DOL Issues Final Rule: Employee or Independent Contractor Under the FLSA

On Tuesday, the U.S. Department of Labor announced its Final Rule: Employee or Independent Contractor Under the Fair Labor Standards Act. A quick overview:

Effective Date: 

March 11, 2024

Why it matters: 

The FLSA sets a minimum wage and requires overtime pay (time and a half for hours over 40 worked in a workweek). It also imposes certain recordkeeping requirements, and prohibits retaliation for filing complaints about violations. Simply put, this all applies to employees but not independent contractors. 

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Shut up and tell me the test!

The final rule utilizes the "economic realities test," examining the "totality of the circumstances" where "economic dependence is the ultimate inquiry." The rule provides a non-exhaustive list of six factors, none of which is dispositive on its own:

1. Opportunity for profit or loss depending on managerial skill;
2. Investments by the worker and the potential employer;
3. The degree of permanence of the work relationship; 
4. The nature and degree of control; 
5. The extent to which the work performed is an integral part of the potential employer’s business; and 
6. Skill and initiative.

If you're looking for more in-depth guidance on applying these factors - great news! - the final rule is 339 pages long. Sorry, too much? Check out the FAQ page for something in between this very brief overview and the full 339-page rule. 

NLRB decision shifts independent contractor analysis

Yesterday. the NLRB issued its decision in The Atlanta Opera, Inc. You know it's important when they also issue a press release. 

It is probably easiest to explain what the new test is not: "The Board expressly rejected the holding of the SuperShuttle Board that entrepreneurial opportunity for gain or loss should be the 'animating principle' of the independent-contractor test."

So, what is the test? I know what you're thinking... "Phil, pleeease tell me that it's a nonexhaustive list of ten factors!?" You know it! The decision marks a return to "longstanding principles" and "independent-contractor analysis will be guided by a list of common-law factors." Turning to the Restatement (Second) of Agency, the Board looked at:

[T]he following matters of fact, among others, are considered: 

(a) the extent of control which, by the agreement, the master may exercise over the details of the work; 

(b) whether or not the one employed is engaged in a distinct occupation or business; 

(c) the kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision; 

(d) the skill required in the particular occupation; 

(e) whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work; 

(f) the length of time for which the person is employed; 

(g) the method of payment, whether by the time or by the job; 

(h) whether or not the work is a part of the regular business of the employer; 

(i) whether or not the parties believe they are creating the relation of master and servant; and 

(j) whether the principal is or is not in business.

Notably, the new decision not only overrules prior NLRB precedent, but also seems to depart from D.C. Circuit precedent (FedEx Home Delivery v. NLRB, 563 F.3d 492 (D.C. Cir. 2009) (FedEx I)). The Board purports to rely on Supreme Court and decisions and other D.C. Circuit decisions. Time will tell whether The Atlanta Opera standard will survive. 

DOL proposes new independent contractor rule

Ah, one of the joys of being an employer (or employment lawyer) . . . the way the law just magically changes depending on who is president. The Fair Labor Standards Act (FLSA) is 84 years old, and yet we still don't quite know how to determine who is a covered "employee." Late last week, the Department of Labor issued a notice of proposed rulemaking (NPRM) for determining employee or independent contractor classification under the FLSA (News Release here).  

Long story, short: more workers will be classified as employees under the new rule. The new rule would apply a "totality-of-the-circumstances" analysis to the "economic realities test." The "ultimate inquiry" is whether the worker is "economically dependent on an employer for work." DOL has identified six factors to use as a "guide" in this analysis:

• Opportunity for profit or loss depending on managerial skill;

• 

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  Investments by the worker and the employer;
• Degree of permanence of the work relationship;
• Nature and degree of control;
• Extent to which the work performed is an integral part of the employer's business; and
• Skill and initiative.

Sound convoluted? Well, wait, there's more! We must also consider "additional factors," which "may be relevant in determining whether the worker is an employee or independent contractor for purposes of the FLSA, if the factors in some way indicate whether the worker is in business for themself, as opposed to being economically dependent on the employer for work."

DOL withdraws Trump-era proposed independent contractor rule

We've got an early contender for least surprising news of the year... DOL is withdrawing the Trump-DOL independent contractor rule. You can read all about the now-dead proposed rule in my prescient January 7, 2021 entry (okay, you didn't need a crystal ball to see this one comin'), DOL publishes new independent contractor rule, but is it DOA? That rule is withdrawn, effective today.

