A federal judge in Texas has ruled that a new, more business-friendly definition of independent contractor published in the final days of the Trump administration must be reinstated, because the Biden administration failed to give enough time to comment on its rulemaking that walked back the Trump definition.
Last May, the U.S. Department of Labor announced the withdrawal of the Trump administration rule, which would have made it harder to prove workers were employees rather than independent contractors under the Fair Labor Standards Act.
On March 14, the Eastern District of Texas, U.S. District Court, granted a summary judgment to the plaintiffs in Coalition for Workforce Innovation et al v. Walsh et al. Those included the Coalition for Workforce Innovation (of which the American Trucking Associations is a member), as well as the Associated Builders and Contractors, and the Financial Services Institute.
In a news release, the plaintiffs praised the court’s decision, saying it “will have a significant impact as independent work continues to grow as a popular way for millions of people to work.”
The business groups argued that the DOL’s “hasty and unjustified action [withdrawing the rule] violates the Administrative Procedure Act, compounding a violation that began when the department improperly delayed the effective date of the rule in 2021 without proper notice and comment and without any substantial justification.”
The Trump-era Independent Contractor Definition
Under the Trump administration, the Department of Labor tried to simplify that definition of independent contractor, adopting an “economic reality” test to determine a worker’s status as an employee or an independent contractor. The test considered whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee). The rule set up two “core factors” in making the determination: Nature and degree of control over work, and opportunity for profit or loss based on initiative and/or investment.
The Trump rule also addressed in its preamble issues relevant to the traditional leased owner-operator model in trucking, including long-term relationships between parties, the issue of how safety and other government mandates may affect the contractor relationship, and that piece rates (e.g., pay by load or mile) would not conclusively define IC status.
The independent contractor definition rule was initially scheduled to take effect on March 8, 2021. Shortly after Biden took office, on February 5, 2021, the department published a proposal to delay the rule’s effective date until May 7. On March 4, 2021, the department published a final rule delaying the effective date. On March 12, 2021, it issued the proposal to withdraw the rule entirely, and in early May, announced the final rule of the withdrawal.
The plaintiffs in the lawsuit said the measly 19-day comment period for that final rule did not give stakeholders enough time to provide meaningful feedback. The judge apparently agreed.
“The withdrawal of the duly finalized economic realities test was both procedurally and substantively defective, and the Coalition is pleased it has been vacated as a matter of law,” said Evan Armstrong, chair of CWI, in a news release. “The department's actions undermined the very independent workers they purported to protect. CWI believes the updated economic realities test appropriately reflects the modern economy and looks forward to working with the Department of Labor to further support independent workers and the choices they make for themselves, their families, and their livelihoods.”
What's Next for Independent Contractor Status?
For now, the court ruling reinstates the Trump administration definition of independent contractor. But it's doubtful that will remain permanent.
The Department of Labor could appeal the decision and ask for a stay in making the Trump rule effective until the appeal has been decided, explained Greg Feary, president and managing partner of trucking law firm Scopelitis, Garvin, Light, Hanson & Feary, in an email response to our questions about the case.
“It is also possible that the DOL will simply follow the guidance of the court and republish the rulemaking it had issued, but instead provide the proper 30 day notice,” Feary said. This option might be more efficient, he said, but the Texas court “also cited the decision to repeal the rule as improperly not considering alternatives to repeal. This has left a question as to what alternatives would need to be considered as an open question. Consequently, the DOL might chose to appeal rather than try to pursue proper notice and then once again face the second issue of not properly considering other alternatives.”
Either way, he said, “The Biden administration has made no secret of its preference for the Teamster-favored ABC test,” which makes it very difficult to prove a worker is an independent contractor.
“While many suggest such a test cannot be created by agency rule-making and would require a legislative act of Congress, a new rule or guidance memo leaning toward an ABC from the Department of Labor might now be deemed a priority to occupy the void, if or when the Trump rule is repealed.
“Of course, this would create greater uncertainty as to the definition and use of independent contractors in transportation and further exacerbate the driver/truck shortage of an already strained supply chain.”