As we reported here on the day the U.S. Department of Labor issued a proposed regulation regarding the classification status of independent contractors, the regulation, once finalized, would be “much ado about (almost) nothing.”  We observed that unlike regulations with hard and fast rules, the proposed regulation was in the nature of an administrative interpretation comprising the Labor Department’s review of existing court decisions and its articulation of a preferred legal analysis. We predicted that, when released in final form (which occurred today), courts would not give much if any deference to this agency regulation on the classification of independent contractors under the federal wage and hour law.

December was a very slow month for court decisions affecting independent contractors, but both decisions reported below confirm that effectively drafted arbitration clauses remain one of two “best friends” for businesses that engage independent contractors. On the very day the U.S. Supreme Court issued its decision in New Prime Inc. v. Oliveira in January 2019, we predicted here that, despite some commentators’ exuberance and others’ despair, the decision “may have little or no impact as to whether workers classified as independent contractors can be compelled to arbitrate their IC misclassification claims.”  In New Prime, the Supreme Court held that a court, not an arbitrator, should decide if an IC is covered by the Federal Arbitration Act’s arbitration exclusion for workers engaged in interstate transportation. We commented that the FAA is not the only basis upon which companies can seek to compel arbitration; most state arbitration laws, which typically do not have exclusions for interstate transportation workers, also may provide an alternative basis to compel arbitration of IC misclassification class action claims. That is exactly what transpired in one of the two IC arbitration cases we discuss below.

November 2020 was a superb month for ride-sharing and app-based delivery companies and for President-Elect Biden, but was far less favorable to professional sports leagues, interpreting and translation companies, oilfield businesses, and the trucking industry. We comment below on the success enjoyed in a California voter referendum for selected gig economy industries and the Biden Plan for addressing independent contractor misclassification. But unfavorable class action litigation experiences in other industries, including high-profile cases involving the NFL and the trucking industry, send a message to businesses using independent contractors that they need to enhance considerably compliance with federal and state independent contractor laws. 

In October, a diverse group of industries experienced adverse court rulings defending independent contractor classification class and collective action cases.  Two cases involved courts granting conditional certification of collective status: one involves Texas oil field workers; the other concerns Illinois cable technicians.  Both industries have been targeted by multiple IC misclassification class actions, as reported on a number of occasions in this blog. Shipt, the personal shopping service, was subjected to a new IC misclassification lawsuit, also in Illinois, which uses a test for independent contractor status that is very unfavorable to companies with an independent contractor business model. A pet sitting company in Missouri also fared poorly when an appellate court affirmed an administrative decision finding the pet sitters with whom it contracts are employees and not independent contractors.  A shipping company suffered the worst news last month for companies relying on the use of independent contractors when it lost its effort to bypass an administrative decision assessing it $1.8 million in unemployment tax liabilities for drivers found to be misclassified as independent contractors.

The results are in. Voters in California don’t want their rideshare and app-based delivery services to change.  By an overwhelming majority, Proposition 22 was approved by California voters.  Essentially, that means that unlike all other businesses in California that have to meet the strict Dynamex ABC test or, if they are exempted from this test, the more rational multi-factor Borello test, companies in these gig economy industries now have a safe harbor, so long as they provide the benefits set forth in Prop 22 to their independent drivers and couriers.

Last month presented a clash between the enactment of a new version of the most restrictive ‎state law test in the nation for independent contractor status and the issuance of a proposed ‎federal regulation that would create one of the more lenient legal standards for IC status. The ‎state law, California Assembly Bill 2257 (AB2257) which Governor Newsom signed into law on ‎September 4, 2020, replaced Assembly Bill 5 (AB5), which had codified California’s version of ‎the so-called ABC test. Many commentators regard this ABC test, which changed decades of ‎settled law, as the death-knell for the overwhelming number of California independent contractor ‎relationships that were structured in a lawful manner, causing many freelancers to lose their work ‎opportunities with both gig economy and traditional businesses. Meanwhile, the U.S. Labor ‎Department issued a proposed regulation establishing a test for IC status under the Fair Labor ‎Standards Act that essentially preserves the legitimate nature of many independent contractor ‎relationships but did so in a manner that may insulate more businesses from misclassification ‎liabilitys. ‎

Earlier today, the U.S. Labor Department issued a proposed regulation addressing the ‎classification criteria of workers as independent contractors or employees under the Fair Labor ‎Standards Act (FLSA). Unlike regulations with hard and fast rules, this proposed regulation is in ‎the nature of an administrative interpretation articulating the Labor Department’s view of the ‎law. It analyzes decades of court decisions and seeks to issue a uniform interpretation of those ‎cases for the courts to apply in the future. Yet at the same time, the proposed regulation includes ‎a 90-page preamble that acknowledges that the courts have, with few exceptions, uniformly ‎applied the test for independent contractor status under the FLSA. The proposed rule, therefore, ‎if issued in final form, would provide little guidance to the public or the courts. But it will shine ‎a brighter light on the issue of independent contractor misclassification. Companies would be ‎wise to enhance their independent contractor compliance, such as in the manner noted in the ‎‎“Takeaway” below.