So, where are we now? Well, the "supplementary information" in the formal withdrawal notice in the Federal Register points us to the "economic realities" test. This test distinguishes between independent contractors, who are "engaged in a business of [their] own," and employees, who "as a matter of economic realities are dependent upon the business to which they render service." The notice provides a fair amount of analysis, and identifies some specific factors:

(1) The degree of the employer's right to control the manner in which the work is to be performed; 

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(2) the worker's opportunity for profit or loss depending upon his or her managerial skill; 

(3) the worker's investment in equipment or materials required for his or her task, or employment of helpers; 

(4) whether the service rendered requires a special skill; 

(5) the degree of permanence of the working relationship; and 

(6) whether the service rendered is an integral part of the employer's business.

That said, the list is not exhaustive, and different courts have utilized assorted variations. 

Bottom line: If you thought the proposed rule from January was going to make classifying workers as independent contractors easier - well, it's not, because that rule's dead now. There's nothing groundbreaking in the withdrawal though. As always, I have a few caveats:

• This notice applies to classification of workers under the FLSA - different courts and agencies apply different tests when analyzing classification under different statutes;
• Even under the FLSA, the federal courts have tended to do their own thing and not give too much deference to ever-changing views of the DOL;  and
• Even the DOL changes its mind sometimes. 

That said, this latest notice provides insight into the DOL's views on classification, and some factors for businesses to consider when classifying workers. 

DOL publishes new independent contractor rule, but is it DOA?

You probably heard the big news out of DC yesterday... the U.S. Department of Labor published its final rule to clarify independent contractor status under the Fair Labor Standards Act (FLSA). What? Did something else happen?

The new rule generally makes it easier to classify workers as independent contractors as opposed to employees under the FLSA (i.e. federal minimum wage and overtime law). The actual rule is here. Short version of a long and complicated issue, the new rule focuses on two primary factors:

(1) the nature and degree of the worker’s control over the work; and 

(2) the worker’s opportunity for profit or loss.

But, if need be, there are three additional "guideposts":

(3) The amount of skill required for the work; 

(4) The degree of permanence of the working relationship between the worker and the potential employer.

(5) Whether the work is part of an integrated unit of production.

But, wait! This comes with so many caveats... I don't know where to begin. 

• The Rule takes effect March 8th; 
• But, we get a new president January 20th and he has already flagged this rule as "an example of the type of last-minute regulation Mr. Biden would seek to halt or delay with a memo he intends to sign on inauguration day;"
• This is *just* the rule for the FLSA - There are countless other laws that require independent contractor vs. employee classification analysis and they each have their own tests (worker's comp., unemployment compensation, collective bargaining, etc.); 
• Also, your state probably has its own minimum wage and overtime law that does not necessarily track with the federal rules; and
• Courts are not bound by agency regulations, and often adopt their own tests (See, e.g., the Obama administration's paid intern rule that was rejected over and over again). 

In other words, although the rule itself is easier to apply, classifying workers remains as frustrating and convoluted as ever. 

DOL proposes new independent contractor rule under the FLSA

 My favorite subject - employee/independent contractor classification! On Tuesday, DOL issued a press release: U.S. Department of Labor Proposes Rule to Clarify Employee and Independent Contractor Status Under the Fair Labor Standards Act. The new rule is part of their efforts to "simplify the compliance landscape."

The proposed rule:

• Adopts an “economic reality” test to determine a worker’s status as an FLSA employee or an independent contractor. The test considers whether a worker is in business for himself or herself (independent contractor) or is economically dependent on a putative employer for work (employee); 
• Identifies and explains two “core factors,” specifically the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment. These factors help determine if a worker is economically dependent on someone else’s business or is in business for himself or herself;
• Identifies three other factors that may serve as additional guideposts in the analysis: the amount of skill required for the work; the degree of permanence of the working relationship between the worker and the potential employer; and whether the work is part of an integrated unit of production; and 
• Advises that the actual practice is more relevant than what may be contractually or theoretically possible in determining whether a worker is an employee or an independent contractor.

You can read the actual rule here. 

