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.
The Rolling Stones’ song, “You Can’t Always Get What You Want” features the London Bach Choir and addresses the predominant themes of the 1960s — love, protest, and drugs. There’s some controversy as to whether Mr. Jimmy refers to vagrant Minnesotan Jimmy Hutmaker, who supposedly uttered the famous lyric-to-be during a chance 1964 encounter with Jagger at Bacon’s Drugstore, or Jimmy Miller, a record producer who also played drums on this track instead of Charlie Watts.
“You Can’t Always Get What You Want” is also a suitable theme for the main problem that dominates every aspect of independent contractor misclassification. The problems is that the laws are binary. A worker is either an employee who receives all of the protections of employment laws, or an independent contractor, who receives none. The exceptions creating a middle ground have been sparse.
But if you try sometimes.
California voters tried and succeeded in creating a middle ground in 2022, when they passed Prop 22. Prop 22 guarantees independent contractor status for rideshare and delivery drivers if a series of conditions are met, and then the app companies are required to provide a range of protections for drivers, including minimum rates of pay, a health insurance stipend, accident insurance, sexual harassment prevention, safety training, and rest requirements.
Prop 22 was and is a model for the middle ground that has been missing.
But Prop 22 has also been under attack. In a case called Castellenos, the SIEU and other worker advocates have argued that Prop 22 violates the California constitution and had to be invalidated. Without Prop 22, rideshare and delivery drivers could be subjected to California’s ABC Test for determining drivers’ status.
As you may have read, a California Court of Appeals ruled earlier this month that Prop 22 did not violate the California Constitution and could take effect, except for one small part of the law governing future amendments. The dispute will likely be heard by the California Supreme Court, so the fight isn’t over.
The point I want to make, though, is that Prop 22 carves out a middle ground that should be a model for other states to follow. It guarantees workers certain protections while allowing them to operate their own businesses as independent contractors.
The unions and worker advocates calling for the protection of worker rights routinely ignore the surveys showing that a vast majority of drivers prefer independent contractor status. Much of the noise on this issue is coming from a vocal minority.
The Prop 22 model is a middle ground that provides workers with protections they otherwise lack, while allowing workers to retain their preferred independent contractor status and flexibility.
We’ll continue to watch whether the California Supreme Court decides to hear this dispute but, either way, Prop 22 should be held up as a model for other states to follow, carving out a middle ground that balances the concerns of all sides. Worker status does not have to be binary. Binary laws that mandate employee or independent contractor status, with no middle ground, do not reflect the realities of the modern gig economy.
It’s time for reform.
You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.
The Rolling Stones’ song, “You Can’t Always Get What You Want” features the London Bach Choir and addresses the predominant themes of the 1960s — love, protest, and drugs. There’s some controversy as to whether Mr. Jimmy refers to vagrant Minnesotan Jimmy Hutmaker, who supposedly uttered the famous lyric-to-be during a chance 1964 encounter with Jagger at Bacon’s Drugstore, or Jimmy Miller, a record producer who also played drums on this track instead of Charlie Watts.
“You Can’t Always Get What You Want” is also a suitable theme for the main problem that dominates every aspect of independent contractor misclassification. The problems is that the laws are binary. A worker is either an employee who receives all of the protections of employment laws, or an independent contractor, who receives none. The exceptions creating a middle ground have been sparse.
But if you try sometimes.
California voters tried and succeeded in creating a middle ground in 2022, when they passed Prop 22. Prop 22 guarantees independent contractor status for rideshare and delivery drivers if a series of conditions are met, and then the app companies are required to provide a range of protections for drivers, including minimum rates of pay, a health insurance stipend, accident insurance, sexual harassment prevention, safety training, and rest requirements.
Prop 22 was and is a model for the middle ground that has been missing.
But Prop 22 has also been under attack. In a case called Castellenos, the SIEU and other worker advocates have argued that Prop 22 violates the California constitution and had to be invalidated. Without Prop 22, rideshare and delivery drivers could be subjected to California’s ABC Test for determining drivers’ status.
As you may have read, a California Court of Appeals ruled earlier this month that Prop 22 did not violate the California Constitution and could take effect, except for one small part of the law governing future amendments. The dispute will likely be heard by the California Supreme Court, so the fight isn’t over.
The point I want to make, though, is that Prop 22 carves out a middle ground that should be a model for other states to follow. It guarantees workers certain protections while allowing them to operate their own businesses as independent contractors.
The unions and worker advocates calling for the protection of worker rights routinely ignore the surveys showing that a vast majority of drivers prefer independent contractor status. Much of the noise on this issue is coming from a vocal minority.
The Prop 22 model is a middle ground that provides workers with protections they otherwise lack, while allowing workers to retain their preferred independent contractor status and flexibility.
