A federal rule regarding the classification of workers published by the Department of Labor may be a quick victim of a Biden administration putting some late Trump administration rules on the shelf.
Carrie Hoffman, a Dallas-based partner with the law firm of Foley & Lardner, said incoming Biden administration officials have suggested that the new rule on independent contractors “is on the list” of late Trump administration actions that will be up for review. Her prediction of its fate was blunt: “I don’t think it will end up being the rule.”
But even if the rule is put on hold, in an industry in which the definition of worker versus employee is the subject of endless litigation, the shifts in the proposed rule were viewed as having significance that isn’t enormous but is still notable. The rule attempts to define contractor versus employee for the purpose of governance under the Fair Labor Standards Act.
The proposed rule was rolled out in September.
Greg Feary, a partner with the trucking-focused firm of Scopelitis Garvin Light Hanson & Feary, said a key difference between the federal law and the more sweeping AB5 law in California on independent contractor status is that the federal law is a “balancing test.”
“You weigh many factors” to determine whether an employee is a contractor or an employee under the federal definition,” he said.
By contrast, AB5 and its three-pronged ABC test requires that for a company to judge a worker whose services it employs is a contractor, all three parts of the ABC test must be met. For trucking companies, that has proved problematic since the B prong defines an employee as a worker who performs a function that is central to a company’s activities. A trucking company hiring an independent owner-operator to move freight in a truck is performing a central activity to the company; hiring a janitorial company to clean the offices at night is not.
The new rule sets several “factors” that the federal government would consider when determining whether a company’s worker is independent or an employee. Most importantly, according to Geary, is a phrase the DOL uses in the rule: “no one factor being dispositive.” Whereas flunking one part of the ABC test fails the entire test, meeting some of all of the factors in the DOL rule might allow a worker to be considered an independent contractor.
Beyond that, two of the factors are given more weight than the others: how much control the worker has over the job and the “worker’s opportunity for profit or loss.” Those two “are more probative of the question of economic dependence or lack thereof than other factors and thus typically carry greater weight in the analysis than any others,” the rule says.
The other factors that carry less weight are permanency of relation, investment in facilities and skill required in the claimed independent operation. The five factors are down one from a six-prong test that had been cited in earlier court cases, with the question of whether the service provided is “integral” to the hiring company’s business not on the list this time around.
The new rule is actually a revised rule; the DOL did have an independent contractor rule previously. It did include the “economic reality” test, which looks to determine whether “the worker is depending on a particular individual, business or organization for work or is in business for himself or herself,” according to the DOL’s executive summary of why it undertook the new rule.
The International Brotherhood of Teamsters released a statement about the new rule that acknowledged the reality that the rule probably won’t come into law. That fact makes the union happy, as it had opposed it in earlier comments filed during the rulemaking activities, saying that the changes “unconscionably curtails the reach of the FLSA, increasing the number of workers who are denied its statutory provisions.”
“That said, the Teamsters are confident that President-elect Joe Biden will not allow this rule to take effect, given that it is not slated to be implemented until after he is sworn in as the 46th president of the United States on Jan. 20,” it added.
Even if the law goes into effect, or whether it is replaced by a new regulation drawn up by the Biden administration, the question will continue to remain not just whether an employee is a contractor or an employee but whether the federal definition of contractor vs. employee is relevant or whether a state law prevails.
Feary said there are state laws that define contractor vs. employee issues that are relevant in one of three categories: worker’s compensation, unemployment taxes and benefits, and state wage and hour laws.
“So you could certainly have all these tests coexist to make a determination as to whether a worker is an independent contractor,” he said.
But where a federal law preempts the application of a state law, then the federal rule prevails, he said. That is what is going on in California, where lower courts have ruled that the Federal Aviation Administration Authorization Act, with its prohibition on state laws that have an impact on transportation “routes, prices and services,” overrules the state AB5 law in the trucking sector.
However, the state and Teamsters have challenged those rulings on appeal. The federal appellate court is expected to rule on that challenge sometime this month after hearing arguments in September.
But the F4A blocking of AB5 in trucking is specific to that industry. Hoffman said beyond that, the new federal law if it was implemented “is not going to change the reality of the California wage and hour law.”