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Believe me, employers (and their poor attorneys) need simpler rules to follow in this area. A five-factor test in which two factors count more but none of the factors is determinative and even more factors exist because the list is not exhaustive... I'm not sure that's simple. And, of course, that's only the test for the FLSA (maybe, we'll have to see how courts actually apply the rule and whether they even follow it) - employers will still have different tests for state wage and hour laws, another test for UC benefits, and yet another for workers' comp. Simple enough for ya yet?

Oh yeah, we have an election coming up, so let's wait and see if the final rule even crosses the finish line. 

SCOPA: Uber driver entitled to unemployment compensation benefits

In a 52-page 5-2 majority opinion, the Supreme Court of Pennsylvania (SCOPA) held that an Uber driver was entitled to unemployment compensation benefits in Lowman v. UCBR. 

The setup here is a common scenario - the claimant was separated from employment and collecting UC benefits. What does he do to try to make ends meet? Starts driving for Uber. The problem? Claimants are ineligible for UC benefits if they are self-employed (and, of course, Uber claims the drivers are not employees and therefore they would be independent contractors who are self-employed). 

The Court concluded that the worker was not self-employed and therefore eligible for benefits. Along the way, the Court found that:

• "Uber controlled and directed the performance of Lowman’s services as a driver-for-hire;" and
• "Lowman was not engaged in an independently established business."

The Court expressly declined to rule on whether Uber was Lowman's employer, which would have huge unemployment compensation tax consequences for the company. That said, the Court's ruling in Lowman certainly doesn't bode well for them. 

SCOPA: New analysis of independent contractor classification for unemployment compensation

Oh great, one of my favorite topics . . . the 30,000 different tests for employee versus independent contractor classification, each with a few hundred different factors. Okay, perhaps that's an exaggeration. But, seriously, take a look at the existing test for just unemployment compensation in Pennsylvania. 

Now, the Supreme Court of Pennsylvania (SCOPA) has made it a little more difficult to classify workers as independent contractors in a new case, A Special Touch v. UC Tax Services. The case involves people who worked at a salon, offering nail, skin, massage, and cosmetic services. As with all of these classification cases, the analysis is very fact intensive and not very conducive for succinct blog entries. 

The key takeaway here, however, is pretty simple. The PA UC statute requires in part that independent contractors be "customarily engaged in an independently established trade, occupation, profession or business." SCOPA held: 

[This statutory language is] unambiguous in requiring a putative employer to show that an individual is actually involved in an independent trade, occupation, profession, or business in order to establish that the individual is self-employed . . . . We read nothing in the [statute] to signal that the phrase requires only that an individual be capable of being involved in an independently established trade, occupation, profession, or business.

 Now, you might be thinking that this requires the contractor to actually provide services for others . . . not so fast!

Thus, the analysis under this requirement does not simply turn on the extent to which an individual actually provides his or her services to either the putative employer or third parties, although these considerations are certainly relevant. Rather, the “customarily engaged” language can encompass more activity than actually providing services for others, so long as it is demonstrated that the individual is in some way actually involved in an independently established trade or business. In this respect, we agree with the Department that circumstances demonstrating that an individual is actively holding himself out to perform services for another, such as through the use of business cards or other forms of advertising, even if not actually performing those services during a particular time period at issue, are also relevant to the analysis.

The key takeaway here is to have your contractors print some business cards (I'm about half kidding). It mostly just further reinforces that the UC analysis requires the workers to be in business for themselves.  

First, COVID-19 shut down these salons - now, even when they can re-open, a lot of them will have an additional tax burden (and potentially other issues if the classification analysis carries over into other areas of the law). Definitely a tough few months for them. 

Third Circuit on independent contractor classification of UberBLACK drivers

The gig economy continues to provide some great classification battles. Yesterday, the Third Circuit weighed in on UberBLACK drivers in Razak v. Uber Technologies, Inc. The drivers claim that they are employees entitled to minimum wage and overtime under the FLSA (and PA state laws, PMWA and PWPCL). The trial court granted summary judgment for Uber, concluding that the drivers were not employees (but rather independent contractors) as a matter of law.

The Third Circuit disagreed. First, it should be noted that Court applied the six DialAmerica factors:

1) the degree of the alleged employer’s right to control the manner in which the work is to be performed; 

2) the alleged employee’s opportunity for profit or loss depending upon his managerial skill; 

3) the alleged employee’s investment in equipment or materials required for his task, or his employment of helpers; 

4) whether the service rendered required a special skill; 

5) the degree of permanence of the working relationship; [and] 

6) whether the service rendered is an integral part of the alleged employer’s business.

