US DOL Finalizes New IC Rule Under the FLSA
The Grawe Gazette – General Counsel
US DOL Finalizes New IC Definition Under the FLSA
By Doug Grawe, The Grawe Group, LLC, January 2021
Earlier this week the U.S. Department of Labor finalized its new rule defining independent contractors under the Fair Labor Standards Act. This new rule is a clarification and modification of the long-standing Economic Realities Test. The DOL proposed this rule in the fall of 2020, in hopes of finalizing it before the incoming Biden administration takes office.
Hundreds of different stakeholders submitted commitments for and against the proposed rule. The trucking industry, through the American Trucking Association, the Minnesota Trucking Association, the Truckload Carriers Association, and many others submitted comments pushing for changes to the proposed rule before it was finalized. Namely, the trucking industry took issue with one primary point, and that is called the primacy issue. The trucking industry pushed for a change in the DOL’s proposed rule, but unfortunately the DOL rejected the trucking industry’s request.
Under many existing independent contractor definitions today courts and agencies look at what rights the parties have under their contracts and what rights they exercise in real life. In trucking independent owner operators have many rights under their contracts, including rights to haul freight for other carriers, rights to turn down loads, rights to select routes, and more. But many independent owner operators choose to run the loads they are offered, choose to run with one carrier, and choose to take the same routes because they get the revenue and the loads, they need from that one carrier. They choose not to exercise a lot of their contractual rights.
The DOL’s proposed rule would clarify that if a contractor chooses not to exercise contract rights then that can be used as evidence the contractor is in fact an employee. This is called giving primary weight to what happens in real life over what rights the parties have under their contracts.
The DOL’s proposed rule does not mean the contractor is automatically an employee because they choose not to exercise rights under their contract. Carriers can still prove the contractor is independent both in fact and under the contract. The DOL’s proposed rule is not a stark departure from some existing case law. Granted, it is a departure from some case law, but not from all existing case law. The proposed rule would have been significantly improved had the DOL taken the trucking industry’s recommendations, but even without them, the rule is still a minor improvement over the existing FLSA’s economic realities test for three reasons:
- It does give more weight to the factors of control and the opportunity for profit and loss, both of which under existing FLSA case law are achievable for trucking;
- It does clarify the existing economic realities test in a number of ways by eliminating confusion in the way some of the smaller factors will be interpreted; and
- The DOL did include a trucking-specific example in the final rule that clarifies that “controls” carriers utilize for safety and legal compliance purposes (e.g. speed governors, cameras, etc.) will likely not be considered enough control to turn a contractor into an employee if implemented appropriately.
Most importantly, it must be noted that even though the DOL finalized the new rule this week, it will not take effect until March 8, 2021, and even then, it will only take effect if the Biden administration does not revoke the rule beforehand, which is a distinct possibility.
Regardless, the Biden administration’s well-publicized push against independent contractor status is a good reminder of the importance of respecting independent contractor status at all stages of your relationship with owner operators. Whether or not your contractors are independent is a product of easy-to-understand contracts, and respect for the contractor’s independence throughout all aspects of your relationship. With any new federal or state administration, but especially new administrations in your primary operating states, comes an opportunity to review and reinforce the independence in your independent contractor programs.