Last month, the most significant legal development in the area of independent contractor (IC) compliance and misclassification was on Capitol Hill. Bill Cassidy of Louisiana, a Senate Republican who chairs the Senate Health, Education, Labor & Pensions Committee, has released a white paper arguing for the “removal of federal legal and regulatory barriers to portable benefits for independent workers—while protecting their flexibility and freedom to earn a living as they best see fit.” Sen. Cassidy’s report suggests that benefits could more easily be provided to independent workers if there was a single, common test for IC status under all federal laws. The white paper notes that there are no less than three distinct tests for IC status under federal laws, yet “recent independent contractor tests promulgated by executive agencies allow different courts to look at the same facts and come to separate conclusions about employment status.” Senator Cassidy proposes a solution where all federal laws would use the so-called common law test for IC status, which is the least restrictive and most favorable IC test for ICs and businesses to satisfy. This approach, however, is impractical. The tests for IC status under various federal laws differ because the U.S. Supreme Court and federal circuit courts have interpreted legislative intent of Congress when passing those laws. Savvy companies, though, assume that they are governed by the most restrictive federal test for IC status — the economic realities test applied under the federal Fair Labor Standards Act (FLSA) — and then use a process such as IC Diagnostics (TM) to structure, document, and implement their IC relationships in a manner that enhances their compliance with that test in a sustained and customized manner.

In the Courts (3 cases)

TENNESSEE CONSTRUCTION COMPANY CONSENTS TO MISCLASSIFICATION JUDGMENT WITH U.S. DEPARTMENT OF LABOR. A construction company has consented to the entry of a judgment against it in an IC misclassification lawsuit filed by the U.S. Department of Labor in a Tennessee federal court under the FLSA on behalf of 82 construction workers. The Labor Department alleged the construction workers were misclassified as ICs instead of employees, and sought to enjoin AT ‎Construction Services, Inc., which specializes in drywall and stud work, ‎from ‎withholding payment of overtime compensation from the workers. The Labor Department also sought liquidated damages in the amount of the alleged unpaid overtime. According to the complaint, the construction workers were supervised by the company, subject to direction as to how they ‎performed their work, had little or no opportunity ‎for additional income or profit through the exercise of managerial skill or increased efficiency, were provided materials and tools by the ‎company, had little to no ability to negotiate their pay rate, and were dependent on the company for ‎their livelihood.‎ The consent order includes an injunction restraining the company from failing to pay overtime to such workers in the future. Su v. AT Construction Service Inc., No. 1:24-cv-00052 (E.D. Tenn. Apr. 14, 2025).

STAFFING COMPANY SUED BY CAR RENTAL WORKERS IN IC MISCLASSIFICATION CLASS ACTION. A staffing company that provides workers to car rental businesses has been sued for IC misclassification by nine workers in a Virginia federal court, seeking relief under the FLSA, Virginia Wage Payment Act, Virginia Misclassification of ‎Workers Law, and a number of District of Columbia wage statutes. The workers provide services in the areas of vehicle maintenance, customer service, inventory management, logistics, and operations support. According to the complaint, the car rental companies are joint employers of the workers along with the staffing ‎company. The workers claim that the staffing company exercised control over their work schedules and the manner in which they performed their duties for the car rental companies, allegedly providing instructions to individual ‎workers regarding the timing and manner in which their work should be performed. Da Silva v. Unique On The Go Corp., No. 1:25-cv-0064 (E.D. Va. Apr. 16, 2025).

LOGISTICS COMPANY FOUND TO HAVE MISCLASSIFIED DRIVERS UNDER ILLINOIS LAW. An Illinois federal court has ruled that a logistics company failed to establish the IC status of drivers who deliver furniture and appliances in several states including Illinois. The drivers had initiated a class action lawsuit against Diakon Logistics under the Illinois Wage Payment and Collection Act (IWPCA), alleging unlawful expense deductions from their wages. In ruling on cross-motions for summary judgment, the court held that the drivers are ‎”employees” under the IWPCA because the company failed to satisfy the second prong of the Illinois ABC test used to classify workers as ICs or employees. Prong B requires a showing by a purported employer that the workers ‎performed work either outside the company’s usual course of business or outside the company’s places of ‎business. The court found, among other things, that the drivers pick up goods at a company facility in Illinois, which precluded the company from satisfying the B prong and thereby dooming it under the state’s ABC test.‎ The court also concluded that the IWPCA applies to all work performed by plaintiffs and the class members on behalf of ‎the company, even work outside of Illinois, given that the plaintiff drivers performed some work in ‎Illinois. Lastly, the court ruled that the company’s deductions from the drivers’ fees for liability insurance coverage and truck rentals were proper under the IWPCA because they benefited the employees, but the company’s deductions for customer damage claims, on the other hand, were for the benefit of the company. The court could not determine as a matter of law whether the company’s deductions for workers’ compensation/occupational accident insurance premiums were authorized under the IWPCA; that claim will be determined by a jury. Johnson v. Diakon Logistics, No. 16-cv-06776 (N.D. Ill. Mar 31, 2025).