The trial court held that the drivers met only the fourth and sixth factors. Driving did not really require any special skill, and the drivers were "an essential part of Uber’s business as a transportation company." Uber "strenuously" disputed this finding, claiming instead that they are a technology company that supports the business of the drivers - but the Third Circuit merely says that it could be another disputed fact not suited for summary judgment.

The Third Circuit ran through the remaining factors, identifying additional factual disputes. The Court focused its attention on the first and second factors - the right to control and the risk of profit and loss. As just one example, drivers are free to drive for other services (like Lyft), but Uber will not allow drivers to do so while they are "online" with Uber.

Ultimately, the Third Circuit vacated the entry of summary judgment and remanded the case back to the district court for further proceedings. The Third Circuit did not take a position on whether the remaining factual disputes should be resolved by a jury or by the Court in a Rule 52 proceeding.

Third Circuit on the Federal Arbitration Act and Uber drivers

Do you love the arcane scope language of the Federal Arbitration Act (FAA)? Do you also love the convoluted mess of employee-independent contractor classification analysis? Who doesn't!? The Third Circuit just issued a precedential opinion in Singh v. Uber Technologies, Inc.

The plaintiff brought this putative class action on behalf of himself and other similarly situated Uber drivers in New Jersey. He claimed that Uber misclassified them as independent contractors, and that Uber owes them money for overtime and business expenses that they would be entitled to if they had been properly classified as employees. Classification of Uber drivers (and "gig" workers generally) is a hot topic these days.

But wait . . . before we get to that hot topic . . . the plaintiff driver had an arbitration agreement. So, Uber moved to compel arbitration. But double wait . . . the FAA excludes transportation workers that are engaged in interstate commerce. So, can Uber compel arbitration or not?

Standard of Review

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The first interesting issue in this case is the standard of review on a motion to compel arbitration. The Supreme Court recently held in New Prime Inc. v. Oliveira that the Court decides whether the FAA exemption applies (also relevant to this case, SCOTUS held that the exemption applies to both employees and independent contractors). But what standard of review applies? The Court has some options, including the motion to dismiss
standard (a low bar) and the summary judgment standard (a relatively high bar). Orrr, how about a hybrid?

[T]he motion to dismiss standard applies if the complaint and incorporated documents provide a sufficient factual basis for deciding the issue. But where those documents do not, or the plaintiff responds to the motion with additional facts that place the issue in dispute, the parties should be entitled to discovery on the question of arbitrability before a court entertains further briefing with an application of the summary judgment standard to follow.

(internal citations and quotations omitted).

Does the FAA exemption apply to Uber drivers? 

Here, the Third Circuit identified two issues regarding the coverage of the FAA:

(1) if § 1 [the exemption] only applies to transportation workers who transport goods, or also those who transport passengers, and  

(2) whether Singh belongs to a class of workers that are engaged in interstate commerce.

Cutting to the chase - the Third Circuit held that the FAA exemption applies to transportation workers regardless of whether they are transporting goods or people. Therefore, it would apply to Uber drivers "engaged in interstate commerce."

The Court's analysis stops there. The Court remanded the case back to the district court to allow the parties to engage in discovery to explore the issue of whether the driver was engaged in interstate commerce. 

Uber Drivers: Employees or Independent Contractors? NLRB GC weighs in.

You may recall that the NLRB recently held that employee/independent contractor classification is now resolved using an employer-friendly version of the common law test (SuperShuttle). Now, the NLRB Office of General Counsel has used that new test to recommend dismissal of several charges brought by Uber drivers.

You can read the advice memo here (ht: Bloomberg Law).  The Conclusion really does a nice job of summarizing the NLRB GC's position:

