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DOL Independent Contractor Rule Would Permit Companies to Exclude More Workers from Minimum Wage and Overtime

In support of the excellent work being done to protect the rights of America’s workers by the National Employment Law Project, we are sharing the following statement from NELP:

In solidarity with workers nationwide, the National Employment Law Project today filed extensive comments against a proposed rule issued only a month ago by the U.S. Department of Labor that interprets federal wage and hour laws in a way that makes it easier for corporations to cheat their workers and avoid minimum wage and overtime protections.

“The Labor Department’s anti-worker proposal would dramatically and improperly narrow worker protections under the Fair Labor Standards Act, giving employers and corporations far more leeway in classifying workers as independent contractors,” said Rebecca Dixon, NELP’s executive director. “This would allow them to pay subminimum wages, hire child labor, and avoid overtime pay. This is yet another example of the Trump administration’s relentless push to stack the deck against workers at every turn.”

“Just like the recently invalidated joint employer interpretive regulation, this proposed rule ignores the clear language of the Fair Labor Standards Act and decades of court rulings, including by the U.S. Supreme Court.”

NELP’s comments make six primary points in urging the Labor Department to withdraw the rule:

  1. Whether a worker is an “employee” covered by the FLSA or an “independent contractor” without protections is a key consideration for millions of workers and businesses. It is especially important in today’s economy, with its high unemployment and misclassification abuses.
  2. USDOL’s proposed interpretation is contrary to the FLSA because it ignores the statutory terms “suffer” and “permit,” which take the scope of employee coverage well beyond the proposed test. 29 U.S.C. §203(g).
  3. The proposed rule improperly collapses well-established Supreme Court and Circuit Court tests for independent contractor versus employee coverage, elevating two narrow “core” factors while ignoring others.
  4. The FLSA’s coverage is not determined by common-law employment relationships, and this proposed interpretation is narrower than even the common law.
  5. Independent contractor labels imposed by employers are pervasive in low-wage jobs, and the USDOL’s proposed test would leave behind workers in high-growth sectors with high rates of wage theft, contrary to the purposes of the FLSA.
  6. The proposed interpretation will negatively impact public coffers and businesses that will not be able to compete unless they too call their workers “independent contractors.”

“Companies must be accountable for how they treat their workers—no matter what the company calls the workers or how it classifies them. Companies that require their workers who are not running their own businesses to operate as ‘independent contractors’ in order to get a job should not get a free pass on illegally misclassifying workers,” said Dixon.

“This action hurts the very workers who have been organizing on the frontlines for better wages and more protections, including construction laborers, janitors, home care workers, and those called essential workers during the COVID-19 pandemic, who clean homes, care for children and elderly individuals, and deliver groceries. Workers of color must not be left to earn subminimum wages and work more than 40 hours per week without getting any overtime pay. We join them in fighting this harmful proposal, which affects them the most due to compounding systemic racism and occupational segregation into the lowest-paid jobs,” added Dixon.

“This action also hurts small businesses. Large corporations that misclassify their workers can underbid their competitors, creating a race to the bottom where jobs don’t pay and companies skirt payroll and unemployment insurance taxes that workers and public coffers rely on,” said Dixon.

“Once again, the Trump Administration has given a gift to corporations that can simply hand an independent contractor agreement to any worker seeking a job, and then walk away from minimum wage, overtime, and child labor violations, leaving smaller businesses on the hook, and too often leaving employees empty-handed with no protections. NELP calls on the Department of Labor to withdraw this misguided proposal.”

In addition to NELP, a comment letter echoing many of the same concerns about making it easier for employers to classify workers as independent contractors has been submitted by the attorneys general of California, Colorado, Connecticut, Delaware, the District of Columbia, Hawaii, Iowa, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and Wisconsin, as well as the cities of Philadelphia and Pittsburgh, Pa., the Office of Labor Standards for the City of Chicago and the New York City Department of Consumer and Worker Protection.

“Implementing a rule that strips protections from workers is particularly unconscionable during the COVID-19 crisis,” “Employees rely on proper classification to protect their pay requirements and benefits. I urge the federal government to withdraw this proposed rule to give workers some peace of mind during this already uncertain time.” Attorney General Kwame Raoul

The coalition of AG’s point out that the rule would only accelerate the trend of employers misclassifying workers as independent contractors and that the DOL has not attempted to determine the impact of the proposed change, including how many workers will be reclassified or misclassified as independent contractors, or how much money will transfer from workers to employers as a result of the rule.  The coalition asserts that the changes would:

  • Expose workers reclassified or misclassified as independent contractors to tax liability.
  • Leave workers without recourse, as many protections rely on workers being classified as employees, especially unemployment and workers’ compensation.
  • Increase out-of-pocket costs for workers reclassified or misclassified, including unemployment insurance, workers’ compensation, and health care coverage.
  • Remove federal minimum wage and overtime pay requirements for workers, since independent contractors do not qualify for FLSA protections.
  • Create confusion about whether state labor standards laws continue to apply to such workers.