Businesses Seek Speedy Legal Fight Over New DOL Gig Worker Rule

Business groups opposed to the US Department of Labor’s latest independent contractor rule have taken an unusual procedural move in an effort to expedite their challenge against new legal interpretations set to go into effect in March.

A coalition of business groups—representing dozens of industries including gig economy companies Uber Technologies Inc. and DoorDash Inc.—opted to forego a new lawsuit against the worker classification rule released Jan. 9. Instead, they filed a motion Jan. 11 to revive previous litigation involving a different Biden administration independent contractor rule that was issued in 2021.

While the 2021 rule, which was blocked by a Texas federal court in 2022, and the independent contractor rule released last week are slightly different, they both would cancel a Trump-era standard that put in place a more business-friendly approach for determining whether a worker should be classified as an employee or contractor under federal wage law.

The Coalition for Workforce Innovation, Associated Builders and Contractors, and the Financial Services Institute’s decision to try and piggyback off of the prior litigation could speed up the process and, if the groups are successful, block the rule sooner, attorneys say.

The move is “for judicial expediency, for judicial efficiency,” said Michael Lotito of Littler Mendelson PC, the management-side firm representing the business groups in the case.

“It makes all the sense in the world, they send a new rule back to the judge, who knows more about the independent contractor rule, the history, and its evolution than anybody else in the world,” Lotito said.

But, the DOL and at least one attorney disagree, and argue that businesses must file a new lawsuit against the latest rule because the prior case focused solely on the 2021 independent contractor rule, which is no longer in play.

The publication of the new final rule “rendered moot the question whether the prior independent contractor rule was properly delayed and withdrawn,” the agency wrote in its Jan. 12 response to the business groups’ motion to remand.

Because the Biden DOL’s new rule supercedes its prior 2021 rule, “the outcome of that earlier litigation has no effect on anything, that case is moot,” Allison Zieve, director of Public Citizen’s Litigation Group, said.

“If these plaintiffs want to challenge what happens they can’t just rely on the circuit sending them back to the district court,” Zieve said. “They have to file a case challenging the 2024 rule.”

Friendlier Venue

The motion by the business coalition to revive the prior independent contractor rule challenge was filed in the US Court of Appeals for the Fifth Circuit where the case has been stayed while the Labor Department developed its most recent regulation.

Specifically, the coalition asked the Fifth Circuit to send their case back to the US District Court for the Eastern District of Texas to review their concerns with the new rule. That lower court previously sided with the business groups’ Administrative Procedure Act claims against the 2021 independent contractor rule.

And there’s a decent chance the Eastern District of Texas will rule against DOL again, according to Aaron Goldstein, a partner at Dorsey & Whitney’s Seattle office.

“The Biden rule is essentially the ‘withdraw and delay rule’ in different clothes,” Goldstein said. “They have a very friendly venue in the Eastern District of Texas. They want to keep it in front of the same judge that gave them a win in round one.”

Paul DeCamp, a former Wage and Hour administrator under President George W. Bush, who is now a management-side attorney with Epstein Becker & Green PC, said it appears businesses are trying to argue the two rules are “legally and factually similar” enough to continue the existing litigation.

“The motion references the arguments that we expect the plaintiffs to make, in terms of the criticism of the current rule, mirroring some of the reasons why the district court rejected the earlier rule,” he said. “But I think it remains to be seen what the district court’s going to do with the case.”

However, some warn that the legal strategy could backfire if the district court were to reject the request from the coalition. By waiting for the district court to decide on their remand request, the groups are holding off on filing a new lawsuit against the new rule, said Zieve of Public Citizen.

She noted that even if the appellate court grants the motion, the business groups would still have to amend their complaint for the district court and “sort of start from scratch.”

It seems “legally incorrect, and a waste of time,” she said.

New Test

The new rule is highly consequential for companies that rely heavily on independent contractors, like Uber, Doordash, and other gig-economy giants, as well as the trucking, construction, and other industries.

It changes how the department determines whether a worker should be classified as an independent contractor who is in business for themselves, or an employee who is subject to the Fair Labor Standards Act.

Employees receive minimum wage, overtime, and other protections under the FLSA, while independent contractors aren’t covered by the law.

The new DOL test would consider at least six factors when determining a worker’s status under the law, canceling a more business-friendly approach finalized by the Trump administration in January 2021 that largely allowed companies to continue classifying their workers as independent contractors.

The latest Biden rule is expected to generally make it harder for workers to be considered independent contractors, but the administration has vowed it won’t result in widespread changes to worker classification across the economy and is necessary to protect workers from misclassification.

But businesses and freelancers have expressed concerns that the rule will have a chilling effect on companies that work with contractors, as they may fear being on the hook for minimum wage and tax liabilities if the DOL were to determine the contractors are misclassified.

On Jan. 16, a group of four freelance writers and editors filed their own lawsuit against the contractor rule in Georgia federal court arguing it’s overly vague and will cost them business.