. While the economic reality test provides multiple factors to be considered, with no single factor disqualifying a worker from independent contractor status, each of the ABC test’s three factors may alone disqualify the worker from independent contractor status. The DOL notes that if the ABC test were to be adopted on a national scale, it would result in mass reclassification of many workers currently determined to be independent contractors and would be particularly disruptive for industries like transportation.
In the notice, the DOL adds that “adopting the ABC test as the FLSA’s generally applicable standard for distinguishing employees from independent contractors would be unduly restrictive and disruptive to the economy.” During this time when the economy needs to be bolstered, not further unsettled, we applaud the DOL’s attempt to set a new precedent through this NPRM. Comments on the proposal are due by Oct. 26, and TCA looks forward to being part of the process to save the independent contractor business model.