Labor Department Escalates the War against Independent Contractors Thinkstock

Labor Department Escalates the War against Independent Contractors

What's the difference between an employee and an independent contractor? Not much anymore.

The war against independent contractors has intensified in recent months, culminating in one top federal official's demand for unconditional surrender.

Just how serious this issue is for the nation's unions was underscored by Hillary Clinton's July 13 speech attacking what she termed "the gig economy." Around the same time Senators Bob Casey (D-PA) and Al Franken (D-MN) re-introduced legislation to outlaw what they and their union allies see as the wholesale misclassification of employees as independent contractors.

Clinton's comments quickly faded from view and the Casey-Franken bill won't go anywhere in a Republican-controlled Congress. But much more important news surfaced on July 15 when David Weil, head of the Wage and Hour Division of the U.S. Department of Labor, issued in a blog posting his "interpretation" of independent contractor law, declaring that from now on he and DOL enforcement personnel will assume that under federal law "most workers are employees."

By issuing his "interpretation" of existing regulations instead of proposing a new rule or policy, Weil sidestepped legal requirements for a public comment period and mandating that his agency perform a small business impact assessment. However, it allowed him to lay out a detailed view of how independent contractors are defined for government regulators and tort lawyers to follow.

Legal observers hold two conflicting views of Weil's lengthy written interpretation. Some find nothing new in it and predict its impact will be limited. Others believe it will create devastating consequences now that private attorneys and government regulators can happily cite in court Weil's extensively detailed and thoroughly one-sided view of legal history.

"The interpretation ignores decades of legal precedent concerning the classification of employees and independent contractors in a way that will now challenge many legitimate independent contractor relationships," declare attorneys Christopher Parlo and Michael Puma of Morgan Lewis & Bockius LLP. "At a minimum, the interpretation will give the plaintiffs' bar dozens of sound bites that will now be littered throughout their briefs seeking to defeat independent contractor status. And DOL investigators will now be guided by this flawed take on the Fair Labor Standards Act."

Since I last wrote on this topic ("Attacks on Independent Contractors Worsen the Driver Shortage," MH&L, May 2015), the campaign against independent contractors intensified on other fronts as well. In July the Seventh Circuit Court of Appeals upheld a Kansas Supreme Court ruling that FedEx Ground drivers were not independent contractors under Kansas law. Last year the Ninth Circuit Appeals Court said FedEx Ground delivery drivers were not independent contractors under California and Oregon laws in a suit FedEx subsequently settled for $228 million.

FedEx hoped that Ninth Circuit definition would remain confined to the West Coast states under that court's jurisdiction, but the Seventh Circuit breached that geographic barrier. Worse for FedEx, the decision not only defines single-route drivers as employees, but also drivers operating in multiple service areas. Several years ago FedEx sought to bolster its drivers' identity as independent contractors by creating a new business model that allowed them to choose single or multiple routes, which they would hire other drivers to service.

States also are stepping up reclassification of contractors as employees, and not just in California where Uber is under attack. Idaho and Alaska recently signed agreements to work with DOL on this issue, becoming the 23rd and 24th states to do so. The Teamsters union also expanded its attack on port drayage drivers' independent contractor status from the West Coast to East Coast ports.

We will keep you informed of further news from this front and when the situation become a bit less fluid offer advice on how not to become a misclassification target. In the meantime, you should consult with an attorney experienced in the laws governing this issue. 

David Sparkman is founding editor of ACWI Advance (www.acwi.org), the newsletter of the American Chain of Warehouses Inc., as well as a member of the MH&L Editorial Advisory Board.

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