The Grawe Gazette – US DOL Issues New Final IC Rule

US DOL Releases New Final Rule on Independent Contractor Status
By The Grawe Group, January 2024 

Last week the US DOL released its new final rule defining independent contractors under the Fair Labor Standards Act. Compared to nothing else, it is not a good final rule for independent contractors. Compared to the rule currently in place, it is not a good new final rule for independent contractors. Compared to the version the DOL proposed in 2022, the final rule is a little better for independent contractors.

In this new rule the US DOL did not adopt the ABC test (good news). They stuck with the Economic Realities test. The Economic Realities test is a test developed through case law that is supposed to focus on the economic independence and freedom to earn a profit or suffer a loss for workers. After decades of relative stability in the law, the US DOL during the Obama administration, Trump administration, and now Biden administration has reinterpreted the Economic Realities test 3 times. This latest interpretation throws out the Trump-era version of the Economic Realities test that focused on 2 factors and reintroduces a 6-factor version of the Economic Realities test.

The DOL’s 6-factor version of the Economic Realities test will now be: 

  1. Does the IC have an opportunity for profit and loss based on their managerial or entrepreneurial skill (and not just based on working more hours or accepting more loads)? Does the IC have the ability to add customers, add personnel, negotiate revenue or costs?
  1. Did the IC make meaningful investments in their business that show the IC is in business for themselves (e.g., did they invest in equipment, laptops, ELDs, cameras, drivers, lumpers, risk management, marketing/sales, etc.)?
  1. How permanent is the working relationship between the IC and the contracting company? Is it evergreen? Does it have a clear start and stop date/completion mark? Can the IC work with other customers during the relationship?
  1. Was the IC free from control? Did they have the right and did they in fact, make the decisions that impacted their ability to earn a profit or suffer a loss? Did they control their personnel? Did they control how they completed work? Were they managed, tracked, or recorded?
  1. Was the IC’s work integral to your work? This is close to the ‘B’ factor in the ABC test. Are you and the IC in the same business? Or is your business purpose and function different and separate from the IC’s? Can you show the IC’s business specializes in equipment, transportation, and delivery services? Can you show your business specializes in customer service, freight management, compliance, and so on?
  1. How much skill and business initiative did the IC have and use in their business? What evidence shows the IC had business initiative? Did the IC add multiple trucks? Did the IC make excellent fuel and maintenance decisions to earn more profit?
  1. Not an official 7th factor, but the final rule does state the agency will consider anything else they think shows the IC was an employee or an independent contractor.

We expected the final rule to be nearly identical to the proposed rule from the fall of ’22, and to be worse than the Trump-era rule. And it is. But in a couple small ways the final rule is better than the proposed rule for companies working with independent contractors and independent contractors themselves. We are not saying the final rule is good. We are just saying the final rule is a little better than the proposed rule.

Small improvements over the proposed rule

In the final rule itself and the rule’s commentary the DOL recognized:

  • Investing in a truck, even if through a carrier’s lease purchase program, can be evidence the IC has invested in their business. 
  • Exercising control just enough to ensure compliance with laws and regulations is not evidence of control for employment status purposes (but exercising more control than necessary for legal compliance would be evidence of control) 
  • The independent contractor’s investment in their business does not need to be close in total dollars to your investment in your business (e.g., if you invested $10,000,000 in trailers, they don’t have to invest $8,000,000 in equipment to be considered independent), but the independent contractor does need to make similar types of investments in their business (e.g., investments in equipment, marketing, people, technology, etc.). 
  • A truck driver’s use of their CDL driving skills in pursuit of a trucking business is evidence of “skill and initiative” under the factors.

This new rule does not rewrite independent contractor rules across the country, and it does not kill the ability for workers to choose independence entirely. This new final rule from the US DOL will only apply to claims overseen by the U.S. DOL. This has no impact on workers compensation claims, unemployment claims, motor vehicle accident claims, IRS issues, or many state claims. This applies to claims brought by independent contractors or the DOL itself alleging the independent contractor was improperly classified as an independent contractor and not paid minimum wage, not paid overtime, and so on under the Fair Labor Standards Act. The U.S. DOL has taken a strong stance against independent contractors for a long time. This final rule is the DOL reiterating that stance, but not dramatically changing that stance.

Takeaways from the Final Rule: 

  • Regardless of the test, the best way to win a misclassification claim is to prevent one from starting. Refresh your agreements regularly, educate your people on how to respect the business freedoms independent contractors have, use technology to prove the IC made business decisions, focus on end results more – safe, legal, professional, on-time pickup and delivery, and less on how it gets done, and so on.

If it is time for a fresh look at your independent contractor program reach out to us today. From recruiting to contracts to operations, we know independent contractors and protecting their business freedom.

New Podcast Episodes

Check out the website or your favorite podcast repository for the latest episodes of the Grawe Pod. We have a few new episodes, including a discussion on driver qualification guidelines.

The Grawe Group, LLC is here to bring peace of mind to you and your business. We are a professional services firm focused on the transportation industry. With a team of experienced executives, we provide general counsel, executive leadership, and special project services for trucking and logistics companies. From legal and risk management matters, to operational, financial, and leadership challenges, the Grawe Group has the practical expertise in trucking and logistics to help you build sustainable success. www.thegrawegroup.com

Check out the Grawe Pod, transportation’s general counsel podcast, for discussions on challenges industry leaders face in their business and how to address them. Now available on iTunes, Spotify, and other major podcast outlets!