A large national trade group advocating for senior living and other long-term care providers is urging its members to “carefully evaluate their existing classifications” of workers following the Tuesday announcement of a new federal rule pertaining to independent contractors.
“The Department of Labor has put a strong emphasis on ensuring proper classification, and we can expect those efforts to continue,” LeadingAge Vice President of Legal Affairs Jonathan Lips told McKnight’s Senior Living on Tuesday. “Now that the final rule is released, we are carefully reviewing the content and its implications for providers and urge our members to carefully evaluate their existing classifications based on the new regulations.”
The rule comes as senior living providers continue to face workforce shortages and sometimes turn to staffing agencies for help.
Another association, Argentum, said that the rule “unfortunately” will result in many workers being unfairly classified as employees and “depriving them of their choice of the manner in which they wish to work.”
“The senior living industry lost hundreds of thousands of jobs during the pandemic, and while the situation is gradually improving, many communities are still struggling to recruit, hire and retain employees,” Argentum Senior Vice President of Public Policy Maggie Elehwany told McKnight’s Senior Living. “We are concerned that the rule, coupled with other proposed federal regulations, will only serve to exacerbate the workforce shortage and wipe out some of the recent modest gains communities have made in recruiting individuals to help care for our seniors.”
Additional experts are concerned that providers will face greater legal and financial burdens under the rule.
The US Department of Labor announced the final rule Tuesday morning, clarifying its interpretation of the Fair Labor Standards Act’s classification of workers as independent contractors. The final rule largely mirror’s the rule it proposed in October 2022, retaining the framework it laid out for determining independent contractor status versus employee status.
The new rule restores the multifactor analysis to determine independent contractor status, including any opportunity for profit or loss a worker might have; the financial nature of any resources a worker invested in the work; the degree of permanence of the work relationship; the degree of control and employer has over someone’s work; whether the work done is essential to the employer’s business; and a worker’s skill and initiative.
That “control” piece is something senior living and care providers will be reviewing carefully.
The DOL said that the new rule will provide “a consistent approach for businesses that engage with individuals who are in business for themselves” and ensure that “employers that comply with the law are not placed at a competitive disadvantage when competing against employers that misclassify employees.”
The US Chamber of Commerce, a national business advocacy organization, called the new regulation “harmful” and “clearly biased” toward labeling most independent contractors as employees, a move it said will “decrease flexibility and opportunity and result in lost earning opportunities for millions of Americans.”
“It threatens the flexibility of individuals to work when and how they want and could have significant negative impacts on our economy,” Chamber Vice President of Workplace Policy Marc Freedman said in a statement. “Making matters worse, the rule is completely unnecessary, as the department continues to report success in cracking down on bad actors that are misclassifying workers.”
Indeed, the Department of Labor frequently reports on employers who pay the price for misclassifying workers as independent contractors rather than employees. In September, for instance, the department reported that a Pittsburgh-based healthcare services provider for people living with dementia or disabilities misclassified two workers as independent contractors, resulting in a recovery of $98,620 in back wages by the federal government. And in 2022, an investigation into a Lansing, MI, adult foster care company’s practice of treating its residential healthcare workers as independent contractors cost it $94,000 in back wages.
In a blog post, law firm Fisher Phillips noted that the DOL’s test applies only to the FLSA and that many states apply their own tests to state-level wage and hour claims. Although some state laws protect the independent contractor relationships if certain criteria are met, other state laws make it more difficult to establish such relationships, the firm said.
Fisher Phillips added that under the new rule, “the risk of misclassification will skyrocket,” with more employers facing potential liability for not paying minimum wage and overtime premiums to their workers.
“The ramifications can be staggering — class-action lawsuits, large settlement demands, backpay, liquidated damages, interst, penalties and attorneys’ fees can all quickly add up,” the authors wrote.
Fisher Phillips suggested that businesses using independent contractors conduct internal audits to assess their risk level for misclassification, update policies and procedures, train managers and work with counsel to evaluate programs and minimize risks.
The new rule rescinds one issued during the final days of the Trump administration in January 2021. The Labor Department under the Biden administration had sought to delay the rule, and then withdrew it in May 2021, believing that it was inconsistent with the FLSA’s text and purpose. A district court, however, in March 2022 determined that the rule had taken effect on its original effective date and remained in effect.
In June 2022, the DOL announced plans to hold public forums to gather feedback on writing a new rule. A proposed rule was issued in October of that year, and the department said it received more than 55,000 comments on the proposal during the comment period and listening sessions.
The final rule will be published today in the Federal Register (see a PDF here) and will take effect March 11.
The Labor Department has published answers to frequently asked questions on its website.
For more coverage of the rule, see McKnight’s Long-Term Care News and McKnight’s Home Care.
