DOL is Trying to Make it Easier for Employers to Classify Workers as Independent Contractors

By Broderick C. Dunn

The Wage and Hour Division of the Department of Labor recently proposed new rules making it easier for employers to classify workers as independent contractors.

It is first important to know, new federal independent contractor rules will not preempt the new, landmark employment related Virginia Statute that went into effect on July 1, 2020, Va. Code § 40.1-28.7:7. Virginia’s new worker misclassification law does two important things:

1. It establishes the presumption that a worker is an employee rather than an independent contractor and puts the burden on the business owner to prove otherwise; and

2. It creates a private right of action for the misclassified worker to sue their employer in state court.

Despite this, a change in the DOL rules is significant because independent contractors, unlike employees, are not covered by federal minimum wage and overtime law. DOL’s proposed employer-friendly interpretation of the Fair Labor Standards Act is a direct reversal from the way that the statute was applied during the Obama administration and is the current administration’s response to blue-state efforts to expand the scope of employee status.

Eugene Scalia, Secretary of Labor and son of the late Supreme Court Justice, wrote in a recent Op-Ed that DOL’s goal was to “simplify, clarify and harmonize principles the federal courts have espoused for decades when determining what workers are ‘employees’ covered by the minimum wage and overtime pay requirements of the FLSA.” To determine a worker’s classification, DOL’s proposed rule first asks whether the worker is economically dependent for work on the putative employer, or instead whether the he or she is in business for themselves. To explore the difference, DOL’s proposed test focuses on the worker’s control over their work, and the worker’s opportunity for profit or loss resulting from his or her own initiative and investment.

Secretary Scalia’s Op-Ed directly takes aim at California’s controversial Assembly Bill No. 5. AB-5 expands the landmark case from the Supreme Court of California, Dynamex Operations West, Inc. v. Superior Court, 4 Cal.5th 903 (Cal. 2018), which held that most workers are employees, ought to be classified as such, and that the burden of proof for classifying individuals as independent contractors belongs to the hiring entity. Under AB-5, companies like Uber and Lyft were forced to classify all of their California drivers as employees instead of independent contractors. Secretary Scalia wrote:

[...] And unlike AB-5, [DOL’s proposed rule] doesn’t aim to slant the analysis toward classifying independent contractors as employees. In part, that’s because we recognize there are powerful reasons why some workers prefer to be independent, rather than accountable to a company as its employee.

Ironically, the proposed DOL rule will not impact states like California and Virginia that seek to add more protection for workers. States where such laws have not been passed could be impacted because the proposed rule will act as a baseline.

Only time will tell whether the proposed DOL rule will be enacted. If a new administration is elected on November 3, odds are that Secretary Scalia and DOL’s proposed rule will be scrapped.

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