Tuesday, December 22, 2020
The Bloomberg Daily Labor Report says, here behind a paywall, that yesterday “the U.S. Labor Department sent to the White House for review a high-profile final rule to ease employers’ use of independent contractors, continuing the Trump administration’s deregulatory push in the final weeks before the presidency changes hands.” The rule relates to classification of employees under the Fair Labor Standards Act.
Under current law, the Fair Labor Standards Act uses an Economic Realities Test to distinguish between employees and independent contractors that turns on 7 factors:
- The extent to which the services rendered are an integral part of the principal’s business.
- The permanency of the relationship.
- The amount of the alleged contractor's investment in facilities and equipment.
- The nature and degree of control by the principal.
- The alleged contractor’s opportunities for profit and loss.
- The amount of initiative, judgment, or foresight in open market competition with others required for the success of the claimed independent contractor.
- The degree of independent business organization and operation.
The Department of Labor has hustled forward the new midnight rule, which purports to clarify the “economic realities” test by using a five-factor test emphasizing two “core factors” that should be afforded greatest weight. The two core factors are:
- The nature and degree of the worker’s control over the work; and
- The worker’s opportunity for profit or loss.
These factors, according to the DOL, are “highly probative” of the inquiry of economic dependence because the ability to control one’s work and earn profits or risk losses are at the center of what it means to be an “entrepreneurial independent contractor.” If these factors both point toward a classification that the employee is an independent contractor, the DOL’s rule takes the position that that classification is likely accurate.
The other three non-core factors are:
- The amount of skill required to perform the work;
- The degree of permanence of the working relationship between individual and the potential employer; and
- The importance of the services rendered to the company’s business.
The soon-to-be new test seems highly litigable to me. It seems to impose primary and secondary analytical factors. But it is easy to predict that in many (most?) Gig economy-context cases a true control analysis will point in the direction of employee-status (which is why the Gig economy hates the control-focused Restatement Second of Agency test); and an (on paper) opportunity for profit or loss may point in the direction of independent contractor-status. That will open up analysis under the secondary, non-core factors, and we will be left with a 5-factor test versus the old 7-factor test. (I leave it to the reader to take an impressionistic look at the two clusters of factors). Obviously, the departing Trump-ites must believe that on balance more workers will be found independent contractors under the new test. Maybe. But I do not see how it will result in summary judgment dismissals. There are enough factors floating around that litigation over the new test will probably feel typical, even assuming the test hangs around for longer than 8 or 9 months, which I think improbable. In any event, state law employment tests such as those utilized by workers’ compensation may be influenced by but are never subject to the federal tests. Uber and Lyft have a long, long way to go on the road to their goal of exploding the whole idea of “employment.”
Michael C. Duff