There are quite a few songs about gals named Sue. There’s “Peggy Sue,” “Wake Up Little Susie,” “Susie Q,” and “Runaround Sue.” There’s a even a song about a “Boy Named Sue.” (The results of a recent survey consisting of me revealed that “Boy Named Sue” is by far the best of the Sue-themed songs.)
As far as I know, no one has yet written a song about Labor Secretary nominee Julie Su, but I would not be surprised if one of the unions in California wrote a ballad to applaud her work heading the state’s Division of Labor Standards Enforcement (DLSE) and Labor and Workforce Development Agency. Maybe something like Fatboy Slim’s “Praise You.”
Su is Biden’s pick for Secretary of Labor, following the resignation of Marty Walsh, who left to lead the NHL player’s union. Her nomination is controversial, and businesses fear they’ll be singing the blues if she’s confirmed.
But in a recent Senate committee hearing, she provided at least two answers that businesses will like.
First, she said she would not advocate for an independent contractor test modeled after California’s AB 5. She testified that it’s her view (mine too, probably the courts’ too) that only Congress could adopt an ABC Test to determine worker classification under the Fair Labor Standards Act (FLSA). That’s reassuring.
Second, she said that the DOL’s next regulatory agenda would not include a new joint employer test. The 2020 joint employer regulation adopted by the Trump DOL has been rescinded, and there has been no replacement regulation, which leaves a regulatory crater in the Code of Federal Regulations, where the joint employer rule used to be. Read more here.
On April 26, a Senate committee voted to advance Su’s nomination to the full Senate. All Democrats on the committee voted yes, and she received no Republican support. In a 51-49 Senate, the success of her nomination will likely depend on whether she can secure the support of Senators Manchin, Sinema, and Tester and whether Sen. Feinstein is healthy enough to vote.
And on that note, we turn back to Johnny Cash:
He said, “Now you just fought one heck of a fight And I know you hate me, and you got the right to kill me now And I wouldn’t blame you if you do But you ought to thank me, before I die For the gravel in ya gut and the spit in ya eye ‘Cause I’m the son of a bitch that named you Sue”
In Japan’s Aomori Prefecture, bald men compete annually in a Suction Cup Tug of War. In each round, two contestants attach suction cups to their heads and pull in opposite directions. The person whose cup detaches first is the loser.
The event is sponsored by the Tsuruta Hagemasu Association, which aims to shed positive light on male baldness. The Association’s website, which I cannot read because it is Japanese, includes several hilarious/serious photos, including one of six elderly gents with flags suction cupped to their heads. Only the guy on the far right seems to be in on the joke. The others seem deadly serious about what their heads can do.
Using your head to win is not unique to the Suction Cup Tug of War. Well, maybe it is unique to the Suction Cup Tug of War if we take that in the most literal way, but now I’m straying into the figurative so that I can transition from something absurd to something topical.
Using your head to win independent contractor misclassification disputes often involves relying on individual arbitration agreements, which can help to prevent class action lawsuits. But the DOL is using its head too, and it’s pulling in an opposite direction. When the DOL pulls against your individual arbitration agreements, the DOL is going to win. The arbitration agreement will lose its stickiness.
Recent DOL news releases have highlighted the Department’s success in prosecuting misclassification cases, even when the target company had its independent contractors sign arbitration agreements. The DOL, in other words, doesn’t care about your arbitration agreements. The DOL is not a party to those agreements, and the DOL isn’t bound by them.
While an individual contractor can waive the right to file a lawsuit, the DOL is not waiving that right. The DOL can — and will — bring misclassification claims against companies that use arbitration agreements. I’m not suggesting that having arbitration agreements makes businesses a target for enforcement; I have seen no evidence of that. My point is just that arbitration agreements have their weak points, and the major weak point is that they do nothing to prevent a government agency, state or federal, from conducting an audit or bringing an enforcement action.
The US DOL, state labor departments, state unemployment agencies, and state and federal tax services have all made misclassification an enforcement priority.
Businesses should keep using arbitration agreements with their independent contractors, but be aware that these agreements do not protect against all mass enforcement activity. The stickiness of these agreements is useful, but when the DOL pulls in the opposite direction, the suction cup is probably coming off your head.
For those of you wishing you could have been there, here’s a video of the 2023 Suction Cup Tug of War. After some bizarre preliminaries, including tournament officials and a young girl throwing wet paper rectangles at the competitors’ heads, the thrilling tug of war action begins at about 1:20 into the clip.
