Oct 24, 2022, 18:20 PM by Neil Reichenberg, HRCI Contributing Writer

The U.S. Department of Labor (DOL) published a proposed rule that is designed to help employers classify workers and to address misclassification that occurs when workers are considered independent contractors rather than employees under the Fair Labor Standards Act (FLSA).

The U.S. Department of Labor has issued a proposed rule designed to assist in determining whether a worker is an employee or an independent contractor. A second U.S. District Court has ruled that guidance issued by the Equal Employment Opportunity Commission (EEOC) following the United States Supreme Court’s ruling in Bostock v. Clayton County was unlawful. The National Labor Relations Board (NLRB) has extended the comment period until December 7^th, on its joint employment proposed rule.

 

DOL Proposes Independent Contractor Rule – The U.S. Department of Labor (DOL) published a proposed rule that is designed to help employers classify workers and to address misclassification that occurs when workers are considered independent contractors rather than employees under the Fair Labor Standards Act (FLSA). While acknowledging that independent contractors play an important role in the economy, Secretary of Labor Marty Walsh stated, “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.” Comments on the proposed rule are due by November 28, 2022.

 

During the Trump Administration, the Labor Department had issued final regulations making it easier for employers to classify workers as independent contractors. The final regulations were due to take effect on March 8, 2021 but were delayed by the Biden Administration and withdrawn on May 6, 2021. A lawsuit was filed challenging the delay and subsequent withdrawal and the U.S. District Court for the Eastern District of Texas reinstated the independent contractor rule issued previously by the Department of Labor. In the case, Coalition for Workforce Innovation, et. al v. Marty Walsh, Secretary of Labor, et. al, the District Court ruled that both the postponement of the March 8, 2021, effective date and the subsequent withdrawal of the rule violated the Administrative Procedure Act (APA). The new proposed DOL rule would rescind and replace the previous independent contractor rule that was made effective by the District Court for the Eastern District of Texas.

 

According to DOL, “The ultimate inquiry is whether, as a matter of economic reality, the worker is either economically dependent on the employer for work (and is thus an employee) or is in business for themself (and is thus an independent contractor).” The Labor Department and the courts have adopted a totality of the circumstances analysis looking at multiple factors to determine whether a worker is an employee or an independent contractor under the FLSA.

 

The proposed rule provides that to determine if an employment relationship existed, the following non-exhaustive list of factors may be considered: 1) opportunity for profit or loss depending on managerial skill, 2) investments by the worker and the employer, 3) degree of permanence of the work relationship, 4) nature and degree of control, 5) extent to which the work performed is an integral part of the employer’s business, and 6) skill and initiative required. The proposed rule would restore the longstanding multi-factor totality of the circumstances analysis to determine whether a worker is an employee or independent contractor.

The rule enacted during the Trump Administration had identified five factors with two of the factors – the nature and degree of control over the work and the worker’s opportunity for profit or loss being designated as core factors that carried greater weight in the analysis. The proposed rule rejects weighting the factors since it “undermines the very purpose of the test, which is to consider—based on the economic realities—whether a worker is economically dependent on the employer for work or is in business for themself.”

 

Court Rejects EEOC Guidance – The United States District Court for the Northern District of Texas decided in the case of State of Texas v. EEOC that the guidance issued by the Equal Employment Opportunity Commission (EEOC) went beyond the U.S. Supreme Court’s decision in the case of Bostock v. Clayton County. In finding that the guidance was unlawful, the District Court concluded that it misreads “Bostock by melding status and conduct into one catchall protected class covering all conduct correlating to sexual orientation and gender identity.” The District Court believed that this went beyond the majority decision in the Bostock case.

 

The U.S. Supreme Court ruled in the Bostock case that Title VII of the Civil Rights Act of 1964 prohibited employment discrimination based on sexual orientation and gender identity.

According to the District Court, the EEOC guidance “imposes dress-code, bathroom, and pronoun accommodations as existing requirements under the law…in light of Bostock” but Title VII does not require these accommodations. The District Court acknowledged that an employer who fires an individual solely for being gay or transgender would violate Title VII. However, the District Court found that Title VII’s protection is limited to status but does not extend to cover conduct related to a status. Additionally, the District Court believed the guidance was a substantive rule and the Administrative Procedure Act required that it needed to be published and the public be given the opportunity to submit comments.

 

This is the second District Court to rule against the EEOC guidance. The United States District Court for the Eastern District of Tennessee issued a preliminary injunction preventing the implementation of the guidance. In this ruling, the District Court concluded that the “guidance issued by the EEOC creates rights for applicants and employees that have not been established by federal law, and it directs employers to comply with those obligations to avoid liability.” The case, State of Tennessee, et al. v. United States Department of Education was brought by 20 state governments who believed that the interpretations of Title IX of the Education Amendments of 1972 and Title VII of the Civil Rights Act of 1964 that were issued by the Department of Education and the EEOC violated the Administrative Procedure Act (APA) and the US Constitution.

 

NLRB Extends Joint Employment Comment Period – The National Labor Relations Board (NLRB) announced that December 7, 2022, is the new deadline for interested parties to submit comments on its proposed rule on the standard for determining joint-employer status under the National Labor Relations Act. NLRB had issued proposed regulations concerning joint employment and initially set a deadline of November 7, 2022 for the receipt of comments. The proposed rule rescinds and replaces the joint employer rule that took effect on April 27, 2020.

 

According to the NLRB, “the proposed rule reflects the Board's preliminary view … that the Act's purposes of promoting collective bargaining and stabilizing labor relations are best served when two or more statutory employers that each possess some authority to control or exercise the power to control employees' essential terms and conditions of employment are parties to bargaining over those employees' working conditions.” The proposed rule would define the phrase essential terms and conditions of employment to include such items as wages, benefits, hours of work, scheduling, hiring/firing, discipline, health and safety, work assignments and work performance rules. The proposed rule would provide that merely possessing the authority to control the essential terms and conditions of employment whether control is exercised or not, exercised indirectly or exercised through an intermediary would be sufficient to establish status as a joint employer. The party claiming an employer is a joint employer would under the proposed rule have the burden of establishing the existence of a joint employment relationship by a preponderance of the evidence.

 

Neil Reichenberg is the former executive director of the International Public Management Association for Human Resources. He is an attorney, a frequent writer and speaker on public policy and human resource issues, and an adjunct faculty member at George Mason University. For questions or additional information, contact Reichenberg at neilreichenberg@yahoo.com.