Department of Labor tackles worker classification definition

The U.S. Department of Labor has proposed a rule to clarify whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

Announced on Tuesday, Sept. 22, the proposal – which could make it easier for a worker to qualify as an independent contractor – is expected to be published in the Federal Register soon. Worker classification has been a hot topic recently, affecting everything from the trucking industry to Uber drivers and freelance writers.

“The department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” Labor Secretary Eugene Scalia said in a news release. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”

According to the Department of Labor, the proposal would:

• Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself or is economically dependent on a putative employer for work.
• Identify and explain two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself.
• Identify three other factors that may serve as additional guideposts in the analysis: the mount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production.
• Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

More information about the proposal can be found here.

“The rule we proposed continues our work to simplify the compliance landscape for businesses and to improve conditions for workers,” said Cheryl Stanton, administrator for the Wage and Hour Division. “The department believes that streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility.”

Once the proposed rule is published in the Federal Register, the public will have 30 days to comment.

California’s AB5

While the Department of Labor proposal might not have any effect on the California law, the state’s Assembly Bill 5 has placed a spotlight on worker classification.

Signed into law in 2019, AB5 codifies a 2018 California Supreme Court decision that established the ABC test to determine a worker’s status.

Under the ABC test, all workers are considered employees unless the hiring business demonstrates that three factors are established:

A. That the worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of the work and in fact.

B. That the worker performs work that is outside the usual course of the hiring entity’s business.

C. That the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The controversial law affects a variety of industries, including trucking. Opponents say the B prong of the test makes it impossible to hire independent contractors.

Shortly after the law went into effect in January, the California Trucking Association received a preliminary injunction that blocked California from enforcing it against motor carriers. In March, the U.S. Court of Appeals for the Ninth Circuit denied a motion to halt the preliminary injunction.

On Sept. 1, the U.S. Court of Appeals for the Ninth Circuit heard oral arguments in the case to decide whether the injunction should remain in effect.

The California Trucking Association claims the law is preempted by the Federal Aviation Administration Authorization Act of 1994, which prevents states from enforcing a law or regulation related to a price, route, or service of motor carriers.

The state of California and the International Brotherhood of Teamsters contend that AB5 is a law of general applicability that doesn’t reference motor carriers and can’t be preempted by the F4A.

Once the Ninth Circuit decides whether the preliminary injunction should stand, the case will likely be brought back to the U.S. District Court in Southern California to decide whether or not the injunction will be made permanent. LL