As long-term care and other employers prepare to implement the Department of Labor’s independent contractor rule March 11, “the impact of this is likely to be limited” for employers, according to one legal expert.
The independent contractor final rule uses a multifactored balancing test to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.
“With the Department of Labor, there’s always a balancing test that helps to determine whether somebody is an employer or an independent contractor. And there’s different tests under different rules,” Baker & Hostetler partner Todd Lebowitz told the McKnight’s Business Daily, “but this particular rule … addresses the Fair Labor Standards Act, the federal law relating to minimum wage and overtime.”
Unpredictability exists
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.
The rule’s balancing test, Lebowitz continued, has “no precise mathematical formula. There’s always a lot of unpredictability any time you have a balancing test.”
If some, but not all, of the factors of the test are met, he said, then a court or agency could conclude that an employer-employee relationship exists pertaining to a worker.
The Trump-era rule, which this rule rescinds, “was more an effort to narrow the focus to just a couple of factors that in reality are really the factors that tend to drive most of the results anyway. So that was an effort to simplify the analysis and make it more predictable,” Lebowitz said. “And this proposed rule would make it less predictable again.”
‘Devil’s in the details’
He said that “the devil’s in the details as to how the department will interpret each of the factors,” adding that the new standard essentially “puts its thumb on the scales,” leading to findings in favor of someone being considered an employee in scenarios that typically might either be neutral or lean in favor of someone being deemed a contractor.
But the rule will not affect long-term care providers’ use of agency staff as long as an agency already regards the worker as its employee, Lebowitz said.
“This rule will come into play only if nobody is treating the worker as an employee and the worker is just being treated as a self-employed individual,” the attorney said. “And then the question becomes whether that person we thought was self-employed actually, for minimum wage and overtime purposes, should have been treated as the employee of the business that’s receiving the services.”
No significant effect on employers
The attorney, however, said he doesn’t believe that the independent contractor rule will have a significant effect on employers.
“That’s because this rule is really just how the Department of Labor is going to interpret its own test. And so that will apply in DOL audits and DOL investigations, but I don’t have a lot of confidence that the courts are going to apply this standard, because the courts for decades have applied their own test for who is an employee under the [FLSA], and they don’t need the Department of Labor to tell them what the test is,” Lebowitz said.
“I think we can look back at the Trump rule, and you did not see courts adopting that as a new test. So I don’t see any reason that courts would adopt this as a new test,” he added.
Additionally, he said, the scope of the rule applies only to the FLSA.
“It does not apply to determining who’s an employee under federal tax law or federal benefits law or federal discrimination law or any state law,” Lebowitz said. “We need to remember that the impact of this is likely to be limited.”
‘Significant threat’ to older workers
Two Republican members of the Senate Special Committee on Aging previously told the DOL that the rule could pose a “significant threat” to older working Americans’ income, security and peace of mind.
“Independent work helps older adults seeking more flexible hours, supplemented income or retirement savings, opportunities to attend to caregiving responsibilities, and the social and health benefits of continuing to work and remain active in communities,” Sen. Mike Braun (R-IN), the committee’s ranking member, and Sen. Rick Scott (R-FL), a member, wrote in a January letter. “While older Americans should not be forced to ‘un-retire’ because of financial difficulties, inflation has pushed many back into the labor market, and the rule will choke off the gig economy’s critical safety valve for these older workers.”
Other Republicans in Congress, among them the ranking member of the Senate Health, Education, Labor and Pensions Committee as well as the House Committee on Small Business, also have expressed concerns about the rule.
Senior living and other long-term care providers have been advised to “carefully evaluate their existing classifications” of workers.
