June 30, 2022

SCOTUS and DOL Look at Independent Contractor Status

On June 27th, the U.S. Supreme Court declined to hear a case filed by freelance workers who challenged California’s law (AB5) that restricts the number of “content submissions” they can contribute to a media outlet as an independent contractor.

Three days later, on June 30th, the Court declined to hear a case filed by a trucking association challenging the same law on different grounds.

On June 3rd, the U.S. Department of Labor (DOL) announced its plan to “engage in rulemaking on determining employee or independent contractor status under the FLSA.”

On June 24th and June 29th, the DOL held listening sessions for employers and workers, respectively. The latter surprised me. There were over 200 people on the virtual call. The vast majority asked the DOL to please not change the current rule for determining independent contractor (IC) status or to at least not apply the ABC test. So, what is this all about? If you use one or more IC’s, aka 1099 workers, head’s up!

Determining IC status is, well, messy. Federal agencies, like the DOL, NLRB and IRS use different tests. So do the courts. Many state laws, like workers’ compensation and unemployment have their own tests or rules, too! In 2007, I had the honor of testifying before a joint U.S. Congressional Hearing on the issue and I shared the same. Here are a few examples.

The IRS uses a three-factor test, sometimes referred to the common law test: behavioral control, financial control, and relationship of the parties.

The DOL currently uses a test that was first implemented under the Trump Administration and which a court recently reinstated. It has two primary factors: (1) the nature and degree of control over the work; and (2) the individual’s opportunity for profit or loss. If the first two do not determine IC status, then you apply three subfactors: (1) the amount of skill required for the work; the degree of permanence of the working relationship; and whether the work part of an integrated unit of the business.

The U.S. Chamber of Commerce and others report that at least 33 states use the ABC test to determine IC status. Is there is an Absence of control by the company over the worker? Is the Business of the worker different from the usual business of the company? Is the worker Customarily engaged as an IC in the trade, profession, or occupation? The trick is, not all states use the same ABC test. Some use just the A and B or the A and C. So, you get the idea. It is difficult for employers to get this right from every one of these myriad perspectives.

So, stay tuned.

  1. You may want to bookmark the DOL’s related webpage to watch for an announcement of the publication of the new, proposed rule. A notice and comment period will follow during which employers and workers will have the opportunity to comment.
  2. The DOL has filed an appeal challenging the court’s reinstatement of the Trump era rule. Click here for the full flip-flop history.

Want to learn more about other non-employment relationship like volunteers and unpaid interns? Check out last month’s archived webcast, “Are You My Employer? Defining Worker Status.” $25 pp and still provides 1.25 HRCI and SHRM credits.