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DOL Worker Status Enforcement Undermines New Rule, Critics Say

Sept. 8, 2022, 8:59 AM

The Biden administration’s wage arm is following through on its promise to police worker misclassification, but some opponents of the stricter approach say the enforcement spree could weaken an argument for a new rule on the issue.

The US Labor Department’s Wage and Hour Division has touted six cases since May that collectively found nearly 1,000 workers who were wrongly labeled as independent contractors when they should have been classified as employees.

At the same time, the DOL has been working on a new regulation to outline how it will define who is an independent contractor or employee under federal wage law—a change Labor Department officials say is needed to help better combat worker misclassification.

Business groups are particularly vexed by the administration’s rulemaking out of concern it would expand their legal liabilities and increase costs if more workers are classified as employees with protections under federal wage laws.

“As we have said to them on numerous occasions, they don’t need a new regulation to go after the problems that are out there,” said Marc Freedman, the U.S. Chamber of Commerce’s vice president for workplace policy. “DOL has demonstrated that they have adequate regulatory authority and clarity to go after situations where workers have been misclassified.”

Second Try

Shortly after President Joe Biden took office, the DOL issued a proposal to rescind a Trump-era independent contractor standard that made it easier for companies to classify their workers as independent contractors who aren’t protected under the Fair Labor Standards Act.

But that effort was quashed in court earlier this year after a federal judge found the Biden administration failed to properly seek public comment on the change or consider possible alternatives. The ruling reinstated the Trump measure, prompting the DOL to start the rulemaking process again.

The DOL’s latest proposal to define independent contractor status under the FLSA is being reviewed by the White House budget office, the last step before it’s released to the public.

The Coalition for Workforce Innovation, which represents tech giants Uber Technologies Inc. and Lyft Inc. that rely on independent contractors to staff their fleets, “continues to question the rationale for the Department to initiative a new rulemaking,” Evan Armstrong, chair of CWI said in an email. The Trump-era rule is “being a proven tool to recover wages in misclassification cases,” he said.

Michael Lotito, co-chair of Littler Mendelson PC’s Workplace Policy Institute, also questioned whether the DOL would have the legal justification for changing the independent contractor standard. Littler Mendelson represents CWI.

“In this case, they have the additional burden of having the rule that they’re trying to replace, having been upheld, and the rule has not been in effect for a long period of time and the department has recognized that it’s the law of the land,” Lotito said.

The six instances of misclassification enforcement under the Trump-era regulation “worked just fine,” Lotito said. “So the question that the DOL is going to have to answer is why do you need to change? Which situations have arisen that justified the change?”

Lingering Doubts

But some attorneys and former DOL officials are skeptical the string of misclassification cases from the WHD would weaken the agency’s justification for the new rule.

“I think that may be a measure of wishful thinking, the idea that because the department has been conducting enforcement, asserting misclassification of employees as independent contractors, that somehow means they really won’t need a new rule,” said Paul DeCamp, a Wage and Hour administrator during the George W. Bush administration.

“What I’m sure the department would say today is ‘yes, we can police this issue of independent contractor versus employee, regardless of what rule we have, but we can police it more effectively if we have a rule we like,’” he said. “And then from this department’s perspective under this administration, they want to be able to cast the net of employment more broadly than under the Trump-era rule.”

Sally Dworak-Fisher, a senior staff attorney at the left-leaning National Employment Law Project, also disagreed that the cases would suggest the DOL has enough tools to fight misclassification under the current standard.

“That’s like saying, ‘Well, we only found a few cockroaches, so we don’t need an exterminator,’” Dworak-Fisher said.

“I can’t speak to the facts of those individual cases,” she said. “But I will say that misclassification is often quite blatant, such that the workers would be considered an employee, even under the narrower or common law standard. So these cases might well just be the tip of the iceberg.”

To contact the reporter on this story: Rebecca Rainey in Washington at rrainey@bloombergindustry.com

To contact the editors responsible for this story: Genevieve Douglas at gdouglas@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com