Is that driver an employee or an owner-operator? New complex rules from the U.S. Department of Labor (DOL) lay out a multi-factor framework for assessing whether a worker qualifies as an independent contractor.
The U.S. Department of Labor’s final regulations regarding driver classification raise the essential question: is the truck driver an employee or an owner-operator? The DOL’s latest rule details six factors to consider in this distinction, applying a multi-faceted approach to worker classification.
Published in the Federal Register on January 10, the DOL revised its Wage and Hour Division regulations concerning the definition of employee versus independent contractor status under the Fair Labor Standards Act (FLSA).
This new regulation establishes criteria on interpreting six economic reality factors to guide the assessment of worker status. The DOL adopted a “totality of the circumstances” methodology, emphasizing that no single factor should solely dictate classification, and that additional considerations may be taken into account.
The six assessed factors are:
- Opportunity for gain or loss based on managerial skill.
- Investments made by both the worker and the potential employer.
- The lasting nature of the work relationship.
- The level of control exerted by the employer.
- The degree to which the work performed is essential to the employer’s operations.
- Skill and entrepreneurial initiative.
“This rule does not seek to disrupt independent contractors who, economically speaking, operate their own businesses,” stated the DOL in its final guidelines.
Changing the Trump-Era Definition
The new rule rescinds a 2021 regulation established by the Trump administration, which was praised by the trucking industry but criticized for making it more difficult to prove employee misclassification. That earlier rule simplified definitions and identified two principal factors for classification.
Efforts by the Biden Administration to rescind the Trump-era regulations were stymied by a court ruling. Consequently, the DOL restarted the rule-making process, releasing a proposal in October 2022 that many in trucking viewed as making it harder for companies to prove owner-operators’ independent status.
Legal experts indicated that the final rule offers “incrementally” improved conditions over the proposed framework, yet remains ineffective for balancing industry concerns.
Additionally, attorneys noted a lack of clarity compared to the previous two-factor rule from 2021, emphasizing that companies will face uncertainty as they gauge which factors carry more weight in classification determinations.
No ABC Test Implemented
A somewhat favorable aspect is that the DOL did not enact a stringent “ABC test,” which requires meeting three specific criteria for independent contractor status. The Supreme Court has endorsed an economic reality test that focuses on the overall circumstances, rather than a strict ABC framework.
Scheduled Implementation Date
The new rule is set to take effect 60 days post-publication, or by March 11, 2023. However, business groups are anticipated to challenge the DOL’s authority legally.
Trucking Industry Concerns
Industry representatives, such as the Intermodal Association of North America, have expressed that these new rules could lead to the reclassification of over 80% of independent contractors in the intermodal segment. IANA President Joni Casey emphasized the long-standing preference for the independent contractor model among drivers.
Moreover, the American Trucking Associations are committed to opposing the new regulations, arguing that such changes threaten the freedoms of individuals choosing their working conditions. ATA President Chris Spear criticized the complexities the new rules introduce, branding them detrimental to both the industry and the livelihood of truckers.
‘Confusing and Conflicting System’
The Transportation Intermediaries Association cautioned that reclassifying independent contractors threatens the integrity of the supply chain and the economy. Concerns about regulatory instability were echoed by the Owner-Operator Independent Drivers Association, which is apprehensive that these rules may overlook the specifics of the trucking industry.
While expressing support for the DOL’s aim to maintain traditional classification practices, OOIDA President Todd Spencer acknowledged their reservation regarding potential negative implications for independent contractors.
Examining the Six Factors in Detail
1. Opportunity for Profit or Loss
This examines whether a worker can influence their economic success through managerial skill, including negotiation of pay rates and job acceptance.
2. Worker and Employer Investments
This considers whether the worker’s investments are entrepreneurial, which supports their independence.
3. Work Relationship Permanence
A continuous work arrangement leans toward employee classification, whereas a project-based relationship suggests independence.
4. Control
Employer control over the worker’s activities significantly impacts classification, including compliance-related oversight not indicative of direct control.
5. Integral Role
If a worker’s services are vital to the employer’s business, it weighs towards employee status, but it’s assessed using an overall context.
6. Skill and Initiative
The focus on specialized skills, especially in trucking, distinguishes independent contractors who show business-like initiative.
