DOL Aims to Fast-Track Worker Classification Rule to 2020 Finish

The Labor Department is accelerating a plan to propose and finalize this year a worker classification regulation defining when workers are independent contractors or employees under federal wage law.

The timeframe for such a significant rule—only six months for the proposal, public comment period, and final publication—would be far more compressed than the typical regulatory process. But that’s the mission of senior DOL officials who are making the independent contractor issue a top priority, said five current and former administration sources and others briefed on the plans.

The administration wants to wrap up the rulemaking in the final months of President Donald Trump’s term in part because a Democrat could be president next year, said the sources, who spoke on condition of anonymity. If a worker classification rule were to be proposed but not finalized and Trump doesn’t get re-elected, a new administration would easily be able to kill the effort. Or new DOL leaders inheriting the incomplete rule could finalize it by interpreting the term “employee” much more broadly than Republican regulators envisioned.

The Democrat-majority House and a growing number of state legislatures have enacted bills to force businesses into reclassifying independent contractors as employees, giving them enhanced labor protections. The DOL rule, which the White House has labeled “deregulatory,” also surfaces amid a wave of worker lawsuits against corporations from Uber to Amazon alleging independent contractor misclassification.

Democratic presidential nominee Joe Biden recently endorsed a 2019 California law that designates workers as employees if they’re doing work that isn’t outside the usual course of a company’s business, a rigid legal test that’s now the subject of an Uber-backed state ballot initiative this fall seeking to roll back the measure. That’s the same classification standard the House adopted in February with the Protecting the Right to Organize Act, a wide-ranging labor law overhaul backed by unions that’s been a non-starter in the GOP-controlled Senate.

The business community’s pushing the department to finish the initiative to beat legislative action, although the rule wouldn’t pre-empt state laws that are more protective of workers.

“I have full confidence that the Department of Labor will issue a rule on independent contractors by the end of the year,” said Michael Lotito, a management attorney at Littler Mendelson who represents the U.S. Chamber of Commerce in a brief supporting a legal challenge from Uber and Postmates to halt the California classification bill. “This is one of the most cataclysmic issues in labor and employment law and it’s most important for the Department of Labor to give us their view.”

The DOL declined to comment on an unreleased rule and didn’t address questions about Election Day implications. A department spokeswoman deferred questions about the regulatory agenda to the White House Office of Management and Budget. An OMB media representative didn’t respond to a request for comment.

Administrations Seesaw

Details on the rule haven’t been released, but it would lay out a framework for businesses to understand when their workers are independent contractors or employees who are covered by minimum wage and overtime laws, according to a White House regulatory agenda notice Tuesday.

The DOL’s Wage and Hour Division over the past two administrations has offered guidance instead of more formal regulations as a response to classification disputes that coincided with the rise of the gig economy and as companies more frequently outsource non-core functions to third-party contractors.

The Trump administration has been trying to reverse course on the Obama administration’s approach to cracking down on employer misclassification. The DOL in 2017 withdrew a 2015 guidance memo saying most workers are employees, not independent contractors, under the Fair Labor Standards Act.

An opinion letter from the administration last year interpreted the law in favor of a company’s decision to treat its workers as independent contractors, a move that would help some gig-economy companies but was too narrow to please the wide swath of corporate executives who view worker classification as an existential threat to their business model.

Scalia Takes Helm

Since his arrival in September, Labor Secretary Eugene Scalia has advanced an assertive deregulatory agenda focusing on ensuring enforcement is consistent and doesn’t unfairly punish well-intentioned employers.

An independent contractor regulation is a natural outgrowth of that philosophy, said Jonathan Berry, who was Scalia’s top policy official at DOL through April.

“The employment relationship question is perhaps the murkiest and most important question under the Fair Labor Standards Act and so it’s a natural target for a Scalia Labor Department that wants to dispel regulatory uncertainty wherever possible,” said Berry, now a partner at administrative law firm Boyden Gray & Associates in Washington. “I know that regulatory clarity about rights and obligations, avoiding unfair surprise, giving fair notice—those have been extremely consistent themes of Secretary Scalia’s leadership, both publicly and internally.”

Some see this as scaling back on the number of employees entitled to wage protections.

“What I would expect to see is an effort to radically narrow the existing test and reinterpret the factors in that test in the manner that reduces the number of employees as much as possible, and increases the number of independent contractors as much as possible,” said Seth Harris, a former deputy and acting labor secretary under President Barack Obama. “Because that is the deregulatory approach to the workplace and to the labor market.”

The White House earlier this week had slated a June 2020 release for a proposal, a deadline that’s already come and gone but indicates a proposed rule is forthcoming. It’s unclear whether DOL can complete a final rule by year’s end, and have it take effect before Inauguration Day 2021.

Harris sees a deeper takeaway from the effort to speed up the process.

“I think it’s striking that Secretary Scalia doesn’t believe that President Trump is going to be elected,” Harris said, “so much so that he’s scrambling to get out a business-friendly interpretation of the law before he expects President Trump to leave office.”