Worker classification rule moves forward

January 6, 2021

Mark Schremmer


The U.S. Department of Labor is moving forward with a final rule aimed at clarifying whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.

The final rule is scheduled to be published in the Federal Register on Thursday, Jan. 7, and is set to go into effect in two months.

A focus of the rule would be the adoption of an “economic reality” test to determine a worker’s status.

“The final rule explains that independent contractors are workers who, as a matter of economic reality, are in business for themselves as opposed to being economically dependent on the potential employer for work,” the notice stated. “The final rule also explains that the inquiry into economic dependence is conducted by applying several factors, with no one factor being dispositive, and that actual practices are entitled to greater weight than what may be contractually or theoretically possible.”

The notice of proposed rulemaking received more than 1,800 comments in one month. The Department of Labor noted that among the commenters about 230 identified themselves as independent contractors (not counting the more than 900 comments from Uber drivers).

“Of those, the overwhelming majority expressed support for the notice of proposed rulemaking,” the notice stated.

In formal comments from OOIDA, the Association advised the DOL to consider the long history of the trucking industry’s owner-operator model before finalizing any rules regarding worker classification.

As of Wednesday afternoon, OOIDA was still reviewing the 261-page final rule.

However, the future of the worker classification rule is murky.

With a new administration about to take over, it is unclear if the rule will ever become a reality. Jen Psaki, the incoming White House press secretary for President-elect Joe Biden, told reporters at a news conference last week that the administration planned to halt or delay several “midnight” (or last-minute) regulations brought forth by the Trump administration.

Psaki said the Biden-Harris administration will issue a memo on Inauguration Day (Jan. 20) to impede such regulations. An expected worker classification rule from the Department of Labor was singled out.

“If it takes effect, that rule will make it easier to misclassify employees as independent contractors, costing workers more than $3.7 billion annually,” Psaki said in a Reuters article. “The memo would potentially freeze this rule and not allow it to be implemented.”

The U.S. Department of Labor announced in September that it was proposing a worker classification rule to address a hot-button issue that has had ramifications on a variety of workers from truckers to gig economy 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 September 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.”

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