The Coalition to Promote Independent Entrepreneurs is disappointed in the U.S. Department of Labor’s (“DOL”) announcement on May 5, 2021, that it withdrew its final regulations updating the definition of “employee” for purposes of the Fair Labor Standards Act (“FLSA”). The now withdrawn final regulations were titled Independent Contractor Status under the Fair Labor Standards Act, and published in the Federal Register only a few months ago, on January 7, 2021. The Coalition submits that all stakeholders would have benefited by the clarification and enhanced predictability the final regulations provided.
The withdrawn final regulations adopted a five-factor test for determining “employee” status for purposes of the FLSA, while emphasizing that the stated factors are not exclusive. Two of the five factors were identified as “core factors” and given additional weight. The five factors are:
(i) The nature and degree of the individual’s control over the work.
(ii) The individual’s opportunity for profit or loss.
(i) The amount of skill required for the work.
(ii) The degree of permanence of the working relationship between the individual and the potential employer.
(iii) Whether the work is part of an integrated unit of production.
In the initial Notice of Proposed Rulemaking that DOL published in the Federal Register on September 25, 2020, announcing its independent-contractor regulations, DOL stated that:
Focusing on control and opportunity for profit or loss is … supported by the results of federal courts of appeals cases weighing the economic reality factors since 1975. In these cases, whenever the court found (or affirmed a district court finding) that the potential employer predominantly controlled the work, that court concluded that the worker is an employee. See, e.g., Hobbs, 946 F.3d at 830-36; Verma, 937 F.3d at 230-32; Gayle v. Harry’s Nurses Registry, Inc., 594 F. App’x 714, 717-18 (2d Cir. 2014); Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 307-09 (4th Cir. 2006); Baker, 137 F.3d at 1440-44; Martin, 949 F.2d at 1289. Conversely, whenever the court of appeals found (or affirmed a district court finding) that the worker predominantly controlled the work, that court nearly always concluded that the worker is an independent contractor. See, e.g., Parrish, 917 F.3d at 379-388; Nieman, 775 F. App’x at 624-25 (per curiam); Saleem, 854 F.3d at 140-48; Iontchev, 685 F. App’x at 550-51; Barlow v. C.R. England, Inc., 703 F.3d 497, 506-07 (10th Cir. 2012); Mid-Atl. Installation Servs., 16 F. App’x at 106-08.
In summary, each of the two core factors is, by itself, highly probative of a worker’s economic dependence. Together, i.e., in cases where they both indicate the same classification, they are substantially likely to point to the answer of the classification question—whether employee or independent contractor.
The Department’s proposal is consistent with case law and adopting a more focused approach.
85 Fed. Reg. 60600, 60618-19 (Sep. 25, 2020).
But in the DOL’s final rule announcing the withdrawal of these regulations, the very same DOL provided the following characterization of its published research:
Regarding the Department’s review of certain appellate case law in the Rule discussed by some commenters, the Department believes that upon further consideration, this summary of appellate case law is incomplete, oversimplifies the analysis provided by the courts, and makes assumptions about the reasoning behind the courts’ decisions that are not necessarily clear from the decisions themselves. The Rule’s discussion of the review was incomplete because the Department did not provide full documentation or citations for its case law review. In addition, it was not made clear in the Rule what the scope of the review entailed (e.g., whether it included only published circuit court decisions or all cases, whether included cases that were simply remanded to the district court for any reason, etc.).
86 Fed. Reg. 24303, 24309 (May 6, 2021).
The foregoing is quite a characterization by a federal government agency of its own published research findings. While a new Administration certainly can disagree with a prior Administration’s policy choices, this is a more remarkable disagreement, as DOL in this instance is questioning the quality and completeness of its own published research findings.
The Coalition submits that DOL’s apparent internal ambivalence concerning the proper interpretation of the decades of federal court decisions applying the “economic realities” test is understandable, as the test is inherently open-ended and susceptible to many different interpretations. The Coalition also submits that this infirmity of the “economic realities” test provides yet another reason to support the Modern Worker Empowerment Act, H.R. 1523 and S. 526. These companion bills would amend the FLSA to adopt a common-law definition for the term ”employee” and thereby harmonize the definition of the term for purposes of federal statutes and retire, once and for all, the “economic realities” test.