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Independent Contractor Status under the Fair Labor Standards Act (Update)

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The U.S. Department of Labor (DOL) is officially withdrawing the prior administration’s independent contractor rule, which would have made it easier for businesses to classify workers as independent contractors rather than employees.

New Rule to be Withdrawn

On May 5, the DOL issued an announcement, stating, “The department believes that the rule is inconsistent with the [Fair Labor Standards Act’s] text and purpose and would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.”

Under the FLSA, employees are entitled to minimum wage, overtime pay and other benefits. Independent contractors are not entitled to such benefits, but they generally have more flexibility to set their own schedules and work for multiple companies.

Return to the Norm for Now

Workers shouldn’t expect a new independent-contractor rule any time soon. According to Jessica Looman, principal deputy administrator for the DOL Wage and Hour Division, “We are going back to the decades-old analysis and we really feel that this is the space where we can best protect workers.”

Although the DOL doesn’t plan to issue a new rule in the near future, President Joe Biden has supported an “ABC” test similar to California’s independent-contractor rule. With some exceptions, California requires all three of the following factors to be met for a worker to be classified as an independent contractor:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work.
  • The worker performs tasks that are outside the usual course of the hiring entity’s business.
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

Other states, such as Illinois, Massachusetts and New Jersey, apply a similarly stringent independent-contractor test.

Protecting the Right to Organize Act – PRO Act

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The Protecting the Right to Organize Act, or PRO Act, is a proposed United States law that would amend previous labor laws such as the National Labor Relations Act, for the purpose of expanding labor protections related to employees’ rights to organize and collectively bargain in the workplace. It would prevent employers from holding mandatory meetings for the purpose of counteracting labor organization, and it would strengthen the legal right of employees to join a labor union. The PRO Act would weaken “right-to-work” laws, which exist in 27 U.S. states. It would allow the National Labor Relations Board to fine employers for violations of labor law and would provide compensation to employees involved in such cases.

Background

The Protecting the Right to Organize Act, also known as the PRO Act, follows a series of past legislation passed by Congress concerning labor rights. A number of landmark bills were passed during the New Deal period, including the Fair Labor Standards Act of 1938, which President Franklin D. Roosevelt considered one of the most important Acts of Congress at the time.

Following the New Deal, a number of bills were passed which restricted the activities of labor unions. Among these was the Labor Management Relations Act of 1947 (commonly known as the Taft-Hartley Act), which among other things prohibited secondary boycotts and closed shops.

In 2009, the Employee Free Choice Act, another bill which would have amended the National Labor Relations Act, failed to pass.

In the State of California, following the passage of California Assembly Bill 5, Proposition 22 was passed in 2020. Proposition 22 was intended to classify so-called gig workers for app-based companies (such as Lyft, Uber, DoorDash and Postmates) as “independent contractors” rather than full employees.

Content of the PRO Act

The PRO Act would amend the National Labor Relations Act of 1935 (also known as the Wagner Act), the Taft-Hartley Act, and the Labor-Management Reporting and Disclosure Act of 1959 (also known as the Landrum–Griffin Act).

According to the summary text of the PRO Act, it revises definitions under labor law, permits labor unions to encourage participation in secondary strikes, and prohibits employers from litigating against unions which conduct such secondary strikes:

Among other things, it (1) revises the definitions of employee, supervisor, and employer to broaden the scope of individuals covered by the fair labor standards; (2) permits labor organizations to encourage participation of union members in strikes initiated by employees represented by a different labor organization (i.e., secondary strikes); and (3) prohibits employers from bringing claims against unions that conduct such secondary strikes.

The PRO Act would prevent employees seeking to join a labor union from being fired. It would also allow unions to override “right-to-work laws”, allowing labor unions to collect dues from all employees in a workplace, regardless of whether or not they are a member of a labor union. Right-to-work laws exist in 27 U.S. states, and the PRO Act would weaken these laws in favor of workers. It would also make illegal company-sponsored mandatory meetings used to counteract and discourage attempts at labor organization. The PRO Act would classify some workers who are classified now as “independent contractors”, instead as “employees”. The bill would amend the National Labor Relations Act to define an employee as:

“An individual performing any service shall be considered an employee (except as provided in the previous sentence) and not an independent contractor, unless—

(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;

(B) the service is performed outside the usual course of the business of the employer; and

(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.”

This definitional amendment would allow for certain workers, such as those working in the gig economy, to attain the right to form a labor union or to bargain collectively. This would potentially include those who work for app-based companies such as Uber, DoorDash, or Lyft, and overall could include hundreds of thousands or millions of workers. The bill would allow for workers to sue employers and would make it easier for employees to join a union.

Support for the PRO Act

A letter signed by over 100 labor unions, advocacy organizations, churches, and political groups supported the PRO Act. This included but not limited to the AFL-CIO, EPI, Public Citizen, AFT, Sunrise Movement, CPD, SEIU, PFAW, CWA, FoEI, HRW, USW, IWPR, GBCS, IFPTE, NETWORK, Patriotic Millionaires, and Oxfam. Richard Trumka of the AFL-CIO said, “If you really want to correct inequality in this country … passing the PRO Act is absolutely essential to doing that.” The bill has received backing from the Labor Caucus and The Leadership Conference on Civil and Human Rights. Joe Biden endorsed the PRO Act, and has called labor law reform one of the top priorities of his administration.

Legislative Activity

On February 4, 2021, Rep. Bobby Scott (D-VA-03) introduced the Protecting the Right to Organize Act of 2021 in the House of Representatives. Of the bill’s 213 cosponsors, 3 – Brian Fitzpatrick (PA-01), Jeff Van Drew (NJ-02), and Chris Smith (NJ-04) – were Republicans; the other 210 were Democrats.

