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Admitted in California & Texas

HOLY MOLY the Department of Labor “gets” independent contractor issues!!!

Clue: It's not California's AB-5

As anyone who has spoken with me about independent contractor issues since the advent of California's AB-5 knows, AB-5 is just about the worst piece of legislation I've seen in my 43 years of law practice.

I started to handle independent contractor - employee cases about 35 years ago, and for a while they were a significant part of my practice. I wrote the original California Education of the Bar book on the subject. I'm pretty knowledgeable.

I stopped handling those cases about 8 years ago because I felt the whole process was so weighted against anyone being an independent contractor in California that I couldn't in good conscious take clients' money in many cases.

But when I say AB-5 is terrible legislation it is not merely its anti-business bias. My argument with AB-5 has to do with how poorly and illogically it's written. And mostly the fact that it literally legislates that citizens are instructed to go read case law. That's not supposed to be how it's done.

So I wasn't too excited to learn the US Department of Labor was jumping on the "let's pass legislation about independent contractors" bandwagon. Other states have implemented or sought to implement AB-5 imitation legislation and honestly I feared for the worst.

But low and behold, the proposed legislation is well thought out, clear (as a fact based issue can be), and well written.

The DOL has done an amazing job of analyzing the history of independent contractor issues and of various cases from Federal and State courts. It also analyzes alternative legislation and why they have rejected those models. The DOL also examined the economic impact of the legislation, as they should do. One sentence in the 40 pages of the proposal stood out to me:

The Department believes income security
is best achieved by removing barriers that prevent
laid-off Americans from finding paid work,
including as independent contractors. See 151
Ph.D. Economists and Political Scientists in
California, ‘‘Open Letter to Suspend California AB–
5’’ (April 14, 2020). This lesson may be all the
greater in light of the COVID–19 emergency.

Economic Realities

The DOL has chosen to legislate what's called the Economic Realities test. This is a happily accurate label. This test looks at the financial and economic real facts of independent contractor status.

The ultimate inquiry is whether, as a
matter of economic reality, the worker is
dependent on a particular individual,
business, or organization for work (and
is thus an employee) or is in business
for him- or herself (and is thus an
independent contractor).

BINGO

The proposed legislation lays out the test as involving 5 factors, but because the economic reality is that status is a very fact specific question, the DOL states:

These factors are not exhaustive, and no
single factor is dispositive. However, the
two core factors listed in paragraph
(d)(1) of this section are the most
probative as to whether or not an
individual is an economically
dependent ‘‘employee,’’

There are 5 factors in the Economic Reality test, the first two (referred to as core factors) of which are "more probative." The factors are:

1. The nature and degree of the individual's control over the work.
2. The individual's opportunity for profit or loss

NY Note: Can you think of anything that comes closer to saying "I'm in business" than that? I can't.

The three other factors are:

3. The amount of skill required for the work.
4. The degree of permanence of the working relationship between the individual and the potential employer.
5. Whether the work is part of an integrated production

The proposed legislation explains the 5 factors, but unlike AB-5 doesn't try to legislate questions of fact which are and should remain unlegislated.

AB-5 tries to legislate specific and individual situations, and in doing so it creates more confusion than the simple Economic Realities test.

I urge any state that isn't already on the unmanageable AB-5 Bandwagon follow the DOL model. While states have the right to legislate more protective labor laws than the Feds, uncertainty and confusion doesn't help anyone, even employees.

The greatest protection for employees is a strong economy. This DOL seems to get that. Bravo.