Biden Administration Takes Action to Expand Definition of “Employee” and Protect Gig Workers
Updated as of October 25, 2022: The U.S. Department of Labor announced a 15-day extension of the comment period for its notice of proposed rulemaking, Employee or Independent Contractor Classification Under the Fair Labor Standards Act.
The comment period will now close on December 13, 2022, instead of November 28, 2022.
President Biden promised to deliver broader protections for employees, and the tide of executive branch action is now rolling in. Just recently, several executive branch agencies, as well as the National Labor Relations Board (NLRB), an independent federal agency whose members are appointed by the President, have issued rules or guidance that will make it more likely for workers to be classified as employees, or as joint employees. As such, employers would be required to provide these workers with protections such as minimum wage and overtime pay, the ability to assert claims against a joint employer, or the ability to organize a union.
These actions will likely be felt most acutely in franchising and gig industries, and for companies that source labor through contracting, temporary staffing, and other business-to-business arrangements. Employers should begin to evaluate the impacts of these potential changes as investigations and enforcement actions are expected to rise.
Independent Contractor Classification Under the FLSA
Independent contractor classification has sparked considerable debate over the past decade, and the government’s position on who qualifies as an independent contractor versus an employee has flip-flopped with each successive administration. Toward the end of the Trump administration, the Department of Labor (DOL) issued a classification rule that had the tendency to limit who qualifies as an “employee” under the Fair Labor Standards Act (FLSA) and thus expand who qualifies as an independent contractor.
On Thursday, October 13, 2022, the DOL published a rule proposal which aims to broaden the scope of who counts as an “employee.” While the Trump rule focused on the worker’s degree of control over their work and the worker’s opportunity for profit or loss, the proposed Biden rule would afford equal weight to other classification factors. In addition to control and profit/loss opportunity, these other factors include i) capital investments by the worker and the employer, ii) the permanency of the worker-employer relationship, iii) how integral the worker’s role is to the employer’s business, and iv) whether the worker’s role requires certain skills or initiative. Because all factors are weighed equally, this ruling provides more avenues for workers to be classified as an employee, which is the intended result.
The public will have until November 27, 2022 to comment on the proposed rule change. These comments will be reviewed and considered by the DOL, who will thereafter publish a final rule that includes changes, if any, resulting from the DOL's review of public comments. The rule, once finalized, will guide the DOL in its investigations and enforcement actions. While not binding in other arenas, it will certainly be relied upon by employees and their attorneys in private litigation, and judges are also likely to rely on it as a guide. IRS and state tax law, as well as state unemployment insurance compensation law, will not be affected by the DOL rule because they have their own definitions of who qualifies as an independent contractor.
Joint-Employer Status Under the NLRA
Another subject of considerable back and forth has been joint-employment status under the National Labor Relations Act (NLRA). On September 6, 2022, the NLRB issued a Notice of Proposed Rulemaking addressing what constitutes a joint-employment relationship. The proposed rule seeks to relax the standard for determining when a joint-employment relationship exists, thus allowing more workers to claim an employment relationship with their direct employer’s contract partners. This is a major step toward undoing the employer-friendly rule minted during the Trump administration.
Under the rule, two employers would be considered “joint” if they both partake in deciding employees’ essential terms and conditions of employment. This includes decisions regarding wages, benefits, scheduling, hiring, discharge, discipline, workplace health and safety, supervision, assignment, and work rules. The proposed rule considers employers’ direct control and indirect control for purposes of assessing joint-employer status.
Bringing back the concept of indirect control is a revival of the NLRB’s position during the Obama years. This development is concerning for companies in the franchising industry and for companies that source labor through contracting, temporary staffing, and other business-to-business arrangements. If found to be a joint employer, these entities could be held accountable for other businesses’ labor violations and collective bargaining obligations. Employers in these industries should evaluate whether and how they can create separation between themselves and their contract partners to mitigate the risk of a joint-employment finding.
The public has until November 2, 2022 to comment on the NLRB’s proposed rule.
Gig Worker Protections
On September 15, 2022, the Federal Trade Commission (FTC) adopted a policy statement directed at protecting gig workers. The policy statement makes clear that consumer protection and fair competition laws apply to gig workers, and that the FTC is committed to enforcing these laws with respect to gig workers. Examples of gig workers include project-based and app-based freelancers, drivers, shoppers, software developers, fitness trainers, tutors, among others.
In the policy statement, the FTC identifies specific areas its enforcement initiatives will target. Examples of these areas include deception regarding gig workers’ pay, responsible use of automated technologies to fairly manage workers, restrictive non-compete agreements, and agreements between employers to fix gig workers’ wages. Federal laws like Section 5 of the Federal Trade Commission Act give the FTC a basis for addressing unfair or deceptive conduct. In the policy statement, the FTC emphasizes that its ability to enforce these laws is not affected by how companies classify gig workers (i.e., as independent contractors).
Companies in the gig-sector should evaluate their practices and transparency with workers, especially regarding the areas targeted by the FTC. Among other things, gig-sector companies should be transparent about costs borne by workers, be very selective or limit the use of restrictive covenants, and not engage in agreements with competitors to fix wages, benefits, or fees.
We will continue to monitor and provide updates about these rulemaking developments, but employers should begin to assess their policies in these areas now. For more information on how these proposed changes may impact your specific operations, please contact your local Quarles & Brady attorney, or: