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 The 2020 joint employer regulation adopted by the Trump DOL has been rescinded, and there has been no replacement regulation, which leaves a regulatory crater in the Code of Federal Regulations, where the joint employer rule used to be.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 the Muppet Movie, Kermit famously wondered, “Why are there so many songs about rainbows?”
Articles in Psychology Today and Remind Magazine have attempted to answer this question. A blog post on the Tough Pigs website almost took a contrary view in a post titled “Why There AREN’T So Many Songs About Rainbows,” but that was a twitter gimmick asking for wrong answers only.
Turns out there are quite a few songs about rainbows. You can google it. There’s also a pretty good band called Rainbow (“Man on the Silver Mountain,” “Since You Been Gone”), and the University of Hawaii’s teams are the Rainbow Warriors, f/k/a just the Rainbows, which probably didn’t frighten much of their football competition in the Mountain West.
I’m inspired by Kermit’s lyrical question, but my thoughts stray in a different direction: Why are there so many … joint employment tests, just under the Fair Labor Standards Act (FLSA)? Shouldn’t courts applying a federal law use the same test in every jurisdiction? Of course they should, but they don’t.
Here are the current tests for joint employment under the FLSA, in a nutshell:
The First, Third, Fifth, and Ninth Circuits apply a four-factor test based on a 1983 case called Bonette. The test considers whether the putative joint employer (1) can hire and fire employees, (2) controls employees’ work and employment conditions, (3) determines rates of pay, and (4) maintains employment records. Bonnette v. Cal. Health & Welfare Agency, 704 F.2d 1465 (9th Cir. 1983).
The Second Circuit rejects the Bonette test as too focused on agency, instead applying a non-exclusive six-factor test. Zheng v. Liberty Apparel Co, Inc., 355 F.3d 61, 71-76 (2d Cir. 2003).
The Eleventh Circuit applies an eight-factor test that includes the Bonette factors and adds factors related to economic dependence. Layton v. DHL Express (USA), Inc., 686 F.3d 1172, 1176-78 (11th Cir. 2012).
The Fourth Circuit is having none of what the other circuits are having and goes in an entirely different direction. The Fourth Circuit’s test compares the two putative employers to determine whether they are “completely dissociated.” Salinas v. Commercial Interiors, Inc., 848 F.3d 125 (4th Cir. 2017); Hall v. DIRECTV, LLC, 846 F.3d 757 (4th Cir. 2017). The Fourth Circuit’s test is so far off the mark that it relies on a (mis)interpretation of a federal regulation that no longer exists.
And speaking of federal regulations that no longer exist, the Department of Labor’s regulation defining joint employment under the FLSA? You guessed it. It no longer exists.
In 2021, the DOL rescinded the joint employer regulation that had been adopted by the Trump DOL in 2020. The 2020 regulation has rescinded the previous regulation, which had been around for decades. No new regulation has been adopted, and so there is no regulation. Part 791 of Title 29 of the Code of Federal Regulations, formerly home to the DOL’s joint employment regulation, is empty.
So, why are there so many tests for joint employment? No good reason. There just are.
But that could change. Following a recent Ninth Circuit decision tagging Los Angeles County as a joint employer, L.A. County has petitioned the Supreme Court to reconsider the joint employment test. So we’ll see what happens there. A conservative Supreme Court majority might recognize how absurd it is that one federal statute can be interpreted so many different ways. Maybe they’ll take the case and announce one test for everyone.
In the meantime, if you’re looking for the joint employer test under the FLSA, you’ll need to look in several places. The test depends on where you are. All of us under its spell. We probably know that it’s ma-gic!
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.
An author of romance novels died in 2020, committing suicide after online bullying. Or so it seemed. But a few days ago, Susan Meachen posted on Facebook to say she was back. Not in a risen-from-the-grave sort of way. She says she faked her own death and is very much alive. The story has been covered by CNN and BBC, and I don’t know whether anyone has yet figured out whether Meachen died or someone is now posting under her name.
One thing that seems more clearly dead, though, is the legal principle of agency deference in Ohio. This important decision arose out of a contractor dispute.
In a 7-0 decision, the Ohio Supreme Court ruled that under Ohio law, the judiciary is never [italics in original] required to defer to an administrative agency’s interpretation of the law, even if the statute is ambiguous. Only the judiciary has the authority to interpret the law for purposes of a judicial proceeding.
The Court held that an agency’s interpretation of the law is merely one view that a court may consider. The Court also stressed that an agency’s interpretation of common words is entirely irrelevant since courts are well equipped to interpret common words. Deference to an agency’s interpretation will depend on how persuasive a court finds the agency’s interpretation to be. A court might be more likely to defer if there is an ambiguity over a technical matter over which the agency has expertise, but even then, deference is never required.
The judicial branch is never required to defer to an agency’s interpretation of the law. As we explain, an agency interpretation is simply one consideration a court may sometimes take into account in rendering the court’s own independent judgment as to what the law is.
First, it is never mandatory for a court to defer to the judgment of an administrative agency. Under our system of separation of powers, it is not appropriate for a court to turn over its interpretative authority to an administrative agency..
Now assume that a court does find ambiguity and determines to consider an administrative interpretation along with other tools of interpretation. The weight, if any, the court assigns to the administrative interpretation should depend on the persuasive power of the agency’s interpretation and not on the mere fact that it is being offered by an administrative agency. A court may find agency input informative; or the court may find the agency position unconvincing. What a court may not do is outsource the interpretive project to a coordinate branch of government.