The bill passed in the House of Representatives by a vote of 225 to 206 on March 9, 2021. Five House Republicans (Brian Fitzpatrick, John Katko, Chris Smith, Jeff Van Drew, and Don Young) joined the House Democrats in voting for it, while one Democrat (Henry Cuellar) voted against it. The bill now advances to the U.S. Senate; however, the bill is unlikely to pass as it would require universal Democratic support and 10 Republican crossover votes to pass in case of a filibuster.

Photo by Thibault Penin on Unsplash

Final Rule: Independent Contractor Status under the Fair Labor Standards Act

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29 CFR Parts 780, 788, and 795

A final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA) was announced by the Department of Labor (Department) on January 6, 2021. The effective date of the final rule is March 8, 2021 and includes a multi-factor test for determining whether workers are independent contractors, meaning that the business they perform work for doesn’t have to pay minimum wage or overtime that the Fair Labor Standards Act requires for employees.

Clarifications in the final rule

  • Sets forth an “economic reality” test to determine whether an individual is in business for him or herself (independent contractor) or is economically dependent on a potential employer for work (FLSA employee.)
  • Identifies and explains two “core factors” that are most probative to the question of whether a worker is economically dependent on someone else’s business or is in business for him or herself:
    • The nature and degree of control over the work.
    • The worker’s opportunity for profit or loss based on initiative and/or investment.
  • Identifies three other factors that may serve as additional guideposts in the analysis, particularly when the two core factors do not point to the same classification. The factors are:
    • The amount of skill required for the work.
    • The degree of permanence of the working relationship between the worker and the potential employer.
    • Whether the work is part of an integrated unit of production.
  • Provides that the actual practice of the worker and the potential employer is more relevant than what may be contractually or theoretically possible.
  • Provides six fact-specific examples applying the factors.

The final rule was published in the Federal Register on January 7, 2021.

Will the independent contractor status Rule be permanent? 

The rule clarifying independent contractor status is scheduled to become effective on March 8, 2021. However, a spokesperson for the Biden administration called out the rule as one that the administration is likely to revise in the days before its publication, bringing into question whether it will ever be permitted to take effect. In addition, independent contractor/employee status has been the topic of a great deal of litigation in recent years, so we can expect to see challenges should the rule is permitted to take effect.

Can Employers Require Workers to Become Vaccinated against Covid-19?

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The country’s first Covid vaccine could be authorized for emergency use as soon as today. If Pfizer gets the green light, distribution is set to begin next week.

Roughly six in ten Americans say they would get a vaccine, according to a recent survey by the Pew Research Center. Although this exceeds the figure from two months ago, to achieve herd immunity experts opine that about 70% of the population would need to be vaccinated or have antibodies. 

Under the law, an employer can generally require its workers to be vaccinated and can also fire an employee who refuses to do so. Some notable exceptions, however, exist to the general rule. For example, if a work force is unionized, the collective bargaining agreement may require negotiating with the union before an employer can implement a vaccine requirement.

Anti-discrimination laws also provide some protections to workers that are disabled. Under the Americans with Disabilities Act (the ADA), workers who do not want to be vaccinated for specific medical reasons are eligible to request an exemption. In this case, an employer may need to provide reasonable accommodation, such as allowing the employee to work remotely. 

Another exception exists under Title VII of the Civil Rights Act of 1964. Under Title VII, if taking the vaccine would conflict with a sincerely held religious belief, a worker may be able to opt out of a vaccine requirement.

The initial FDA approval is expected to be an “emergency use authorization,” as opposed to full approval. The law is unclear as to whether one can mandate vaccinations based on an emergency use authorization. As such, employers may need to wait until the FDA completes the entire approval process before putting vaccination requirement protocols in place. 

Uber and Lyft – Rideshare Companies or Technology Companies?

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In August, Uber and Lyft received a favorable employment law ruling from an appeals court that ruled to extend a stay on an order requiring them to reclassify their drivers as employees. The legal battle, however, is far from over.

The case was brought by California’s attorney general and city attorneys from San Francisco, Los Angeles and San Diego who allege that Uber and Lyft violated the state’s new labor law, Assembly Bill 5 (AB5), by misclassifying rideshare drivers as contractors.

Certain provisions contained in AB5 installed a three-pronged test for whether a worker should be considered independent or considered an employee. To be considered independent, workers must: (1) be “free from the control and direction of the hiring entity,” (2) do work “outside the usual course of the hiring entity’s business,” and (3) be “customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.”

Uber and Lyft have not only argued that that their drivers meet the criteria to be independent contractors, but have also have asserted that the law didn’t apply to them because they are technology companies, not transportation companies, and that drivers are not a core part of their business.

Prior to the stay, the trial court granted the state a preliminary injunction that would require Uber and Lyft to reclassify their drivers as employees beginning Aug. 21. The companies argued that they would have to temporarily shut down in California in order to rework their businesses to comply with the injunction and rehire workers as employees, further stating that they would likely have to slash the number of workers they could employ once they returned, create more rigid work schedules for drivers and raise prices for riders. According to California officials, nothing in AB5 requires Uber and Lyft to eliminate flexible work for drivers, but the companies argue that it would be logistically implausible to do otherwise.

As of now, Uber and Lyft plan to remain operating under the same system that they have historically used while they continue to litigate in court. Even if and Uber and Lyft do not prevail in their court battle, they may have a second bite at the apple through Proposition 22, which will appear on the California ballot in November. Uber and Lyft have each contributed $30 million in funding to promote Prop 22, which would exempt their companies from compliance with AB5. In other words, if Prop 22 passes, it could render any adverse rulings meaningless as Prop 22 carves out obligations of app-based rideshare and food delivery services required under AB5.