Department of Labor unveils worker classification final rule

The U.S. Department of Labor has unveiled its final rule aimed at preventing companies from misclassifying workers as independent contractors.

The DOL’s Wage and Hour Division is scheduled to publish the 339-page final rule in the Federal Register on Wednesday, Jan. 10.

Specifically, the action rescinds a President Donald Trump-era rule that focused on control and profit and replaces it with “guidance for how to analyze employee or independent contractor classification that is more consistent with the Fair Labor Standards Act.” The rule is set to take effect on March 11.

“The Department believes that this final rule will reduce the risk that employees are misclassified as independent contractors, while at the same time providing greater consistency for businesses that engage with individuals who are in business for themselves,” the DOL wrote.

While much of the motivation for the rule appears to be focused on gig workers, such as drivers for DoorDash, Uber and Lyft, it has been met with some criticism from the trucking industry for not recognizing the uniqueness and history of the owner-operator model.

OOIDA’s reaction

The Owner-Operator Independent Drivers Association, which represents small-business truckers, said that any successful rule must allow truly independent owner-operators to maintain their business model while also protecting truck drivers from predatory carriers.

“Truckers are tired of the endless parade of classification rules that do not listen to their concerns,” OOIDA President Todd Spencer said. “This constantly changing landscape has created uncertainty that makes it more difficult for them to operate their businesses. We are still reviewing all the details in the final rule, and it is too soon to know what the exact effect of this final rule would be.”

OOIDA opposes an “overly broad and unnecessarily restrictive” approach to worker classification, such as California’s Assembly Bill 5, which uses an ABC Test that makes it nearly impossible for a leased-on owner-operator to be considered an independent contractor.

“As we said when the Biden administration first issued this proposal, we have concerns that some details contained in the rule may disregard specifics of the trucking industry and could lead to the reclassification of independent contractors as employees,” Spencer said. “With that said, we support the Department’s stated intent to follow decades-long practices for classification under the Fair Labor Standards Act, as well as its rejection of the ABC Test as signed into law in California with AB5.”

The Department of Labor attempted to distinguish its final rule from the controversial ABC Test.

“The final rule does not adopt an ABC Test, which permits an independent contractor relationship only if all three factors in a three-factor test are satisfied,” the DOL wrote. “Under the final rule, the Department will instead rely on the longstanding multifactor economic reality test used by courts to determine whether a worker is an employee or independent contractor. This test relies on the totality of the circumstances where no one factor is determinative.”

Instead, the final rule will look at six factors:

• Opportunity for profit or loss depending on managerial skill
• Investments by the worker and the potential employer
• Degree of permanence of the work relationship
• Nature and degree of control
• Extent to which the work performed is an integral part of the employer’s business
• Skill and initiative

ATA’s reaction

The American Trucking Associations spoke out aggressively against the rule.

“I can think of nothing more un-American than for the government to extinguish the freedom of individuals to choose work arrangements that suit their needs and fulfill their ambitions,” ATA wrote in a statement. “More than 350,000 truckers choose to work as independent contractors because of the economic opportunity it creates and the flexibility it provides, enabling them to run their own business and choose their own hours and routes.”

Biden nominates Su again

In addition to the announcement of the worker classification rule, the White House confirmed that President Joe Biden has renominated Julie Su to become the DOL Secretary.

Originally nominated by Biden to lead the DOL last February, Su never secured the votes necessary for confirmation. Instead, she has been working as the acting secretary for nearly a year.

Rep. Kevin Kiley, R-Calif., and others have questioned the legality of any rule finalized during Su’s tenure as acting secretary. The renewed nomination appears to be an attempt to end those legal challenges.

However, Kiley said he expects the result of this nomination to be the same as the last.

“It is beyond belief that President Biden has chosen to renominate his failed nominee,” Kiley wrote in a statement. “The Senate rejected Julie Su as labor secretary on a bipartisan basis last year because of her gross mismanagement and anti-worker agenda. There is absolutely no reason to expect a different result this year. The length this administration will go to weaken our economy and workforce is astounding.” LL