There’s an island in Quebec that’s larger in area than the lake in which it sits. René-Levasseur Island was supposedly formed by the impact of a meteorite 214 million years ago, although eyewitness accounts differ. The land mass became an island in 1970, when the Manicougan reservoir was flooded, merging two crescent shaped lakes that surrounded the area.
I like fun geography facts, and an island larger than the lake in which it sits is a fun fact. But feels a bit aggressive for the Canadians to merge two crescent shaped lakes to turn this land mass into an island. I’m sure they had their reasons. If nothing else, it looks good on a map.
The Department of Labor is also being aggressive, but they’re not flooding any reservoirs. Instead, they’re channeling their aggression toward independent contractor misclassification.
In a news release this month, the DOL announced that it had obtained a consent judgment for $5.6 million against a national auto parts distributor and an Arizona logistics firm for allegedly misclassifying 1,398 drivers as independent contractors. The award included back wages and liquidated damages.
The DOL had alleged that, by misclassifying the drivers, the companies failed to meet minimum wage requirements, failed to pay overtime rates, and failed to keep required timekeeping records. These failures each were violations of the Fair Labor Standards Act (FLSA).
The award covered an eight-year period between April 2012 and March 2020.
I see three takeaways here:
First, the DOL is being aggressive in filing lawsuits when it thinks independent contractors have been misclassified. This consent judgment shows how expensive these claims can be for companies that improperly classify workers. Companies using independent contractors needs to be proactive in evaluating their risks and taking steps to minimize those risks. There are lots of ways to reduce risk if you plan ahead, before you’ve been sued or investigated.
Second, this case is a reminder that companies who classify delivery drivers as independent contractors are at heightened risk. Federal and state agencies and the plaintiffs’ bar seem to be filing a disproportionate number of claims involving delivery drivers. If your business uses delivery drivers who are classified as independent contractors, you may be at an increased risk of an audit or lawsuit.
Third, remember the DOL’s proposed new rule for independent contractor classification under the FLSA? (Read more here, here, and here.) The DOL wants to change the current test for who is an employee under the FLSA, replacing a regulation adopted by the Trump Administration in 2020. But cases like this one show that the current regulation is not impairing the DOL’s ability to enforce what it perceives as misclassification. The DOL’s many recent successes — as posted in DOL news releases — show that the DOL is doing just fine under the current rule when it comes to misclassification enforcement. The new rule is a solution without a problem.
Large judgments like this one seem shocking, but they are a reminder of the substantial dangers of misclassification.
Learn more by joining me at the 10th Annual 2023 BakerHostetler Labor Relations and Employment Law Master Class, all virtual, one hour every Tuesday starting February 7, 2023. My program on Contingent Workforce issues will be on March 7, 2023. Registration is free.
In Denbighshire, Wales, the Howatson family lives in a small house that sits… wait for it… in the middle of a roundabout.
In the early 1980s, after the family had been in the house for 20 years, local authorities told them their property sat smack in the middle of where a roundabout was to be built. The family refused to sell, and they now have lovely 360-degree views of people driving around their house all day and night.
The Department of Labor is taking is a more direct approach in its effort to update the worker classification test under the Fair Labor Standards Act. But it’s a slow process, and it will be several more months before we see a final rule.
But this post will provide a status update. Long story short, we’ll see a new rule when the DOL gets around to it.
In October 2022, the DOL released its proposed new test for determining who is an employee under the Fair Labor Standards Act (FLSA). The proposed rule generated more than 50,000 comments in response. I posted some initial reactions to the proposed rule in this article here.
The proposed rule identifies seven factors to consider when determining whether an independent contractor has been misclassified under the FLSA:
1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the employer;
3. Degree of permanence of the work relationship;
4. Nature and degree of control;
5. Extent to which the work performed is an integral part of the employer’s business;
6. Skill and initiative; and
7. Additional factors.
Under federal law, the rulemaking process involves three main steps. First, the agency posts a proposed new regulation. That’s what the DOL did in October.
Second, there is a public comment period, in which anyone can submit a comment to the DOL. The most effective comments tend to assist the agency in evaluating its proposed rule, such as explaining likely unintended consequences or identifying concerns with how it is written. Comments can also offer legal arguments as to why the agency’s proposed rule is not consistent with the law it is supposed to be interpreting.
Finally, after reviewing the comments, the agency will publish a final rule. The final rule might differ from the proposed rule, or it could be the same. Or the agency can jettison the proposed rule entirely and do nothing. Here that last option is unlikely. The DOL will almost certainly issue a new rule.