We’ll continue to watch whether the California Supreme Court decides to hear this dispute but, either way, Prop 22 should be held up as a model for other states to follow, carving out a middle ground that balances the concerns of all sides. Worker status does not have to be binary. Binary laws that mandate employee or independent contractor status, with no middle ground, do not reflect the realities of the modern gig economy.
It’s time for reform.
You can’t always get what you want. But if you try sometimes, well, you just might find, you get what you need.
When I hear the name Lorena, my mind automatically goes back to 1993, which is probably true for many men about my age. That’s the year when Lorena Bobbitt brought a kitchen knife into the bedroom and cut off her husband John’s member while he was sleeping. She then tossed it in a field near the house, alerted police where to find it, and became an overnight celebrity for having taken revenge after years of alleged domestic abuse.
John later tried to cash in on the detachment, forming a band called The Severed Parts and appearing in two pornos called John Wayne Bobbitt Uncut and Frankenpenis.
It was a different Lorena who grabbed headlines last week, when the Ninth Circuit Court of Appeals considered whether it’s unconstitutional to pass a law because of personal animus.
The law is California’s AB 5, and the Lorena is former California assemblywoman Lorena Gonzalez. As a quick refresher, AB 5 is the California law that imposed a hard-to-satisfy ABC Test for determining independent contractor status. Lorena Gonzalez, a driving force behind the bill, was vocal in her animus toward rideshare and delivery app companies.
In Olson v. California, the rideshare and delivery app companies sued to invalidate AB 5, arguing that the law contained dozens of exceptions targeted toward a grab bag of industries, and their exclusion from the list of exemptions was due to animus toward them, rather than reason.
This might have been a hard argument to make, but for Lorena. Congresswoman Gonzalez made frequent public statements against rideshare and delivery companies, claiming they mistreated workers by not classifying them as employees. Gonzalez said she was open to including exceptions in the bill, but not for these companies. The legislature then passed an exemption for other referral-based app businesses, but not rideshare or delivery, even though the business models are basically the same. A few other vocal lawmakers joined Gonzalez with similar public statements targeting the rideshare and delivery app companies. It’s the old familiar “[insert name] said the quiet part aloud” story.
Last week the Ninth Circuit ruled that personal animus is not a legit reason to pass a law. The Court wrote, “We are persuaded that these allegations plausibly state a claim that the ‘singling out’ of Plaintiffs effectuated by A.B. 5, as amended, fails to meet the relatively easy standard of rational basis review.” The Court was referring to the standard used for evaluating equal protection claims under the Constitution. It does not advance a governmental interest to pass a law out of a desire to harm a politically unpopular group of citizens.
The Court’s ruling did not overturn AB 5. The ruling sent the case back to the district court, which will have to reopen the case against AB 5.
For now the law remains in effect, and there is no immediate impact to businesses in California. But the fight to overturn AB 5 has fresh legs and some momentum.
In other words, businesses in California are still subject to the ABC Test — unless you’re a licensed insurance business or individual, physician, surgeon, dentist, podiatrist, psychologist, veterinarian, lawyer, architect, engineer, private investigator, accountant, registered securities broker-dealer or investment adviser, direct sales salesperson, commercial fisherman working on American vessels for a limited period, marketer, human resources administrator, travel agent, graphic designer, grant writer, fine artist, payment processing agent, still photographer or photo journalist, freelance writer, editor, or cartoonist, licensed esthetician, electrogist, manicurist, barber, cosmetologist, real estate licensee, repossession agent, recording artist, songwriter, lyricist, composer, proofer, manager of recording artists, record producer or director, musical engineer or mixer, vocalist, musician engaged in the creation of sound recording, photographer working on recording photo shoots or album covers, independent radio promoter, newspaper distributor working under contract with a newspaper publisher, newspaper carrier working under contract either with a newspaper publisher or newspaper distributor, contracting party in certain types of business-to-business relationships, or referral agency other than for rideshare or delivery — all of which are subject to possible exemptions.
And so you can see the point. The exemptions are a mishmosh created by special interests and lobbying efforts, with no coherent overall theme — except to make sure rideshare and delivery apps are subject to the ABC Test.
We’ll continue to follow this case. Meanwhile, if you’d like to read more about the original Lorena and the incident, there’s a Lifetime movie, an Amazon docuseries, and a whole bunch ofarticles.
When writing, precision is important. So is grammar. A missing comma can change the entire meaning of a sentence, as Ms. Ray’s possibly sautéed relatives can attest, once they have been sufficiently glazed and garnished.
When used properly, commas can separate multiple items in a series. And in the FTC’s proposed new noncompete rule, when it comes to defining “worker,” there are multiple items in a series.
So let’s get right to it: Would the FTC’s proposed rule prohibit non-competes with independent contractors?
