This week, the Department of Labor (DOL) issued a notice of proposed rulemaking (NPRM) to rescind the previous administration’s independent contractor rule and return to the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA. Stakeholders will have forty-five days to submit comments to the DOL.
The DOL seeks to return to a standard that was created over several decades by a combination of definitions of employee under the Fair Labor Standards Act (FLSA) along with several court decisions. The result was a multifactor test that included factors like opportunity for profit and loss, whether the individual is integral to the business, and the level of investment the individual makes in the opportunity. These factors and determinations of classification are very fact specific and open to endless interpretation. For this reason, the Trump Administration modernized and synthesized the economic realities test to provide needed clarity.
What it Means for Retail
When the final rule goes into effect retailers should prepare for the DOL to take aggressive enforcement against employers. Given President Biden’s whole Administration’s antagonism towards independent workers, we should expect the DOL to utilize these factors to tip the scales in favor of classifying most workers as employees. In fact, Secretary Walsh has stated that most independent workers should be employees.
For the retail industry, the position of the Department may strain supply chains even further. We have already seen this impact in California with AB-5 which treats thousands of independent truck drivers as employees. This has caused protests and operational disruptions at the ports and beyond. Moreover, the e-commerce boom through the last several years was made possible through highly decentralized and efficient delivery operations to ensure goods made the crucial last mile trip to front doors across the country. From Shipt to Roadie to Instacart, these innovative companies can make difficult supply chain connections between retailers and consumers. Frustratingly, the Biden Administration and its Department of Labor is misreading the moment. We know independent work is popular and satisfies needs of various stakeholders from individuals seeking work, and businesses looking to satisfy consumer demands.
RILA will engage with the Department’s rulemaking process via the Coalition for Workforce Innovation, which already responded to the Department by saying the coalition is “disappointed the Department is proposing to repeal the updated modern independent contractor test when it has already shown benefits in terms of clarity and certainty. Returning to the older and more confusing standard does not reflect the current economy and could disrupt the livelihoods of millions of innovative, independent professionals who work in nearly every industry.”
Retail Works for All of Us