Gig Worker Test’s Legal Challenges Undercut by Standing Ruling

A federal judge’s decision to toss out a lawsuit challenging the US Department of Labor’s new independent contractor rule over standing issues spells bad news for other legal challenges to the regulation, attorneys say.

Georgia-based Judge Richard W. Story found earlier this month that four freelance writers and editors didn’t have standing to sue over the worker classification rule because they weren’t harmed by the policy change.

They argued that the rule created uncertainty around their status as contractors, chilling publishers from wanting to work with them. Story wasn’t convinced, characterizing those fears as “hypothetical and conjectural.”

“By definition, the 2024 Rule’s fact-specific approach cannot pose a realistic danger to Plaintiffs’ ability to operate as independent contractors because the ultimate classification may change from case-to-case,” Story wrote in his Oct. 7 ruling dismissing the case with prejudice. “Sure, Plaintiffs may qualify as independent contractors in one instance and employees in another, but that conjectural possibility is not enough to establish standing.”

The decision suggests that at least one other group of challengers to the rule may face a high burden when it comes to establishing that they will be harmed by the rule’s stricter approach to worker classification. But it also could buoy other complaints that may find firmer footing for those plaintiffs, legal observers said.

“For the plaintiffs who are the contractors, this is a rough case for them,” said Anthony Rainone, a co-chair of the labor and employment practice at Brach Eichler LLC.

Unpredictable Rule

There are currently four pending lawsuits against the DOL rule in Texas, Tennessee, New Mexico, and Louisiana federal courts, in addition to the now-dismissed case in Georgia. Three were brought by businesses or business associations, while one was brought by another group of freelance writers.

They all argue that the DOL’s contractor rule, which has been in effect since March, violates the Administrative Procedure Act and departs from the text of the Fair Labor Standards Act.

The regulation at issue generally makes it harder for employers to treat their workers as independent contractors, who don’t have the same legal rights under the law as employees.

The developments around the policy are being closely watched by members of the business community, who rely on contractors in nearly every segment of the economy to provide services. Technology firms behind the gig-economy, as well as the trucking, construction, and financial services industries, also heavily rely on contractors.

The rule outlined six non-exhaustive and non-dispositive factors of the working relationship—like how much control the worker has over the job, how permanent the job is, or investments made by the worker and business—that the DOL would scrutinize when determining whether a worker was an independent contractor or employee for purposes of the Fair Labor Standards Act. It also canceled a simpler classification test finalized during the Trump administration, which gave more weight to how much control the worker has over the job and their opportunity for profit or loss.

The group of four Georgia freelancers had argued that because the new rule was so broad, it gave the agency “ad hoc enforcement discretion” to find worker misclassification in any work arrangement.

Ultimately, the judge decided the freelancers couldn’t demonstrate standing because the new standard is “inherently unpredictable” and their “ultimate classification may change from case-to-case” under the new rule.

“There was no way to tell whether or not the rule would adversely impact them, because while the rule changes the test and makes it harder to classify workers as independent contractors, it’s not impossible,” said Michael Elkins, founder and partner at MLE Law. “And there was nothing to say that these freelancers would ultimately end up being employees and be unable to work. They predicted they might be, but nobody really knows.”

But Story also left the door open for other challengers, citing an argument in his ruling that was made by attorneys for the DOL: that the freelancers cannot establish an injury “because Plaintiffs are freelance writers seeking engagement, not employers subject to the FLSA’s requirements.”

Standing

Attorneys say the two trucking companies and coalition of business groups suing over the rule will likely be on firmer ground when it comes to standing, because they could point to concrete evidence of harm, such as increased unemployment and other taxes they would have to pay for a new employee.

“The problem for these plaintiffs here was it’s actually the economic benefit to them to be employee over contractor,” Rainone said. “They will lose the ability to take some business tax deductions that they otherwise could take as a contractor. But the fact is, by being an employee, you don’t have to pay your share of the payroll tax.”

Employers on the other hand “could take the position that we know concrete under this new test, our independent contractors would need to be reclassified as employees, and that’s going to cause a problem for us,” explained Elkins.

While the DOL has made similar standing arguments in the other pending cases against the rule, Jane Jacobs, a partner at Tarter Krinsky & Drogin LLP, questioned why the agency would need to issue the rule if it didn’t have an impact on anyone.

“So somebody is going to have standing to challenge,” she said. “I would agree an employer seems like the more likely entity to do that.”