Yes, if the independent contractor is a “natural person.”
The rule covers restrictions on individuals, not entities. The rule covers contracts with individuals, not entities. The rule would not affect non-competes with a single member LLC, if you contracted with the entity. You could still prevent the entity from competing since the entity is not a natural person. (At least, under the proposed version.)
But remember, a non-compete with an LLC probably would not prevent the individual from competing as an individual or under the banner of a different single member LLC. If the contract attempted to restrict the individual too, the proposed rule would likely apply to that restriction.
Here’s how the proposed rule defines worker — with lots of commas:
(f) Worker means a natural person who works, whether paid or unpaid, for an employer. The term includes, without limitation, an employee, individual classified as an independent contractor, extern, intern, volunteer, apprentice, or sole proprietor who provides a service to a client or customer.
There are a few other things you need to know.
What would be prohibited? The rule would prohibit employers from:
entering into or attempting to enter into a noncompete with a worker;
maintaining a noncompete with a worker; or
representing to a worker, under certain circumstances, that the worker is subject to a noncompete.
The rule would also require an employer to rescind existing noncompetes and provide individual notice to each worker with a noncompete that it’s no longer active.
Will the rule go into effect? I doubt it.
The FTC will almost certainly pass the rule, or a similar version of the rule, after the public comment period expires. But the rule will then get blocked by the courts as an overreach of the FTC’s authority. Under several legal doctrines, including the major questions doctrine recently adopted by the Supreme Court, a nationwide ban on non-competes is almost certainly action that only could only be taken through Congressional legislation, not by an agency.
What should companies do regarding noncompetes with their independent contractors?
First of all, in most cases you shouldn’t have noncompetes with independent contractors. If the contractor is working on something proprietary and confidential, then maybe. But ordinarily, you should think of your contractor as an independent business that is free to compete in the marketplace. A non-compete clause in an independent contractor agreement could be used to argue that the contractor is misclassified, since non-competes are more characteristic of an employment relationship.
Second, this proposed rule provides another reason that it’s generally best practice is to contract with an entity, not an individual.
Third, I probably wouldn’t do anything right now. Let’s see how this develops. While I expect states to continue to pass legislation that bans or restricts the use of noncompetes, I do not believe the FTC has the same authority. I do not expect this rule ever to take effect. For more Q&As about the proposed rule, click here.
But Todd, what about the songs?
Some of you have reached out to tell me you like the 70s and 80s song references. For today, I would recommend Comma Chameleon by Culture Club, Comma Get Your Love by Redbone, and Comma Eileen by Dexy’s Midnight Runners. You’re welcome.
What Companies Using Temps In New Jersey Need to Know
According to the National Constitution Center, there were 14 original copies of the Bill of Rights, with one sent to each of the 13 states and another kept by the federal government. The Center also reports, however, that four of the states — Georgia, Maryland, New York, and Pennsylvania — lost their copies. North Carolina’s was stolen by a Union soldier during the Civil War but recovered in 2002 through an FBI sting. (“Hey buddy, I’m lookin’ to buy a Bill of Rights. Ya know anyone?”)
New Jersey kept its copy, but also just added some new stuff. Sort of.
This month, New Jersey passed the Temporary Workers Bill of Rights. It’s less sweeping than the original 1791 Bill of Rights, but it co-opts the important sounding name to get everyone’s attention and to show constituents that the lawmakers are doing really important things that warrant re-election, financial support, the undying love of chatbots, etc.
The Temporary Workers’ Bill of Rights imposes new burdens on staffing agencies and the companies using temp workers. This post will focus on the obligations imposed by the companies using the temp workers.
Does the Bill apply to your industry?
The Bill applies to temp workers assigned by a temp staffing firm to work in any of the following industries, using Bureau of Labor Statistics (BLS) designations:
33-90000 Other Protective Service Workers
35-0000 Food Preparation and Serving Related Occupations
37-0000 Building and Grounds Cleaning and Maintenance Occupations
39-0000 Personal Care and Service Occupations
47-2060 Construction Laborers
47-30000 Helpers, Construction Trades
49-0000 Installation, Maintenance, and Repair Occupations
51-0000 Production Occupations
53-0000 Transportation and Material Moving Occupations
If you’re not in one of these industries, stop reading and get on with your day.
What obligations does the Bill impose on the users of temp labor?
1. Equal Pay. This sounds fair but may be problematic in practice. Temp workers must be paid “not less than the average rate of pay and average cost of benefits, or the cash equivalent thereof” of the user’s similarly situated employees.
I see two immediate problems here.
First, one of the benefits of using a staffing agency is the ability to pay the temps less until they prove themselves and earn an offer of direct hire. No longer. Now you’ll have to pay the same amount as you pay your regular workers, plus the markup.
