Biden administration revises independent contractor rule

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The Biden administration unveiled a proposed rule that could increase costs for trucking companies and on-demand transportation, like Uber and Lyft, that rely on independent contractors.

The 184-page proposed rule, revealed by the U.S. Department of Labor’s Wage and Hour Division (WHD) on Tuesday, reinstates guidelines similar to those used under the Obama administration that are seen as less favorable to classifying workers in as independent contractors.

“Through our Wage and Hour Division app, we know that misclassifications occur across many industries and sectors,” WHD Deputy Chief Administrator Jessica Looman said during a Tuesday press briefing. . “We believe the proposed regulations would better protect workers against misclassifications, while providing a consistent approach for companies engaging or wishing to engage with independent contractors.”

In early 2021, just before the Biden administration took office, the Trump administration issued its own independent contractor statute which is considered much more favorable in establishing that a worker can be self-employed.

After Biden’s DOL quickly withdrew that guidance, a federal court ordered the Trump rule reinstated, saying the Biden administration failed to follow proper procedure in removing it.

Go back in time on the status of entrepreneur

The DOL’s new proposal would amend WHD regulations to revise its analysis for determining the classification of employees or independent contractors under the Fair Labor Standards Act (FLSA) “to be more consistent with court precedent and text and purpose of the law”.

The Ministry of Labor offers:

  • Not using “essential factors” and instead reverting to an analysis of the totality of the circumstances of the economic reality test that focuses on whether each factor shows that the worker is economically dependent on the employer for the work rather than being in business for its own sake, does not use predetermined weightings of factors and considers factors holistically instead of discrete and unrelated.
  • Bringing the consideration of investment to a stand-alone factor, focusing on whether the worker’s investment is capitalistic or entrepreneurial in nature, and considering the worker’s investments on a relative basis with the worker’s investment. ’employer.
  • Provide additional analysis of the control factor, including detailed discussions of how planning, supervision, pricing, and ability to work for others should be considered when analyzing the degree of control over a worker, and not limit control to that which is actually exercised.
  • Let us return to the long-standing departmental interpretation of the integral factor, which considers whether the work is an integral part of the employer’s business rather than whether it is exclusively part of an “integrated production unit”.

No ABC test

The DOL states in the proposed rule that it had considered codifying an ABC test for determining independent contractor status under the FLSA similar to the ABC test enacted under California’s new wage and hour law, known as AB5. The law makes it difficult, if not impossible, for trucking companies in this state to use independent contractors.

“However, the department believes it is legally compelled to adopt an ABC test because the Supreme Court has ruled that the economic reality test is the applicable standard for determining the classification of workers under the FLSA as employee or independent contractor,” the proposed rule reads. .

“Because the ABC test is inconsistent with Supreme Court precedent interpreting the FLSA, the department believes it could only implement an ABC test if the Supreme Court revisits its precedent or if Congress passes legislation that changes applicable analysis under the FLSA.”

Increase costs

Still, the policy change could place a greater burden on trucking companies that rely on an independent contractor model to show that their drivers are in fact self-employed and not employees – an adjustment that would increase operating costs. exploitation.

Regarding trucking, Looman said during the briefing that the new guidelines “will be very fact-specific depending on the nature of the trucker’s relationship, whether or not they are properly classified as an independent contractor or an employee.”

Nick Geale, vice president of labor policy at American Trucking Associations, said his group is “reviewing the proposed new rule and looks forward to providing feedback to the department, but we are disappointed that this proposal seeks to undo the current rule that has brought needed clarity to the issue of independent contractor status.

Ride-sharing companies like Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT), which also rely heavily on independent contractors, could also see their costs rise if they were forced to change their operating structure.

“Overall, I think the concern is that the added costs for companies like Uber and Lyft ultimately lead to higher prices for consumers, which will lead to lower demand for these services and ultimately reduce the need for so many workers,” Matt Spoke, CEO of Moves Financial, which handles payments for gig economy businesses, told FreightWaves.

The National Retail Federation (NRF) also quickly signaled its opposition. “The changes proposed by the Department of Labor will dramatically increase costs for businesses in all sectors and fuel already rampant inflation,” NRF senior vice president of government relations David French said Tuesday.

“The NRF strongly opposes change in this important area of ​​the law, which is both unwarranted and unnecessary. This decision will only promote massive confusion, endless litigation, reduced innovation and fewer opportunities for employees and independent contractors.

The public will have 45 days to comment on the rule after it is published in the Federal Register on Thursday.

Click for more FreightWaves articles by John Gallagher.

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