Legislative Initiatives (1 matter)

KEY REPUBLICAN SENATOR PROPOSES BENEFITS FOR INDEPENDENT CONTRACTORS. Senator Bill Cassidy (R-LA), the Chair of the Senate Committee on Health Education Labor & Pensions, issued a white paper in April titled “Portable Benefits: Paving the Way Toward a Better Deal for Independent Workers.” Sen. Cassidy suggests that “Congress should consider decoupling the provision of benefits from the fear of potentially ruinous misclassification lawsuits by establishing a safe harbor for providing benefits in federal law.” He notes that ICs are not entitled to various benefits that employers typically make available to employees in the U.S., yet those Americans classified as ICs also need affordable, sustainable benefits options. ‎

The white paper proposes a single federal statutory test for IC status under all federal laws, stating: “Workers and firms would benefit from a single statutorily-defined test determining employment status. Such a test may be based on the common-law test, which is frequently used by courts to determine employment status. Implementing a common-law test would also improve stability and consistency across federal and state jurisdictions.” This type of one-size fits all test for IC status under all federal laws (replacing the common law test, the economic realities test, and the so-called hybrid test) does not appear to be feasible, however, for two reasons: first, the different tests have been developed by the U.S. Supreme Court and the federal Circuit Courts of Appeal in view of the legislative intent of each law at the time each was passed; second, unemployment and workers’ compensation benefits are governed by state law, not federal statutes, and there are dozens of different state law tests for IC status that would remain unchanged even if a single federal standard was enacted.

Regulatory Actions (1 matter)

NEW JERSEY DEPARTMENT OF LABOR FILES NOTICE OF PROPOSED REGULATION ADDRESSING STATUTORY “ABC TEST” FOR INDEPENDENT CONTRACTOR STATUS. In a news release on April 28, 2025, the New Jersey Department of Labor and Workforce Development (the Department) announced that it had filed a proposed regulation to be formally published in the New Jersey Register on May 5, 2025, that would set forth the Department’s interpretation of New Jersey’s ABC test for independent contractor status under various state laws: the New Jersey Unemployment Compensation Law, the New Jersey Wage and Hour Law, and the New Jersey Wage Payment law. In our blog post on April 30, 2025, we noted that the three-pronged ABC test in New Jersey sets a low bar for workers in that state to prevail in an IC misclassification case, but the proposed ‎regulation, if issued in its current form, would lower that bar even further.

Although some parts of the proposed new rule are consistent with current New Jersey law and ABC tests in other states, the proposed regulation pertaining to Prong A departs in a dramatic manner from virtually every other test for IC status under federal law and the laws in every state. As drafted, the proposed regulation regards “any control or direction over the performance of services, any control or direction that the putative employer has exercised, or has reserved the right to exercise, in order to be in compliance with a law or rule, shall be considered [a form of direction and control].” (Emphasis added) ‎Unless clarified in the final version of the regulation, this part of the rule would tilt the balance even further in ‎favor of employee status and against legitimate ICs. ‎In addition, the proposed regulation takes an extraordinarily expansive view of the B prong. It states that a hiring party’s “places of business” not only include “locations where the enterprise has a physical plant or conducts an integral part of its business,” but also include “locations outside of the putative employer’s physical plant” including locations of every one of its customers serviced by the contractor.

The new regulation is so hostile to IC relationships in the Garden State that it would likely ‎prompt companies utilizing ICs in New Jersey either to cease operating their businesses there or double down in their efforts to enhance their IC compliance by using a process such as IC Diagnostics (TM). At the same time, industry stakeholders, including ICs and trade ‎organizations, are likely to seek industry-by-industry exemptions (as occurred in California) ‎through legislative action or a voter initiative such as California’s Prop 22.‎ According to the Executive Director of Legal and Regulatory Services for the ‎Department, public comments to the proposed regulation may be filed ‎through July 4, 2025.