The formal regulatory notice released July 1st, 2020, is so short and sterile that the average gig economy business could be forgiven for ignoring it: “The Department of Labor is proposing a regulation for determining independent contractor status under the Fair Labor Standards Act.” But the implications are immense. Given the manner in which the current administration has treated the misclassification question, Wednesday’s announcement seems to be a signal that we will soon see a federal regulation that will provide a flexible standard permitting typical gig economy businesses to classify their workers as contractors under federal law. And according to Bloomberg Law’s Ben Penn, the Department of Labor will aim to fast-track the rule so that it is completed by year’s end, insulating the rule from the possibility that a new administration voted into the White House this November could quickly reverse course. What do gig economy businesses need to know about this interesting development? Signs Point To Flexible Standard There have developed two competing schools of thought when it comes to the proper legal standard to determine the status of workers as either independent contractors or employees: a bright-line rule (like the ABC test) that erects barriers making it difficult for the average gig economy business to classify workers as contractors; or a flexible standard that permits for some measure of forgiveness in the legal analysis and generally permits the average gig business to treat workers as contractors. And all signs point to the fact that the new rule expected from the USDOL will provide the flexibility that gig economy companies and other businesses crave. Here’s the supporting evidence:
- As early as 2017, within months of the new administration assuming control of the Labor Department, the agency withdrew guidance published during the Obama administration that had hampered businesses when it came to independent contractor misclassification and joint employment standards. The guidance letters that had been scrapped didn’t carry the force of law but were relied upon by USDOL investigators and courts when examining allegations of wrongdoing and were often cited by plaintiffs’ attorneys to support their demands.
- In July 2018, the agency issued a field assistance bulletin further tilting the misclassification scales back towards an even playing field and providing what many assumed was a helpful clue to gig economy companies about how the agency could regulate the concept of misclassification on a broader scale.
- In April 2019, the USDOL issued a much-heralded opinion letter confirming that certain workers providing workers for a virtual marketplace company are, indeed, independent contractors. It provided the federal government’s official interpretation on whether a certain business model or practice complies with the law and offered solid evidence of how the agency views the misclassification question.
- Finally, tucked away in Wednesday’s regulatory agenda notice is a single word that signals the purpose of the agency’s action: “deregulatory.” This appears to announce that the rule will further the current administration’s penchant for removing barriers that interfere with a business’s ability to conduct its work most efficiently.