December 12, 2022
Comments on Department of Labor Wage and Hour Division Notice of Proposed Rulemaking: Employee or Independent Contractor
Classification Under the Fair Labor Standards Act; 87 Fed. Reg. 62,218; RIN
Ms. Jessica Looman
Principal Deputy Administrator
Wage and Hour Division
U.S. Department of Labor
200 Constitution Avenue, N.W.
Washington, DC 20210
National Taxpayers Union (NTU), the nation’s oldest taxpayer advocacy organization, appreciates the opportunity to provide comments on the recent proposed rulemaking on a new independent contractor standard from the U.S. Department of Labor (DOL).
The Fair Labor Standards Act of 1938 (FLSA) sets the framework for employment in the United States, including recordkeeping, overtime, minimum wage, and defines many key terms, such as employee and employer. The distinction between employees and independent contractors has been a subject of legal interpretation over the decades since the FLSA’s enactment.
Over time, the U.S. Supreme Court and DOL defined a multifactor test that seeks to determine as a matter of economic reality if the worker is dependent on an entity for work as an employee or whether they are in business for themselves as an independent contractor.
In 2021, DOL sought to create a clearer and more definitive independent contractor test through a rulemaking. This rule made clear which factors compose the economic reality test, weighted actual practices more heavily than theoretical, and weighted two factors more heavily. Those factors were the nature and degree of the worker’s control over the work and the worker’s opportunity for profit or loss.1 This standard gave businesses and independent contractors a much clearer regulatory framework which alleviated legal uncertainty.
Within less than two years, the current DOL now seeks to overturn this rule and inject further uncertainty into business relationships nationwide. The change seeks to roll back the improvements the 2021 rule implemented by returning to murky and undefined weighting with little clarity for businesses.
Independent contractors can include freelancers on Uber, Lyft, TaskRabbit, Rover, or any number of other useful applications that workers utilize to make extra money. It can also include graphic designers, software engineers, or consultants. National economic estimates for freelancers vary but likely total around $1 trillion in annual earnings.2 Freelancers also report higher job satisfaction than non-freelancers.3 Injecting uncertainty through a new rule should be avoided by the current DOL or it could destabilize a growing field that provides workers modern flexibility for their financial and personal lives.
Furthermore, DOL should avoid going down the same path of California AB-5, which sought to classify many independent contractors as employees. This approach included numerous carve outs and resulted in significant public opposition, culminating in a successful ballot initiative to further carve out some app-based contracting from the statute.4
The so-called “ABC” test used in California is as follows:
The person is independent of the hiring organization in connection with the performance of the work, both under the contract for the performance of the work and in fact.
The person performs work that is outside the hiring entity’s business.
The person is routinely doing work in an independently established trade, occupation, or business that is the same as the work being requested and performed.5
With the door open for exceptions, this type of rule creates uncertainty and political winners and losers based on poor policy development.
A national roll out of an AB-5-style “ABC” test would be disastrous for small businesses and freelancers using app marketplaces, and would likely be subject to Supreme Court review.6
NTU urges DOL to halt this new rulemaking, which is a poor use of taxpayer funds and reduces the certainty for millions of freelancers and small businesses nationwide. Returning to the 2021 rule will retain a clear regulatory standard for independent contractors to rely on and guide their business decisions. If DOL does proceed with this rulemaking, then it should remain cognizant of the immense economic and legal risks associated with any potential implementation of the failed and controversial AB-5 model.
Thank you for your consideration of these comments. Please do not hesitate to reach out should you have any questions or if there is any way NTU can be of service.
Policy and Government Affairs Manager