The Department of Labor finally released the proposed rule that would define independent contractor status. It’s either all in the name of “protecting” those who are incorrectly designated as contractors or trying to eliminate most contracting as a way to boost unions as a returned political favor, according to whom you ask. Or something floating about in between.
A first look through the 184-page rule (including typical copious history and detailed rationale in such a document) suggests that the administration would really prefer to simply implement the so-called ABC Test, a goal unions and Democrats have had for years.
There appears to be an implicit recognition of limitation, as “the Department believes it is legally constrained from adopting an ABC test because the Supreme Court has held that the economic reality test is the applicable standard for determining workers’ classification under the FLSA
Nevertheless, the DOL tries to keep the door open for a more restrictive take on who can correctly be deemed an independent contractor (IC) by essentially substituting language for the original ABC wording, like a high school student trying to rewrite an encyclopedia entry to get the same meaning in a report.
Looking at a “totality-of-the-circumstances analysis of the economic reality test that has a refined focus on whether each factor shows the worker is economically dependent upon the employer for work” sets up the requirement for proof that a person actually has a business and isn’t an IC in name only.
The rule would also look at “investment as a standalone factor, focusing on whether the worker’s investment is capital or entrepreneurial in nature, and considering the worker’s investments on a relative basis with the employer’s investment.” That seems hard to understand, but later in the document it refers specifically to court decisions that “workers’ vehicles” [the DOL phrasing] aren’t necessarily a sign of significant investment because of the potential for personal use—i.e., that delivery and rideshare drivers might be judged as employees, arguing that the use of their own cars isn’t proof of significant investment.
(By the way, if you were preparing your taxes as an IC, the IRS would be interested in what percentage of your time is spent using a vehicle for business. If it was half the miles put on, then half of the operating costs, including payments, insurance, gas, maintenance, and so on, would specifically be a business expense, which sure seems like an investment of one’s own money.)
The attempt to minimize another aspect, to whittle away Uber
And then, there’s the attempt to sneak the B-prong of the ABC Test—that a worker is performing functions “outside the usual course of the hiring entity’s business,” as the California Department of Labor explains. The DOL rule will look at “whether the work is integral to the employer’s business rather than whether it is exclusively part of an ‘integrated unit of production.’” That is, whether the work seems basic to what the company does rather than checking if someone is working within the business itself.
There’s even a case to be made that the DOL is trying to undercut the significance of independence as a factor in IC status. “[The] Department continues to believe that issues related to scheduling, supervision over the performance of the work (including the ability to assign work), and the worker’s ability to work for others are relevant considerations,” the rule says. “The Department’s proposal would also consider additional aspects of control in the workplace that have been identified in the case law or through the Department’s enforcement experience—such as control mediated by technology or control over the economic aspects of the work relationship.” That is looking for new ways to say that control is expressed.
From personal observation and also experience, there absolutely are problems with companies calling people contractors because the firms want to save extra payroll taxes, the employer’s part of FICA tax, possibly the need to provide benefits, regulatory paperwork, and more. People working day in and out in an office or maybe being a truck driver, called a contractor, but really paying to pay a delivery company for a truck and insurance as well as also being under direct control of schedules.
But there are tens of millions who are legitimate ICs, and the concern of many has been that the Biden administration, from campaign days to now, has stated that it wanted to embed the highly restrictive ABC test throughout labor and employment law.
The concern among various IC and business groups is that, although the DOL wants to phrase things differently, by focusing on economic independence without really defining what they mean by that, the agency and the administration may be trying to leave a door open to attain by interpretation of its own rule while letting the administration claim that it’s all an accident. And given the little amount of time between the agency-held town halls and the draft of the rule, there’s a good question as to whether anyone in the administration was actually interested in the concerns of people.
Chances are strong that groups will take the rule to court.