The U.S. Department of Labor (DOL) recently reversed a Trump administration rule so that it is now more difficult for companies to avoid fairly compensating workers under federal wage and hour law or the Fair Labor Standards Act (FLSA). The Trump administration’s rule made it easier for companies to incorrectly label or misclassify workers as independent contractors, which allowed companies to avoid paying workers minimum and overtime wages of the FLSA.
To determine if someone is a bona fide employee or an independent contractor, the DOL will now consider all factors relevant to the work of the individual, rather than focusing on specific factors and ignoring others. This will, in many more instances, likely result in the DOL concluding that an individual is an employee if the company sets the individual’s schedule, provides the individual with equipment, tools, or materials, and assigns work to the individual that is an essential part of the company’s business.
Under the Trump rule, the DOL only emphasized factors related to the control that the individual had over how they performed their work, the individual’s opportunity to earn more money or the potential risk to lose money depending on the worker’s overall performance. Critics of the Trump rule argued that emphasizing those specific factors favored companies because it allowed them to slightly alter the terms of employment for workers so that the companies could misclassify them as independent contractors.
Even though Biden’s rule will help many workers push back against companies trying to misclassify them as independent contractors, worker advocates are fighting for even greater improvements to this area of the law. The factors discussed above all come from “the economic reality test,” which is a guide the courts have provided for how to classify employees and independent contractors. Recently, worker advocates have pushed city councils and state legislatures to pass laws that replace the economic reality test with a new test that focuses on fewer factors and would make it more difficult for companies to misclassify workers as independent contractors. This new test, known as the “ABC test,” gets its name from the three factors that make up the test, where, according to the test, a worker is automatically considered a bona fide employee unless the company can prove all three of the following:
(A) The company does not control or direct how a worker performs their duties.
(B) The worker performs duties outside of the usual course of the company’s business.
(C) The worker has their own independent business or trade doing that kind of work.
Why the new Biden DOL rule is important: The UFCW should support allies and local governments in their efforts to combat worker misclassification because it can help our union demand better wages for our members. When companies start properly classifying and paying workers minimum wage and overtime, the average wages in that geographic area increase. Therefore, those wage increases in the area will let our union demand even higher wages at the bargaining table.
Any questions about the Biden DOL’s position on independent contractors should be addressed to George Wiszynski at gwiszynski@ufcw.org or Viraj Patel at vpatel@ufcw.org.