Worker Status Rule Garners Trucking, Builder Ire More Than Uber

For all the noise around a new Labor Department worker classification rule’s impact on Uber, DoorDash, and the gig economy, a plethora of industries including construction, trucking, and even hotel operators have voiced more pressing concerns about the resulting litigation risk and uncertainty.

The business model of hiring workers as independent contractors instead of employees has a long history in several industries, and has spread more recently to even more sectors and job types, touching health care, education, food service, information technology, and janitorial work.

But when those worker classifications are disputed, courts will likely decide the outcomes largely on a case-by-case basis, generally relying on decades of case law more than the new Labor Department regulation released Tuesday.

“Case law and precedent probably govern more than DOL regulations,” said Mariko Paul, assistant general counsel and HR consultant with Engage PEO. “But that said, if I were in court making an argument one way or the other, if I have the DOL rules on my side then I’m going to use what I can.”

The rule change, set to take effect March 11, is the latest move in the long-running and expensive chess match over worker classification playing out in courts, state legislatures, ballot initiatives, Congress, and federal agencies including the National Labor Relations Board. When workers are deemed independent contractors, they aren’t covered by the many labor law protections that apply to employees. In the case of the new Labor Department rule, which interprets the Fair Labor Standards Act, that means minimum wage and overtime pay.

Employment lawyers and Labor Department officials said the rule isn’t likely to bring a mass reclassification of US workers, although by some estimates as many as 27 million Americans do independent work for at least a portion of their income. Likewise, Uber Technologies Inc. and its gig economy cohorts said they don’t expect it to change their drivers’ independent contractor status.

That’s cold comfort to a broad range of other business groups and their counsel, however, who say the rule change increases uncertainty about how to classify workers and heightens the risk that businesses will have to defend their decisions in court.

“The trucking industry has used independent contractors since the inception of interstate trucking, and court decisions over the last 90 years have continually reaffirmed the legitimate role ICs play in the economy,” Chris Spear, CEO of the American Trucking Associations, said in a written statement responding to the rule’s Tuesday release. The rule change replaces “a clear and straightforward standard with a tangled mess,” he said.

The many lawsuits against DoorDash Inc., GrubHub Inc., Lyft Inc., and Uber have grabbed the public’s attention, but worker classification disputes span the universe of job categories including delivery drivers for Amazon.com Inc., legal services specialists, medical caregivers, and exotic dancers. These disputes arise via private litigation and sometimes through Labor Department enforcement actions.

While business groups are worried about compliance risks, worker advocates—including labor unions—praised the new rule for making it less likely workers will be misclassified as independent and lose out on wage-law protections.

“Many workers are harmed by employer misclassification—particularly those in the lowest-wage and most difficult jobs, such as nail salon workers, truck drivers, and construction workers,” the Economic Policy Institute said in a written statement. A previous EPI report on misclassification estimated thousands of dollars in lost income annually for workers in various job types who are deemed independent contractors instead of employees.

Not Off the Hook

The new Labor Department rule calls for using a six-factor “economic realities” test, with all factors equally weighted, to determine whether a worker is economically dependent on a particular business as their employer or is running their own independent business.

The rule repeals a Trump-era Labor Department standard that deemed two factors—the level of a person’s control over their work and their opportunity for profit and loss—as the core issues for evaluating classification and reduced the other factors to secondary considerations.

While this rule change probably won’t bring a sudden reclassification of Uber drivers, the ride-share and delivery-app industries aren’t totally off the hook here, said Miriam A. Cherry, a professor at St. John’s University School of Law. Gig companies’ public statements saying the rule won’t change their business model could partly be designed to inspire confidence in their shareholders and preserve stock values, she added.

Some tweaks in the Labor Department’s interpretation of the six factors nudge the analysis in favor of finding drivers to be employees, she said. In particular, restoring the question of whether a person’s work is an integral part of a company’s operations favors employee status for drivers, whereas the Trump-era rule treated that as a less-significant factor.

“I don’t think this necessarily resolves it, but it certainly is a major push towards acknowledgment of employee status,” Cherry said. “It’s a step toward recognition of that.”

With all factors now weighted evenly, courts will have maximum discretion in deciding who’s an employee and who’s an independent contractor on a case-by-case basis, said Christopher S. Bouriat, a management-side labor attorney with Reed Smith LLP in Pittsburgh.

“There’s a real incentive for the plaintiffs’ bar to kind of roll the dice,” he said. “Even if you lose one, you might as well roll the dice again and you may get a better outcome.”

“Under the rule’s multifactor test, employers will now be forced to guess which factors should be given the greatest weight in making the determination,” leading to confusion and potential “litigation chaos,” Ben Brubeck, a vice president for the Associated Builders and Contractors, said in an emailed statement.

Not the ABC Test

The federal rule stops short of California’s simpler, three-factor ABC test, easing some of business groups’ fears but disappointing worker-side attorneys and advocates. The ABC test more heavily favors classifying workers as employees.

“The more factors there are, the more the higher-priced lawyers on the defense side can string it out and confuse the issues,” said Shannon Liss-Riordan, a Boston-based plaintiffs’ lawyer who frequently represents workers in misclassification lawsuits.

Liss-Riordan is preparing to take a case against Uber to trial in March, asking a Pennsylvania court to find its drivers to be employees under state law as well as the FLSA, she said.

“A lot of state supreme courts haven’t even addressed this, so this is a very live test that’s playing out now,” Liss-Riordan said. But she agreed courts will give more weight to case law than the Labor Department regulation for guidance on how to decide these disputes.

Ultimately, the rule change—if it withstands any potential legal challenges by the industry groups opposing the revamp—could help workers close to the line between employee and independent contractor, but it isn’t likely to be a sea change for any one industry, said Richard Reibstein, an attorney at Locke Lord who co-leads its independent contractor misclassification and compliance practice.

“Does it help workers a little? Yes, on the fringes,” he said. “Those cases that are 50/50 in favor of contractor or employee under the Fair Labor Standards Act may now potentially tilt slightly in their favor. That’s assuming the courts look at the regulation.”