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Considering all the common-law factors through “the prism of entrepreneurial opportunity” set forth in SuperShuttle, we conclude that UberX drivers were independent contractors. Drivers’ virtually complete control of their cars, work schedules, and log-in locations, together with their freedom to work for competitors of Uber, provided them with significant entrepreneurial opportunity. On any given day, at any free moment, UberX drivers could decide how best to serve their economic objectives: by fulfilling ride requests through the App, working for a competing rideshare service, or pursuing a different venture altogether. The surge pricing and other financial incentives Uber utilized to meet rider demand not only reflect Uber’s “hands off” approach, they also constituted a further entrepreneurial opportunity for drivers. Although Uber limited drivers’ selection of trips, established fares, and exercised less significant forms of control, overall UberX drivers operated with a level of entrepreneurial freedom consistent with independent-contractor status. In addition, drivers’ lack of supervision, significant capital investments in their work, and their understanding that they were independent contractors also weigh heavily in favor of that status. Although Uber retained portions of drivers’ fares under a commission based system that may usually support employee status, that factor is neutral here because Uber’s business model avoids the control of drivers traditionally associated with such systems and affords drivers significant entrepreneurial opportunity. The other factors supporting employee status—the skill required and our assumption that drivers operated as part of Uber’s regular business, and not in a distinct business or occupation—are also of lesser importance in this factual context. Accordingly, we conclude that UberX drivers were independent contractors.

The memo goes on to reach the same conclusion for UberBLACK drivers.

Of, course, this comes with the usual caveats:

• Different courts, agencies, and jurisdictions use different classification tests depending on the underlying law at issue; and

• NLRB precedent is only as binding as the current makeup of the NLRB - and this isn't even an NLRB decision, it's just an advice memo.  

Employee or Independent Contractor? DOL on the Virtual Marketplace

If you love employee classification issues (and who doesn't?), then be sure to check out the U.S. Department of Labor's new opinion letter, FLSA2019-6. The opinion addresses a virtual marketplace company (VMC).

[A VMC] is an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.

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This hip new opinion also tosses out trendy phrases like the "on-demand economy" and "sharing economy." And then, of course, it devolves into the convoluted world of trying to discern whether workers are employees or independent contractors under one of the approximately 35,000 (rough estimate) tests.

Under the FLSA, "the touchstone of employee versus independent contractor status has long been 'economic dependence.'” And, of course, the DOL applies . . . wait for it . . . you know its coming . . . a vague, non-exhaustive, multi-factor test, weighing the factors under the totality of the circumstances! Yaaaayy.

(1) The nature and degree of the potential employer’s control; 

(2) The permanency of the worker’s relationship with the potential employer; 

(3) The amount of the worker’s investment in facilities, equipment, or helpers; 

(4) The amount of skill, initiative, judgment, or foresight required for the worker’s services; 

(5) The worker’s opportunities for profit or loss; and 

(6) The extent of integration of the worker’s services into the potential employer’s business.

The DOL includes a lengthy analysis, that you should read for yourself if interested. A major factor here, was that the service providers had the "flexibility to choose if, when, where, how, and for whom they will work."

Disclaimer: Analysis differs depending on the underlying legal issue, jurisdiction, venue, and circumstances. Hence the 35,000 (rough estimate) other tests.

Fine, here's that NLRB Independent Contractor decision

Whether workers are properly classified as independent contractors or employees is an important issue. It is also a frustrating issue. Different courts and agencies use different tests depending on the circumstances (union organizing, workers' comp, unemployment compensation, wage and hour claims, and on and on). The different tests all utilize a bunch of different factors, and no one factor is determinative (and the factors are not given any particular weight).

To make matters somehow even worse - you get some back-and-forth on the standard within the same agency! Example: the NLRB, which notoriously reverses course with the changing of administrations. So, just to keep readers up to date, here's the NLRB's recent decision in SuperShuttle DFW, Inc. and Amalgamated Transit Union Local 1338.

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The NLRB turned to the common law test, and overturned a prior ruling (FedEx). The Board applied this nonexhaustive - wait, nonexhaustive? oh yeah, I forgot to mention, these tests often have additional factors that we don't even know about yet! - list of 10 factors:

(a) The extent of control which, by the agreement, the master may exercise over the details of the work.  

(b) Whether or not the one employed is engaged in a distinct occupation or business.  

(c) The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision.  

(d) The skill required in the particular occupation.  

(e) Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work.  

(f) The length of time for which the person is employed. 

(g) The method of payment, whether by the time or by the job. 

(h) Whether or not the work is part of the regular business of the employer. 

(i) Whether or not the parties believe they are creating the relation of master and servant. 

(j) Whether the principal is or is not in business.

So, don't forget to apply these 10 factors (and any others that seem like they might be helpful as the list is "nonexhaustive" after all), and then turn to the 35* other tests, and 473* different factors that all have varying amounts of w
eight and importance depending on who's rendering the decision. Easy, right?

