Labor Department Proposes New Independent Contractor Definition

The U.S. Department of Labor released a proposed rule to revise how it defines independent contractors under the Fair Labor Standards Act, with a potentially problematic change that will affect trucking.

The department wants to repeal a definition published in the final days of the Trump administration and replace it with a regulation it says is more aligned with judicial precedent. An earlier attempt by the incoming Biden administration to repeal the 2021 definition was held improper by a federal district court.

The Notice of Proposed Rulemaking is a 184-page PDF, so attorneys and industry are still digesting the proposal and all its implications. But Greg Feary, transportation attorney and partner with Scopelitis, Garvin, Light, Hanson & Feary, told HDT he’s identified a couple of major aspects that affect trucking.

The proposal calls for a multi-factor economic realities test that looks at the totality of the circumstances, but Feary said the NPRM suggests those factors will be interpreted in a way that will make it harder for trucking companies to demonstrate the independent contractor status of their drivers.

The NPRM jettisons the Trump regulation's emphasis on two core factors — nature and degree of control over the work and the worker’s opportunity for profit or loss — and proposes to weigh all six of its proposed factors more equally. The NPRM also eliminates the Trump regulation's emphasis on actual practice in favor of also weighing theoretical possibility.  

No ABC Test

On the positive side, the Labor Department acknowledged that it has no authority to propose an ABC test, which is the strict independent contractor definition used in California’s AB5 law. In an ABC test, all three factors must be met in order for a worker to be considered an independent contractor rather than an employee. The “B” part of the test says the worker must perform work that is “outside the usual course of the hiring entity’s business,” which is virtually impossible for trucking’s traditional owner-operator model to meet.

The department said it considered codifying an ABC test to determine independent contractor status under the FLSA, similar to the ABC test recently adopted under California’s state wage and hour law.

“Codifying an ABC test would establish a far simpler and clearer standard for determining whether workers are employees or independent contractors … and substantially reduce the risk of worker misclassification,” the department says in the NPRM. It “would also be more restrictive of independent contracting arrangements compared to the proposed rule.” However, the DOL said it believes it is “legally constrained from adopting an ABC test.”

In the past, the notice explains, the Supreme Court has held that the economic reality test is the applicable standard for determining workers’ classification under the FLSA as an employee or independent contractor, and that existence of employment relationships under the FLSA “does not depend on such isolated factors” as the three independently determinative factors in the ABC test, “but rather upon the circumstances of the whole activity.”

The department believes that it could only implement an ABC test if the Supreme Court revisits its precedent or if Congress passes legislation to amend the FLSA. Feary does not believe either of those is likely.

“You haven’t seen the National Labor Relations Board enact an ABC test, even though their PRO act contains an ABC test,” he noted. And the PRO Act is unlikely to make it past the filibuster rules in the Senate, unless we see a major power shift in the November midterm elections.

Differences between federal law and California state law make it unlikely, in his opinion, that the U.S. Supreme Court would come down on the side of the “broadest of all the interpretations” of the FLSA’s vague language regarding employees as those who a an employer “suffers or permits to work.”

He also said this part of the proposal was not a surprise, because last month, the Biden administration’s nominee for administrator of the U.S. Department of Labor's Wage and Hour Division, Lisa Gomez, told a U.S. Senate committee that the agency couldn't issue a rule adopting the ABC test.

Safety, Customer Requirements No Longer an Out

However, in what Feary called "the significantly negative aspect of the proposal," the NPRM explained that all instances of control should be considered, even if they are due to contractual requirements, quality control or safety standards, or legal obligations. (If a company is deemed to have too much control over a worker, it’s more likely that worker will be determined to be an employee.)

This is a break from judicial precedent, according to Feary. In the past, he explained, courts have largely held that if a company is requiring a worker to do things a certain way in order to comply with laws, rules, regulations, safety requirements, or customer requirements, that does not indicate control.

“But this proposed rule says, ‘no, no, no, that should be taken into consideration,’ and it should be legitimate to consider safety and customer requirements are part of the equation” when determining how much control a company exerts over a worker.

“And in a highly regulated industry like trucking and transportation, it’s problematic.”

The proposal is expected to be published in the Federal Register on Oct. 13, with a 45-day comment period. Given the size of the proposal and how important in issue this is, Feary said he would not be surprised if that comment period gets extended.