Second, how is the staffing agency going to know the wages paid to your similarly situated regular workers and the value of the benefits package you provide them? Presumably you’ll have to tell the staffing agency.
But the staffing agency is not your confidant or fiduciary. It has multiple clients, probably including your competitors. Do you really want the staffing agency to know what your cost of insurance is, or what you pay your regular workers, or the full suite of benefits you offer? The staffing agency will have to adjust what it charges you — and your competitors — based on what each of its clients pay their similarly situated worker. That sounds like a pretty useful set of data for anyone wanting to know what competitors are doing.
You can (and should) designate this information as confidential when disclosing it to a staffing agency, and you should make sure your staffing agency agreement includes an obligation to protect confidential information. But is the information really that safe from prying eyes? If a competitor or temp worker is involved in litigation, couldn’t this information be subject to subpoena? Once you reveal this information, you lose a good bit of control over it.
2. Freedom to direct hire. Under the new law, temp workers must be free to accept offers of direct hire. Staffing agencies cannot restrict the workers’ ability to accept offers of direct hire. The agency can impose a “placement fee” on its client (you), but the amount is limited by statute.
The amount of the placement fee cannot exceed “the equivalent of the total daily commission rate the temporary help service firm would have received over a 60-day period, reduced by the equivalent of the daily commission rate the temporary help service firm would have received for each day the temporary laborer has performed work for the temporary help service firm in the preceding 12 months.”
For purposes of contracting, any provisions prohibiting direct hire for limited periods of time need to be removed. Instead, staffing contracts (in NJ, for these job classifications) should permit direct hire but may charge a permitted placement fee.
3. Reimbursement of tax obligations. The user of services is required to reimburse the temp agency for wages and “related payroll taxes.” Presumably this is already basked into the markup, but now it’s required.
4. Joint and several liability. The law imposes joint liability for any violations of the equal pay or direct hire provisions. Consider what that means for equal pay. You might have to disclose to the temp agency what you pay your similarly situated employees, but you don’t control the temp agency’s payroll practices. If they mess up and pay the temp worker less than the law requires, the law says you’ll be jointly liable.
Who said anything about fair?
Be sure your staffing agency agreement includes robust indemnity provisions. The agreement should also create a contractual obligation for the temp agency to pay workers all amounts they are due under the law so that, if the agency fails to do so, you can point to a breach of contract when seeking indemnity. Indemnity claims based purely on the law could be subject to challenge since the law also says there is joint liability.
Conclusions
This Temporary Workers’ Bill of Rights applies only to certain industries in New Jersey but, for users of temps in these industries, the law creates important new obligations.
For violations, the law allows for a private right of action and carries a six-year statute of limitations.
If you use temp labor in New Jersey in one of the covered industries, be sure you understand the new requirements. This would be a good time to go back and revisit your staffing agency agreements. They may need some tidying up.
Also consider requiring temp workers to sign individual arbitration agreements as a condition of being placed at your worksite. This strategy can help insulate you from a class action filed against both the temp agency and your company. Class actions against both entities are a particular concern, given the joint liability section of the new law.
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.
A chess-playing robot took enforcement a bit too seriously at a recent tournament in Moscow. Facing a 9-year old human opponent, the robot grabbed and broke the boy’s index finger when the boy reached toward the board when it was the robot’s turn to move. When you’re a robot, rules are rules.
The robot had been in use for 15 years (and the boy had been in use only 9). Neither robot nor boy had any known history of delinquency, but this sounds like a textbook case of bullying. And there’s video!
In an unrelated matter, New York Governor Kathy Hochul was not going to be bullied by the state legislature into signing a recently passed bill that would have imposed new requirements on the use of individual independent contractors.
Hochul vetoed the proposed Freelance Isn’t Free Act on the grounds that it imposed inappropriate burdens on the NY State Department of Labor. In her veto statement, she wrote that the state DOL “could not implement the legislation effectively” because it required the DOL to oversee private contracts between businesses and non-employees. That’s well outside the DOL’s mission of enforcing labor protections for employees.
The law would have required written contracts with individual freelancers, with various types of mandatory disclosures in each contract.
The proposed law was a statewide version of New York City’s Freelance Isn’t Free Act, which NYC enacted in 2016. A summary of the NYC law is here. In 2017, the NYC Department of Consumer Affairs published an additional set of rules implementing the act and adding new restrictions that were not in the original law.
Because the 2022 legislative session has ended, the NY state assembly cannot override her veto, but the bill could be reintroduced in 2023.
If the assembly wants to try again, it might try another version that does not involve the DOL, since this is not a misclassification bill and is not a matter between employers and employees. For the bill to be effective, it would need a suitable yet aggressive enforcer of the new rules.
I know of a chess-playing robot in Moscow that might be available.
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.