* Rough estimates. 

Supreme Court limits arbitration in interstate trucker case

Yesterday, the Supreme Court issued an opinion limiting the scope of the Federal Arbitration Act (FAA) in New Prime Inc. v. Oliveira. Yes, you read that right - limiting. The Supreme Court actually ruled against arbitration. Is this it? The end times? Apocalypse? Only time will tell . . . .

The FAA generally requires courts to compel arbitration where the parties agreed to arbitrate their dispute. There are, however, exceptions. One of which is "contracts of employment of . . . workers engaged in . . . interstate commerce." Important sidenote: the Supreme Court had previously limited this exception to only include transportation workers. Welp, New Prime involved a driver, working for an interstate trucking company.

The Court was faced with two questions. First, if the parties agreed to delegate the arbitrability question to an arbitrator, then who decides whether the arbitration agreement falls under the FAA exception (arbitrator or court)? Justice Gorsuch, for a unanimous court (except Kavanaugh who did not participate) held that the court and not the arbitrator decides that issue. Why? Because the delegation of the arbitrability question is itself an arbitration agreement - and therefore, the court must first resolve whether the FAA covers the agreement (or instead falls under an exception) before compelling arbitration.

Second question: the company and the driver had a contract designating him an "independent contractor." So, does the contract count as a "contract of employment"? Modern lawyers will probably have a gut reaction of "heck no - we have a very clear distinction between 'employee' and 'independent contractor' under the law!"

Not so fast! The FAA was adopted in 1925, and we're dealing with a (mostly?) originalist Supreme Court! So, the question is not "What does 'contract of employment' mean now" - but, rather, "What did 'contract of employment' mean in 1925?" The answer is that 'contract of employment' was understood as a very broad phrase. Per Justice Gorsuch's opinion, "dictionaries tended to treat 'employment' more or less as a synonym for 'work.'" Court opinions and statutory text at the time also support this broad interpretation. The Court concluded that "contract of employment" therefore includes independent contractors as well as employees.

So, contracts of employees and independent contracts with interstate transportation companies are  excluded from the FAA's compulsory arbitration provisions. And, the court (not the arbitrator) determines whether the exclusion applies.

PA Commonwealth Court: Security consultant was employee, not independent contractor

As longtime readers know, independent contractor versus employee classification is one of my favorite issues. The Pennsylvania Commonwealth Court recently added a new unemployment compensation case to the mix: HPM Consulting v. UCBR.

These cases are often convoluted, and very fact-intensive. This case involved a safety consultant, who signed multiple contracts with HPM Consulting to go to other states and work. The contracts specifically referred to him as a "1099 contractor" (1099 refers to the tax form, and is issued to independent contractors as opposed to employees, who receive W-2s).

Of course, labels on a contract are not controlling on the courts. The majority opinion still concluded that the consultant was an employee. The worker did not solicit his own work, did not pay for his certifications, and HPM set his rate of pay.

Two points worth noting: (1) in unemployment compensation cases, we start with a strong presumption that someone working in exchange for compensation is an employee; and (2) in unemployment compensation cases, the UCBR is the ultimate fact-finder (if it has evidence to support its conclusion).

SCOTUS to take on yet another arbitration case

The Federal Arbitration Act (FAA) generally allows parties to enter into binding contracts to arbitrate disputes that may arise later. However, under Section 1, the FAA does not apply “to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.

Last week, SCOTUS granted certiorari (agreed to hear) New Prime Inc. v. Oliveira. The case presents two interesting FAA issues:

1. If the parties agree to arbitrate any disputes (including the arbitrability of the dispute), then who decides whether the exemptions in Section 1 apply? A court? Or an arbitrator?

2. Does Section 1's exemption for certain "contracts of employment" apply to independent contractors?

We should get answers next term. The case involves an independent contractor truck driver and could have important implications for arbitration agreements in the transportation industry.

Easy come, easy go - DOL pulls independent contractor and joint employer guidance

On Wednesday, the U.S. Department of Labor released the following press release:

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U.S. Secretary of Labor Alexander Acosta today announced the withdrawal of the U.S. Department of Labor’s 2015 and 2016 informal guidance on joint employment and independent contractors. Removal of the administrator interpretations does not change the legal responsibilities of employers under the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act, as reflected in the department’s long-standing regulations and case law. The department will continue to fully and fairly enforce all laws within its jurisdiction, including the Fair Labor Standards Act and the Migrant and Seasonal Agricultural Worker Protection Act.