The case arose when an engineering firm applied for an engineering license in Ohio. Seems uneventful, except the firm listed an independent contractor as its full-time manager. Ohio law requires a firm to identify a responsible full-time manager to receive a license. The Ohio Board of Registration for Professional Engineers and Surveyors denied the license on the grounds that a full-time manager could not be an independent contractor. The Board said that a manager had to be a W2 employee.
But the statute requires only that there be a full-time manager. It doesn’t say who can be a manager. The Board determined that an independent contractor could not be a “full-time manager” because independent contractors (if properly classified) are not controlled by their client. In other words, how could the firm be managed by someone it cannot control?
That’s a great question from a practical standpoint. If the contractor is properly classified, it might be a terrible idea to designate an independent contractor as your firm’s full-time manager. But that doesn’t mean it’s prohibited by the licensing statute.
The Ohio Supreme Court explained that the statute requires the Board (“shall”) to grant a license when a firm identifies a full-time manager and meets the other criteria. The Court ruled that the Board, as an administrative agency, has no right to impose additional requirements that are not in the statute, such as that the full-time manager cannot be an independent contractor.
The Court used this dispute to lay down a marker on an important issue of law — When must a court defer to an agency’s interpretation of the law? In Ohio, the answer is never.
This issue comes up often at the federal level too, and you’ll hear a lot more about this issue following the recent announcement by the Federal Trade Commission (FTC) that it plans to pass a regulation making non-compete agreements illegal. The FTC probably does not have the legal authority to do that. A law to prohibit non-competes would almost definitely have to come from the legislature, not an executive agency. If the FTC goes through with its plan, the issue is likely to end up in front of a federal court, which is likely to rule that the FTC does not have this authority. The US Supreme Court’s conservative majority has sent signals that it will be less inclined to defer to agencies than in the past, and it would not be surprising to see the US Supreme Court issue a ruling at some point that looks a lot like this Ohio decision.
The bottom line here is that the era of agencies making new law through regulation may be coming to an end. Agencies can interpret ambiguities in statutes, and they can provide more detail about legal requirements when authorized to do so. But they cannot impose new requirements when not specifically authorized to do so. The path taken by the Ohio Supreme Court may be a sign of similar things to come at the federal level.
In terms of typical independent contractor issues, this post is a bit off topic. But the issue is an important one, and it arose out of a contractor dispute, so I just decided to just go for it and write this post, whether it’s what you were expecting or not.
Kind of like Susan Meachen did recently when she posted on Facebook. Or didn’t post. We still don’t really know.
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.
Christian Encarnacion-Strand presents an unusual problem for the Cincinnati Reds. His name is too long to fit horizontally across the back of his uniform. The Reds are taking an upside-down-horseshoe approach to this problem, and if this minor league third baseman makes the big league club this year, his 18-character surname (with hyphen) would win the award (there’s no award) for most characters in a major league surname.
The current honor lies with Simeon Woods Richardson, a pitcher for the Twins, whose unhyphenated surname stretches 16 characters (including the space). The Twins applied more of a 3/4 circle strategy, which I think is less visually appealing than the Reds’ approach.
When it comes to horizontal challenges, placing letters on a uniform falls in the category of very low risk. The twitter community may have strong opinions, but there’s no real implication to either approach.
But when it comes to horizontal relationships among companies competing for talent, it’s much more important to get things right. No poaching agreements can lead to criminal charges — as we can see from a case making its way through the federal district court in Connecticut.
In the pending case, Company A outsourced engineering projects to companies B through F, all of whom compete for engineering talent. Companies B through F also compete with each other for projects from Company A.
Between 2011 and 2019, Companies A through F allegedly agreed to restrict the hiring and recruiting of engineers and other skilled-labor employees between them. All of the companies allegedly agreed to (1) not hire employees of Companies B through F and (2) not proactively contact, interview, and recruit applicants who were employed by another one of the companies. Company A allegedly policed and enforced the agreement.
This arrangement led to a criminal indictment, charging that these no-poaching agreements were a conspiracy in restrain of trade, in violation of the Sherman Act. The indictment alleges that the companies engaged in illegal market allocation, which suppressed competition for talent and wages.
The defendants filed a motion to dismiss the indictment. Because this issue potentially affects staffing and franchise relationships, the American Staffing Association, the Society for Human Resource Management, and others filed amicus briefs in support of the motion to dismiss.
On December 2, 2022, the district court denied the motion to dismiss. The opinion evaluates the arguments on both sides and considers how this arrangement compares to others where no-poach agreements have been held to be permitted. For example, the court considered whether the agreed-upon restraint was “ancillary to a legitimate business collaboration.” If yes, that could support an exception to the legal prohibition on restraints of trade. But the court ruled that the relationship here was competitive, not collaborative, because Companies B through F were competing for outsourcing work from Company A.
From a procedural standpoint, this decision does not make any findings about whether the arrangement actually did violate the law. This ruling is just the denial of a motion to dismiss, which means the case can move forward.
But the opinion should provide a wake up call to the staffing industry, the franchise industry, and other organizations where a small identifiable number of companies are competing for talent and for engagements.
The federal government has made it a priority to minimize restraints of trade and has shown a willingness to issue criminal indictments against companies (and individuals) who enter into unlawful agreements that restrict labor mobility.
That is not to say that all no-poach agreements are unlawful. In many situations they are appropriate. But companies in horizontal competition with each other need to tread very carefully, and any no-poach agreement among horizontal competitors may create significant legal problems, including potential criminal liability.
For baseball uniforms, horizontal challenges can be addressed with the upside-down horseshoe or 3/4 circle strategy (preferably the former!). But these simple solutions are not available in the business world, where companies compete for talent and engagements. As of now, there is no upside-down horseshoe exception to the Sherman Act.
Who Is My Employee? 