The U.S. Department of Labor (DOL) has proposed a federal independent contractor rule that could lead to more opportunities for owner-operators across the trucking industry, according to the American Trucking Associations (ATA).
“The department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act (FLSA),” Secretary of Labor Eugene Scalia said in a statement. “Once finalized, it will make it easier to identify employees covered by the act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”
The proposed rule would:
Adopt an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee).
Identify and explain two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself.
Identify three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production.
Advise that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.
Wage and Hour Division Administrator Cheryl Stanton stated that the department believes “streamlining and clarifying the test to identify independent contractors will reduce worker misclassification, reduce litigation, increase efficiency, and increase job satisfaction and flexibility.”
The DOL’s proposal would not immediately impact California, which already has strict laws about independent contractors, which went into effect earlier this year. The California law, known as AB-5, does not affect owner-operators or motor carriers thanks to a preliminary injunction granted by the U.S. Southern District Court in January.
The motion for the injunction was filed by the California Trucking Association (CTA) in late 2019 and upheld while the Ninth Circuit Court of Appeals holds proceedings on a suit filed by the International Brotherhood of Teamsters.
In the CTA lawsuit, the association argues that the independent contractor law should not be enforced because it is preempted under the supremacy clause of the U.S. Constitution, which sets the decision in direct conflict with a federal law passed by Congress in 1994 to prevent states from enacting punitive laws that affect a motor carrier's prices, routes and services of the trucking industry.
Under the DOL proposal, a court must evaluate if a worker is economically dependent on an employer or is in the business for him or herself, according to Scopelitis Transportation Consulting, which issued a “transportation law alert” about the proposal Sept. 23. The court would use two core factors to evaluate the status of a contractor: the nature and degree of control the worker has over the work, and the worker’s opportunity for profit or loss based on initiative and investment, according to Scopelitis.
“If both core factors indicate either independent contractor status or employee status, no further inquiry would be needed under the proposed rule,” according to Scopelitis. “In the customary and usual fact patterns found in trucking, both core factors should most often point in the direction of independent contractor status.”
ATA President and CEO Chris Spear praised the DOL proposal, saying it gives American workers more freedom. “Secretary Scalia understands that many Americans choose the independent contractor model — including hundreds of thousands of owner-operators in the trucking industry — because it expands their opportunities to earn and empowers them to choose the hours and routes that suit their individual needs and lifestyle,” Spear said on Sept. 23. “This proposal is about giving working Americans the freedom to pick the occupation and flexibility they desire, and we thank Secretary Scalia for putting it forward.”
This Notice of Proposed Rulemaking is available for review. Public comments can be filed for 30 days once formally published in the Federal Register, which is expected to happen within the next week.