On December 13, I submitted a lengthy comment on behalf of Flex, the trade organization representing app-based rideshare and delivery platforms. The full comment is available here, and I thought it might be helpful to summarize the main points for this audience.
The comment included two parts.
Part One argues that the DOL should not abandon the current rule (the 2021 Rule), which was passed less than two years ago. The 2021 Rule was adopted after a thorough rulemaking process and comment period, and the rule was developed based on a detailed analysis by the DOL of decades of case law. The 2021 Rule focused on two core factors, rather than offering a multitude of factors that have no pre-assigned weight. The 2021 Rule offered more predictability for businesses and contractors, and predictability in the law is — to put it bluntly — good. A regulation should add clarity, and the 2021 Rule added clarity.
Part One also pointed out that the 2021 Rule had done little to damper the DOL’s efforts at combatting misclassification. The DOL has published a long list of successes in obtaining settlements and judgments in the last three months alone.
Abandoning the 2021 Rule would also be arbitrary and capricious, meaning it might not survive a legal challenge, and we urged the DOL not to make a change.
Part Two argues that even if the DOL decides to abandon the 2021 Rule, the proposed new rule needs some work. Part Two focused on seven aspects of the proposed new rule that the DOL should change.
The key thing to remember is that the DOL wants to go back to a multi-factor test. Multi-factor tests have been around for a long time, but the devil here is in the details. If you read the DOL’s description of each factor and how it should be applied, the DOL is putting its fingers on the scale, taking every close call (and some that aren’t close) and resolving them in favor of employee status.
I will list the seven arguments below to provide a general sense of the key points. But, since this is supposed to be a quick read format, I’m not going to wade into the details. You can read the full comment if you like.
From the Table of Contents to Part Two:
1) In Factor #1, the Commentary about “Managerial Skill” Should Be Deleted or Revised Because It Fails to Account for the Realities of 21st Century Work.
2) Factor #2 Should Be Substantially Revised to Remove Provisions That Are Illogical, Incompatible with Economic Realities, and Contrary to FLSA Case Law.
3) Factor #4 Should Remove the Commentary That Legally Required Control May Be Relevant Evidence of Control Because This Commentary Is Contrary to Controlling Case Law, Contrary to this Department’s Own Guidance, and Not Probative of the Economic Realities of a Relationship.
4) In Factor #4, Use of Technology to Supervise Should Not Be Referenced as a Relevant Control Factor.
5) Factor #5 Should Preserve the Current “Integrated Unit of Production” Analysis and Should Not Adopt a Flawed “Integral Part” Analysis That is Contrary to Case Law and Legally Unsupported.
6) Any Final Rule Should Preserve the Helpful Subregulatory Guidance in Fact Sheet #13, Clarifying That Certain Factors Are Not Relevant.
7) Any Final Rule Should Replace the Term “Employer” with “Principal” or a Similarly Neutral Term.
And now onto Step Three of the DOL’s rulemaking process. Last week, the Biden Administration published its overall regulatory agenda for 2023. It included a May 2023 placeholder for a proposed final rule. That’s just a best guess at this point, and with more than 50,000 comments for the DOL to review, the actual release date may be several months later. But the DOL, at least at present, appears prepared to move forward with a new rule to determine independent contractor vs. employee status under the FLSA.
We’ll continue to monitor developments, in a roundabout way.
If you google “what to watch for 2023,” you’ll mostly get tips on soon-to-be-released movies and streaming video shows. You’ll get grammatically impossible generic hype like “movies we can’t wait to see” (except the whole point is that you have to wait to see them) and you’ll get grammatically impossible niche hype like “The most anticipated Korean dramas and movies we can’t wait to watch in 2023.”
We won’t peddle hype in this post, and you’ll literally have to wait for all of the things addressed below. But here are five important developments to watch for in 2023.
1. The test for Independent Contractor vs. Employee is likely to change, at least under the Fair Labor Standards Act (FLSA). The Department of Labor proposed a new multi-factor test, and the period for public comment ended December 13. The DOL is likely to roll out a new test in 2023. It will replace the current core factors test described here.
2. The test for Joint Employment is likely to change, at least under the National Labor Relations Act (NLRA). In September, the NLRB proposed a new test for determining when joint employment exists under the NLRA. You can read more here. The public comment period has closed, and we can expect a new test sometime in 2023.
