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Reactions mixed on new labor rule

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The U.S. Department of Labor finalized and issued a new rule earlier this month that impacts how businesses classify independent contractors.

The rule intends to provide guidance on proper classification and seeks to combat employee misclassification, which the Labor Department said impacts workers’ rights to minimum wage and overtime pay, facilitates wage theft and allows some employers to undercut competition.

Most federal and state labor laws apply only to a company’s employees. However, the rule announced Jan. 9 will require that workers be considered employees rather than contractors when they are “economically dependent on the employer for work.”

It replaces a regulation by former President Donald Trump’s administration that had made it easier to classify workers as independent contractors. The new rule requires that a business classify an individual as an employee after taking into consideration six factors, including the worker’s opportunity for profit or loss, the financial stake and nature of any resources they invested in the work, and the degree of permanence of the work relationship.

Local reaction to the new rule is mixed, as some industry officials believe it will have little to no impact on their day-to-day business. However, Mark Walker, president and CEO of Strafford-based trucking company TransLand, said the rule doesn’t make sense to him.

“I get what they’re trying to do, but unfortunately it lumps every independent contractor into the same six-test formula,” he said. “It’s bad for our supply chain and it really undermines the livelihoods of thousands of truckers.”

Walker said TransLand employs roughly 50 independent contractors, adding the company’s total workforce, including administration and other office staff, is 250.

The response from Washington, D.C.-based trade association American Trucking Associations made it clear it intends to fight the rule, which is set to take effect March 11.

“I can think of nothing more un-American than for the government to extinguish the freedom of individuals to choose work arrangements that suit their needs and fulfill their ambitions,” ATA President and CEO Chris Spear said in a statement. “More than 350,000 truckers choose to work as independent contractors because of the economic opportunity it creates and the flexibility it provides.

“ATA will work with members of Congress and other stakeholders to defeat this ill-advised rule.”

A small group of freelance writers and editors became the first to file a lawsuit against the DOL, claiming the Biden administration’s new rule is illegal and should be struck down.

The four freelance workers filed the lawsuit in Georgia federal court on Jan. 16, according to media reports.

Additionally, a business coalition, including construction trade group Associated Builders and Contractors, said in a court filing that it also planned to challenge the new rule. The plaintiffs seek to revive their previously stayed 2022 case against the DOL and have asked an appeals court to send it back to the U.S. District Court for the Eastern District of Texas, according to court documents.

A fact sheet detailing regulations on how to determine if a worker is an employee or independent contractor under the Fair Labor Standards Act is available at DOL.com.

Impact interpretation
Sean Thouvenot, vice president of Branco Enterprises Inc., said he interprets the rule as adding additional factors to the 2021 Trump administration rule. While his company doesn’t have independent contractors on staff, he said the new rule could impact trade subcontractors. 

“For instance, you have a flooring shop that hires the same person over and over and over again to do all their installs,” he said. “(The Labor Department) is going to look at that. They’re going to be like, ‘OK, well this is a regular occurrence. This person should be an employee of your company.’”

Thouvenot said it’s mostly an issue for subcontractors. 

“I mean, there’s a few of the construction manager and broker-type contractors that will do that with their office staff. But we don’t do that,” he said. “That’s a recipe for getting yourself in trouble. They’ll call them a consultant or whatever, but I think this rule’s going to stop all that business.”

Thouvenot said he expects the rule will require more paperwork for his company to check if any of the employees used by subcontractors instead are deemed independent contractors.

“We’re going to have to get all their paperwork instead of just getting it from the subcontractor,” he said. “We’re going to have to get insurance, prevailing wage reports, lien waivers.”

CoxHealth officials anticipate the new rule will have no impact on its operations. Eric Maxwell, administrative director of total rewards for the health system, said less than 50 people are considered independent contractors of its roughly 13,500-employee workforce.

“Our current contractor classification engagement practices align with the upcoming regulations, and we do not anticipate any changes in our operations as a result,” he said. “We don’t use a lot of independent contractors, so that’s where we evaluated what we had out there, and they all fall in line with the new guidelines with this ruling.”

Still, Maxwell said he expects some health care providers will be impacted.

“The health care industry, typically certain health care facilities, will hire independent contractors for nurses, therapists, home health aides, different type of occupations that this ruling could directly impact,” he said.

Springfield website design and digital marketing company Mostly Serious LLC has a small staff of 18 full-time employees, but CEO Jarad Johnson said it also is currently working with two independent contractors.

“We utilize contractors on select projects, typically to accelerate timelines to meet our client’s needs,” he said via email.

He called the new rule “nuanced,” noting it likely includes positive and negative aspects for employees and employers.

“While we are evaluating the full impact of this new rule on our business operations, we generally support policies that protect workers’ rights, both full-time and contractors,” he said.

Greggory Groves, managing member and a labor attorney for Lowther Johnson Attorneys at Law LLC, said he doesn’t believe there will be a lot of noise in the courts regarding the rule.

“We see from time to time employers who try to categorize people as independent contractors versus employees,” he said. “But we saw that before this change in 2021, and that’s why I don’t think it’ll have much of an impact. Most employers look at the totality of the circumstances anyway.”

Wait and see
Thouvenot believes the rule, which also is opposed by the U.S. Chamber of Commerce, will go into effect in March as planned. Still, he’s taking a wait-and-see approach to its enforcement.

“This is one of those kind of just waiting things and see how they’re policing it, because really there’s no guidance on how they’re going to police this, so that’s going to be a problem,” he said. “Basically, we just have to make sure that we have all the paperwork to prove the case – if we do have somebody that’s using an independent contractor, that they are an independent contractor and we have their information.”

While legal action is in motion opposing the new rule, Walker said it’s business as usual at TransLand. He’s confident his company is meeting the test for properly categorizing its workers.

“We are very diligent, and we want to make sure we’re compliant. When an independent contractor comes to us, they make their choices, we don’t make them for them,” he said. “They’re responsible for their own profit and loss. They are doing work that is integral to what we need and have the right skills for it. They own their own equipment. We’re not putting them in a TransLand-owned truck and trying to call them an independent contractor.”

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