Technically, this does not change the law; however, courts will give some deference even to "informal guidance." As compared to the now-pulled guidance, the Trump administration will most likely:

• View classification in a way that makes workers more likely to be independent contractors; and
• Makes putative-employers less likely to be "joint employers."

So far, no specific replacement guidance has been proposed. Also, unlike informal guidance, actual agency decisions have a little more staying power. For example, on NLRA issues, employers are still stuck with the "refined" joint employer standard from Browning-Ferris.

Independent Contractor or Employee? - Construction Workplace Misclassification Act

Another wrinkle in the convoluted mess that is employee/independent contractor classification law:

As I've blogged previously, courts (and agencies) use different factors and standards to analyze classification depending on the underlying issue. So, there are different tests for wage and hour claims vs. unemployment compensation claims vs. workers' compensation claims.

The Commonwealth Court of Pennsylvania recently "published" (meaning it's now precedential) its 2016 opinion in Hawbaker v. WCAB. The Court analyzed worker classification for purposes of workers' comp . . . but with a twist: Pennsylvania's Construction Workplace Misclassification Act.

Under the Construction Workplace Misclassification Act, for purposes of unemployment compensation and workers' compensation, a worker in the construction industry is an independent contractor only if:

(1) The individual has a written contract to perform such services. 

(2) The individual is free from control or direction over performance of such services both under the contract of service and in fact. 

(3) As to such services, the individual is customarily engaged in an independently established trade, occupation, profession or business.

43 P.S. § 933.3. The Act goes on to identify several factors for determining whether "the individual is customarily engaged in an independently established trade, occupation, profession or business."

The Court affirmed the WCAB's holding that the worker in this instance was an independent contractor. However, three interesting tidbits from the ruling:

• The Act does not require a separate contract for each job;
• The Act does not require a contract for a specified duration; and
• Although the putative employer had stopped assigning jobs to the claimant for awhile, the contract did not terminate - the Court looked to the text of the contract (and its provisions regarding termination) to conclude that the contract had not terminated. 

The Court's opinion highlights the importance of written agreements when using independent contractors.

7th Circuit: NCAA Student Athletes are Not Employees

Yesterday, the Seventh Circuit held that NCAA student athletes are not employees under the Fair Labor Standards Act (FLSA), and therefore they are not entitled to minimum wage. You can read the opinion in Berger v. NCAA here (.pdf).

The Court's opinion really came down to three main points:

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• The Court decided not to apply the standard multifactor tests for analyzing whether an employment relationship existed because the multifactor test "fail[s] to capture the true nature of the relationship";

• The Court then noted the "long-standing . . . tradition of amateurism" in college sports; and

• The Department of Labor "Field Operations Handbook" specifically excludes "extracurricular activities" from its definition of employment, with a cross reference to a mention of "interscholastic athletics."

And that's pretty much it. I don't think I'm oversimplifying the Court's opinion here. 

I do think the Court oversimplified the analysis, and some review of the traditional multifactor test would have been informative. That's not to say that I think they reached the wrong result - to the contrary, I suspect this is the correct outcome - it just felt a little underwhelming. In fairness, the Court was deciding this case at the pleadings stage and therefore had virtually no record on which to base such analysis. 

Endnote: In a concurring opinion, Judge Hamilton notes that the plaintiffs were non-scholarship athletes in a non-revenue-generating sport (UPenn Track and Field). The "economic realities" may result in a different outcome for scholarship athletes in revenue-generating sports. 

NY: Uber drivers are employees for unemployment claims

Uber logo used in commentary;
not licensed use.

The ongoing saga continues... are Uber drivers employees or independent contractors? I don't usually cover out-of-state unemployment compensation decisions. That said, I enjoy the back-and-forth regarding Uber drivers; so, here's an article on just such a decision: Uber Drivers Ruled Eligible for Jobless Payments in New York State.

I'm inclined to think that they're independent contractors. I'm also inclined to question our current framework - in particular, the huge importance we place on a binary classification of independent contractor versus employee. The reality is almost always some shade of gray.

If you're in Pennsylvania and/or the Third Circuit, I've written on the various tests - New Article: Is your Independent Contractor an Employee?