3. The NLRB is likely to rule that independent contractor misclassification, by itself, is an unfair labor practice. The NLRB General Counsel has expressed an intent to reverse the Velox Express decision from 2019, in which the Board ruled that misclassification was not an automatic ULP. More information is here. Now that the Board majority has switched from Republican to Democrat, expect a decision in 2023 that creates an automatic ULP when there’s a finding of worker misclassification.
4. Expect state legislatures to keep changing the tests for Independent Contractor vs. Employee. Some states will try to make it harder to maintain independent contractor status by passing ABC Tests, in either a standard or strict version. A few conservative states may go the other way and adopt the latest version of the Uniform Worker Classification Act proposed by ALEC. The law would create a safe harbor for independent contractor classification if certain requirements are followed, including having a written contract. Versions of this law have been passed in West Virginia and Louisiana. You can read more here. Expect Oklahoma to be next.
5. Expect significant rulings on California independent contractor law. Several important cases are pending. These include Olson v. State of California, which challenges the constitutionality of AB 5. Oral argument was held in the Ninth Circuit in July 2022. In another case, the California Court of Appeal is considering the legality of Prop 22, the successful ballot measure that helped to protect independent contractor status for rideshare and delivery drivers using app services. Oral argument in that case, Castellanos v. State of California, was held in December 2022.
The law regarding contingent workforce is constantly changing, and 2023 looks to be another year of significant transformation. As always, it will be a good idea to watch these new developments carefully, as they will likely have a significant impact on companies using independent contractors and other contingent workforce arrangements.
Have you ever gone to a new restaurant that took over the space where one of your favorite restaurants used to be?
You’ve been wanting to try the new restaurant. You get there and the menu looks similar, so you order the fettucine with shrimp because that dish was always really good at the old place. It arrives and it looks the same but you’re not sure that it tastes quite the same.
Maybe the sauce tastes a little different but it’s hard to tell for sure. Then, you get home later that night and you feel a little queasy. You realize that the new restaurant must have put onions in the sauce. You probably didn’t notice because when the dish was served it looked just like it did at the old restaurant.
But you’re not supposed to eat onions, and now you have to wait and see if you’re going to start cramping up from eating the onions or if you’re going to be just fine. You really just don’t know. It could just as easily go either way, and now all you can do is wait.
That’s kind of how I feel after reading the Department of Labor’s proposed new independent contractor rule, released earlier this week.
Click here to read the rest of the story, originally published in Law360 on 10/13/2022.
The natives of Papua New Guinea call the hooded pitohui a “garbage bird,” and they don’t eat it or touch it. As Westerners learned more recently, there’s a good reason for the islanders’ hostility.
The hooded pitohui is the first bird confirmed to be poisonous. The bird‘s feathers emit batrachotoxins, which causes numbness and burning in low concentrations. A heavier does can cause paralysis, cardiac arrest and death. In other words, there’s good reason for keeping the hooded pitohui off the menu.
Numbness and burning may also describe the impact of a recent DOL enforcement action on two contractors in Louisiana. They were dealt a double hit—the DOL found independent contractor misclassification and joint employment.
After an investigation, the DOL’s Wage and Hour Division found that hundreds of painters and drywall workers had been misclassified as independent contractors. The company that retained the workers, PL Construction, failed to pay overtime and failed to maintain accurate time records, both violations of the Fair Labor Standards Act (FLSA).
Adding to the pain, the DOL found that a higher tier contractor, Lanehart, was the workers’ joint employer. That meant Lanehart was jointly liable for the violations—even though it had no control over PL Construction’s pay practices.
The DOL recovered more than $240,000 in overtime back wages for 306 workers.
There are several lessons here, both for companies that retain independent contractors directly and for higher tier contractors that engage subcontractors that use ICs.
1. The DOL considers independent contractor misclassification an enforcement priority. The agency is actively looking for violations.
2. The DOL publishes its wins. That means you can expect a press release naming and shaming your company if the DOL finds that there’s a practice of misclassifying workers. Have you heard the old adage that there’s no such thing as bad publicity? It’s not true.
3. Higher tier contractors are taking a risk if they put their head in the sand and disregard misclassification by their lower tier subs—especially if they plan to direct the work of the lower tier sub’s workers.
Here, the DOL found that Lanehart, the higher tier contractor, supervised PL’s workers and maintained records of who worked when. Lanehart’s supervision and direction made it a joint employer of PL’s workers. Under the FLSA, a joint employer is fully liable for wage and hour violations, even where it had no control over how the lower tier sub paid its workers.
