Trucking attorney Jim Mahoney's law practice encompasses trucking and cargo loss litigation, claims management, compliance management, and operations consulting.
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The Department of Labor Gets Into the Act
The Department of Labor again wants to change how it defines independent contractors under the Fair Labor Standards Act. It has proposed a new independent contractor rule for 2023.
For so many employers who consider independent contractors an essential part of their workforce, the announcement will impact your workers’ status in so many ways.
The Fair Labor Standards Act (FLSA) establishes minimum wage, overtime pay, recordkeeping, EEOC claims, discrimination, and child labor standards affecting full-time and part-time workers in the private sector and in federal, state, and local governments.
Just about every industry, and certainly transportation, classifies many workers as independent contractors. Onboarding contractors makes businesses more competitive during surges or for projects and doesn’t require us to gear up our HR departments with complex requirements for workers’ compensation, unemployment insurance, PTO, vacation and other regulations applying to employees – not to mention new pay disclosure rules (see California, below).
What’s the rule presently?
The current rule, adopted less than two years ago (January 2021), simplified the traditional multifactor test and focused on two key issues:
- a worker’s control over their work, and
- their opportunity for profit and loss.
Courts can
(and they all do, which also confuses HR) consider other factors in determining a worker’s status, “control,” and “profit and loss,” which will show up in agencies’ decisions.
Don’t even think about how the DOL believes the current rule has a “confusing and disruptive effect on workers and businesses … due to its departure from case law[.]” We’re in for many more court and ALJ departures from case law in applying the new multifactor economic reality test. It could get rough in the waters.
So, what’s the new rule?
If adopted next year, the new rule will be a shift to a six-factor economic reality test, similar to California’s “ABC” test, which presumes that most workers are employees, especially when they don’t perform “work that is outside the usual course of the hiring entity’s business.” (Why hire them then?)
The components of the DOL’s “totality of the circumstances” analysis to determine a worker’s status are as follows:
- Opportunity for Profit or Loss Depending on Managerial Skill. Does the worker exercise managerial skill that affects that worker’s economic success or failure in performing the work? Does the worker determine compensation? Does the worker accept or decline jobs? (OK, we can cover this with our ICOAs (Independent Contractor Operating Agreement for Owner-Operators.)
- Investments by the Worker and the Employer. Is the worker making an investment in capital? Is it entrepreneurial? What is the investment of the worker relative to the employer? (So very subjective. We can cover this in the ICOA, but it may be a bone of legal contention to certain agencies that will require strong legal and factual arguments. Is sweat equity an investment? What about experience?)
- Degree of Permanence of the Work Relationship. Is the work relationship sporadic? Is it specific or indefinite in duration? (Not a problem, generally speaking).
- Nature and Degree of Control. Does the employer control the performance of the work? Who sets the worker’s schedule? Who supervises? Does the employer limit the worker’s ability to work for others? (Oh boy, here we go educating everyone about FMCSA regs requiring control. Not so easy – but doable).
- Extent to Which the Work Performed Is an Integral Part of the Employer’s Business. Is the work critical, necessary, or central to the employer’s principal business? (Gee, I’ve never ever seen a licensed motor carrier company have a CDL or drive a truck. And if you hire a temp worker, does that make the work somehow more or less integral to your business? More educatin’ the agencies).
- Skill and Initiative. Does the worker use “specialized skills” in performing the work? Does applying those skills indicate initiative consistent with the worker having an independent business, or is the worker economically dependent upon the employer? Does the worker depend upon the employer for training? (Should be fairly easy to argue to a court).
The DOL says this new approach is based upon decades of court decisions and that no one factor carries more weight than another. (Count on piles and piles of more and varied decisions).
It’s important to note that the explanatory comments to the new rule claim not to affect how states define an “independent contractor.” (Oh yes, just ignore the $2 billion provided by the American Rescue Plan Act, which is meant for states to prevent and detect fraud, promote equitable access, ensure timely payment of benefits and reduce backlogs … and the other various DOL grants empowering workers.)
What should employers do?
I highly recommended that employers audit their existing independent contractor and employee classifications before the rule’s anticipated adoption in 2023 and evaluate compliance under the revised test. I've got a strong ICOA if you need one ...
CALIFORNIA’S NEW PAY TRANSPARENCY LAW
California Gov. Newsom has signed a new pay transparency law for January 1, 2023, that will require significant changes in how employers draft job postings and how they report pay data to the State. Regardless of whether you have workers in California, start preparing now.
- Job postings must include wage ranges. Employers with 15 or more employees must include a position’s salary or hourly wage range in any internal or external job posting, even those posted by an agency you hire.
- Expansion of pay scale disclosures upon request. Under existing California law, after an external applicant has completed an initial interview for a position, an employer must provide the position’s salary or hourly wage range upon the applicant’s reasonable request.
- Starting in January, SB 1162 expands this requirement to cover current employees who request the pay scale for the position in which they are currently employed. This new requirement will apply to all employers in California, including those with fewer than 15 employees.
- Beginning in May 2023, this law expands reporting requirements for each job category, to include the median and mean hourly rate, broken down by race, ethnicity and sex.
Presently no California employer can ask about salary history, but you can ask about salary expectations. Expect these trends to continue to expand to other states.
To prepare for new job posting requirements, you'll need a process for publishing wage range information in job postings, and preserve a record to prove compliance. Develop one now.
Consider an internal audit of current wages to ensure there aren't significant inequities. Multistate employers should consider a national policy for including wage ranges in job postings and/or providing wage ranges to applicants.