4. A lawsuit is not the only way misclassification claims arise. Federal and state agencies can initiate investigations too. And while arbitration agreements with class action waivers can prevent class action litigation, they can’t stop a federal agency from pursuing claims on its own.
The DOL made its position pretty clear in its press release: “Our investigation shows the costly consequences employers face when they or their subcontractors fail to comply with the law. When we determine a joint employment relationship exists, the Wage and Hour Division will hold all responsible employers accountable for the violations.”
Misclassification hurts. Joint employment doubles the pain. The DOL can inflict an uncomfortable burning sensation, even without sending a a hooded pitohui your way.
I saw this truck while driving home last week from my daughter’s college graduation. Now I’m no livestock dietician (I failed that course in law school), but this seems like the worst possible thing to feed your animals.
Whoever’s behind the labeling also needs some help with marketing. I know I wouldn’t buy that.
I’m also not buying the DOL’s recent announcement that it’s holding two public forums to help it decide what to do about a new independent contractor misclassification test. I think we all know what the DOL is going to do already.
The DOL will hold an Employer Forum on June 24, then a Worker Forum on June 29. Anyone can attend. RSVP links are here (6/24) and here (6/29).
After this charade open-minded exchange of viewpoints, the DOL will get to work preparing a new rule for determining who is an employee under the Fair Labor Standards Act (FLSA). The current regulation, issued by the Trump DOL, refocuses the traditional Economic Realities Test inquiry on two core factors: (1) the nature and degree of the individual’s control over the work, and (2) the individual’s opportunity for profit or loss. The Biden DOL tried (unsuccessfully) to prevent the Trump rule from going into effect, but a federal court ruled that the Biden DOL’s attempt to dismantle the rule was flawed, and the Trump rule therefore went into effect.
Now, let’s not kid ourselves. Just because a court told the Biden DOL that it’s stuck with this Trump-made rule doesn’t mean anyone at the DOL is actually applying it. The Biden DOL has said it plans to rewrite the rule, pronto. The new rule will make it harder to classify workers as independent contractors under the FLSA. We already know that’s going to happen, even if we don’t know the precise language to be used.
In late 2022, the DOL will issue its new rule, which will be like the old rule that we had before the Trump DOL’s new rule. Meet the new boss, same as the old boss. And with each new administration, it will become harder then easier then harder to be classified as a contractor under the FLSA.
So I will not be wasting my time listening in on these forums. I expect they’ll be as useful as inedible food. Which cannot be good for the GI tract.
Those who have seen me present on independent contractor issues know that I like to incorporate song references by The Who. There are so many song titles and lyrics that help the presentation flow.
On Tuesday, it’s my turn to co-present at the annual BakerHostetler Master Class on Labor Relations and Employment Law. The session is called Answering Tough Questions About Independent Contractors, Joint Employment and the Contingent Workforce, Using Songs by The Who. The session is free, 2-3p ET on April 5. Register here.
If you join me, you’ll get gems like this when we update you on 2022 developments, such as David Weil’s nomination to serve as Wage and Hour Administrator of the DOL:
Democrats: Meet the new boss, same as the old boss.
Republicans: We won’t get fooled again.
David Weil was the Wage and Hour Administrator in the DOL during the Obama Administration. He published two Administrator’s Interpretations expressing the view that most independent contractors were misclassified and that joint employment should be much easier to establish. He wrote about the problems with the “fissured workforce,” meaning the expansion of non-traditional, non-employee labor. He was not a friend of the business community and especially disliked by the franchising community.
In 2021, Biden nominated him to reclaim that post.
Last week, the Senate voted 53-47 to block the nomination.
In the independent contractor space, it’s been a busy few months for the DOL, and I would imagine the administration would like to fill this role as quickly as possible.
Last month, a federal court took issue with the Biden DOL changing its tune on the Trump DOL’s test for independent contractor misclassification. The court declaredThe Song Is Over and rejected the Biden DOL’s change, reinstating the Trump-era test for worker classification under the Fair Labor Standards Act (FLSA). More details here.
In January, the DOL and the NLRB signed a Memorandum of Understanding in which they agreed to share information to combat independent contractor misclassification.
Join me and my colleagues Margaret Rosenthal and Vartan Madoyan on Tuesday for more updates, tips, previews, and Who-themed lyrics. There’s no charge to attend. I’m Free.
There’s an optical illusion known as a negative afterimage. If you stare at the red dot on this woman’s nose for about 15 seconds, then look at a blank wall, you’ll see the woman on your wall – but in full color and with dark hair. And yet, there is no woman on your wall.
You see what isn’t there because the illusion tricks the photoreceptors in your retina.
Monday’s ruling by a federal judge in Texas also has us seeing what isn’t there – or what was there and then wasn’t there – or something like that, but with respect to the test for independent contractor classification.
In early January 2021, the Trump DOL issued a new regulation that sought to provide clarity on how to determine whether someone is an employee or an independent contractor under the Fair Labor Standards Act (FLSA). Even though the FLSA is a federal law that is supposed to apply everywhere, different courts around the country used different versions of the FLSA’s Economic Realities Test to make that determination.
Under the new regulation, 29 CFR Part 795, there would be just one test. It was simple, and the same rule would apply all over the country. The regulation was scheduled to take effect March 8, 2021. But a few days before the effective date, the Biden Administration postponed implementation of the new rule. Then in May, they rescinded it. They replaced it with nothing. If you go to the Code of Federal Regulations, there is no 29 CFR Part 795. (Here, try it!)
But Monday’s ruling said to stare a little harder. It’s there.
The court ruled that the Biden Administration’s effort to delay and then withdraw Part 795 was unlawful and violated the Administrative Procedure Act. The delay provided too short a comment period, failing to offer the public a meaningful period to provide input. The withdrawal was improper because the DOL failed to consider alternatives and instead “left regulated parties without consistent guidance.”
Because the delay and withdrawal of the Trump era rule were deemed unlawful, the court ruled that Part 795 did, in fact, go into effect March 8, 2021, and “remains in effect.”
So now you probably want to know what the rule is, since you cannot find it online in the Code of Federal Regulations – at least as of Tuesday night.
The test in Part 795 identifies two “core factors” for determining the independent contractor vs. employee question under the FLSA. If both factors point in the same direction, the issue is generally decided. If the core factors point in different directions, three “other factors” are considered.
• The nature and degree of the individual’s control over the work; and
• The individual’s opportunity for profit or loss.
The control factor supports independent contractor status if the worker “exercises substantial control over key aspects of the work,” including setting schedules, selecting projects, and being allowed to work for others.
The profit or loss factor weighs in favor of independent contractor status if the worker has the opportunity to earn profits or incur losses based on the exercise of initiative, managerial skill, business acumen or judgment, or based on management of his or her own investments or capital expenditures. Examples of investments may include hiring helpers or buying equipment.
If the two core factors do not determine the issue, three other factors are to be considered:
• Amount of skill required for the work;
• Degree of permanence of the working relationship between the individual and the potential employer; and
• Whether the work is part of an integrated unit of production.
Amount of skill required. This factor weighs in favor of independent contractor status if the work requires specialized skill or training that the potential employer does not provide.
Degree of permanence. This factor weighs in favor of independent contractor status if the work is definite in duration or sporadic. This factor supports employee status if the work is indefinite. Work that is seasonal by nature does not weigh in favor of independent contractor status, even though it’s definite in duration.
Whether the work is part of an integrated unit of production. This factor is likely to receive the heaviest criticism from worker advocates. The “integrated unit of production” factor comes from a pair of 1947 U.S. Supreme Court cases. Over the years, this factor has morphed into the question of whether the work is “integral” to the potential employer’s business. Part 795 takes a firm stance here, saying that — based on the 1947 Supreme Court decisions — the relevant question is whether the work is “integrated,” not whether it is “integral.”
This factor weighs in favor of independent contractor status if the work is “segregable” from the potential employer’s processes for a good or service. For example, a production line is an integrated process for creating a good. A software development program may require an integrated process for creating a computer program. Work that is performed outside of an integrated unit of production is more likely performed by an independent contractor.
What Happens Now?
First, the DOL can appeal the decision to the Fifth Circuit. We expect that will happen. In the meantime, a stay might be issued or might not be issued.
Second, Part 795 is now in effect, unless a stay is issued.
Third, it’s a fair question how much this really matters anyway. The test was not intended to change the outcome in most instances. It was instead intended to articulate more clearly how these determinations were already being made. The two “core factors” were already determinative in almost all cases, even if courts were not explicitly identifying two factors as being most important. Also, the Circuit Courts of Appeal do not have to adopt the DOL’s interpretation of the test. They can go on using their five-part and six-part tests, or they can apply the Part 795 analysis.
The Part 795 should now be the applicable test. But we shall see.
If you stare hard enough at your handy copy of the Code of Federal Regulations, and then look at a blank wall, Part 795 just might appear.