The US Labor Department is raising a procedural shield as part of its broad defense against a barrage of litigation over its new independent contractor rule, arguing that the challengers haven’t experienced an injury that would justify their legal attacks.
The Biden administration is fending off five lawsuits from business groups, trucking firms, and freelance writers in courts in New Mexico, Texas, Georgia, Tennessee, and Louisiana, all seeking to block the rule they say makes it harder for businesses to treat workers as contractors.
In response to four of them, the DOL has asked the court to dismiss the cases or rule quickly in their favor, arguing that the measure hasn’t resulted in—and won’t lead to—widespread reclassification of independent contractors to employees entitled to federal wage-and-hour rights.
The agency’s filings provide a window into the Biden administration’s defense strategy of one of its signature labor policy achievements. But it also underscores the anxiety caused by vacillating enforcement approaches between administrations within the regulated community.
Although DOL leaders have emphasized the standard won’t spark massive changes to workers’ status, freelancers and business groups say they don’t want to chance it. They fear that the rule is so broad it gives the agency a freewheeling tool to declare a worker has been misclassified in nearly every situation.
“In the absence of any objective standard or interpretation, the Plaintiffs and their clients are left playing a high stakes game of craps,” a group of Georgia-based freelance writers and editors argued in a July brief in their case against the rule. “They can choose to roll the dice and hope that the Department will exercise its ad hoc enforcement discretion in their favor.”
The agency’s response to another case brought by trucking firms in New Mexico district court is due in the coming weeks.
The regulation, which went into effect in March, updated the agency’s approach to determining whether a worker is an employee who is due minimum wage, overtime, and other protections under the Fair Labor Standards Act, or an independent contractor who is in business for themselves.
The rule also canceled a simplified a worker classification rule finalized by the Trump administration in 2021, that generally made it easier for businesses to treat their workers as independent contractors. Corporations like
Standing
Attorneys for the department contend the businesses and freelancers suing over the rule haven’t actually been harmed by the policy because they haven’t had to change their own status as contractors or the status of their workers. And any “speculative allegations” about a possible DOL enforcement action “at some indefinite time in the future,” isn’t enough to establish standing, they said.
“Plaintiffs lack individual and associational standing because their alleged injuries are purely hypothetical. Plaintiffs raise the specter of widespread reclassifications and business restructuring but fail to cite even a single instance where the 2024 Rule has caused this to occur,” the agency argued in their motion to dismiss a lawsuit brought by a coalition of business groups in Texas.
The DOL also said businesses and freelancers claims about uncertainty created by the rule ring “particularly hollow” given its independent contractor standard is based on years of case law and “merely reflects 70 years of precedent under which plaintiffs operated without alleged injury prior to 2021.”
While the freelancers filing suit in Georgia have argued that they have lost work because of the policy change, the agency contends that those actions were self-initiated based on “speculative fears” of the agency making a classification decision regarding those individuals.
But, in response to similar arguments made by the DOL in their case in Tennessee, another group of freelance writers pointed to the rulemaking itself for evidence of how the policy change affected them.
“Workers—such as the Freelancers—are plainly objects of a rule that changes the test for determining whether someone is an employee or an independent contractor,” the Tennessee-based freelancers wrote in their motion for summary judgment in the case. “Why else would the administrative record contain objections from several freelancers or pages analyzing the costs to independent contractors?”
Whether the standing issue will be a winning strategy for the DOL is yet to be seen.
“If the new rule weren’t aimed at effectuating a change, what was the point?” said Jane Jacobs, a partner at Tarter Krinsky & Drogin LLP in response to the DOL’s argument. “It’s disingenuous to say both that the new rule is important and that it doesn’t change much.”
Anthony Rainone, a co-chair of the labor and employment practice at Brach Eichler LLC, questioned how much of change the plaintiffs would have to make to their working arrangements following the implementation of the new rule. He noted that multiple states like California and New Jersey have enacted stricter worker classification standards that employers and freelancers have already had to comply with prior to the rule.
“I think it’s not a bad argument,” Rainone added of the DOL’s strategy, “The fact is if you’re a good employer operating in New York and New Jersey, that new DOL rule hasn’t changed your life. You were already subject to a more strict test that made it difficult to classify someone as an independent contractor to begin with.”
Interpreting the Law
The new independent contractor rule outlines a non-exhaustive, six-part test that looks at different factors of the working relationship, like investment and control over job conditions, to determine whether a worker should be classified as an employee or a contractor.
It differs from the 2021 Trump-era rule, which gave greater weight to how much control workers have over their job duties and their opportunities for profit or loss.
Businesses and some freelancers say the Trump rule was a clearer approach to worker classification than the new Biden rule. But, DOL leaders said the Trump standard left workers vulnerable to misclassification as independent contractors, depriving them of basic wage protections. The Trump rule also created a novel test for worker classification, the agency said in its rulemaking, one that “departed from decades of case law” and didn’t “comport” with the text of the FLSA.
Opponents of the rule change have levied various Administrative Procedure Act claims against the rule. But, there’s some through lines between arguments in the five cases.
At least three of the challenges contend the Trump rule was vacated on a “faulty” legal premise that the Trump standard didn’t follow the FLSA, because of its focus on two core factors.
New Mexico-based Colt and Joe Trucking argued in their Aug. 2 request for summary judgment that focusing on “more probative factors” as the Trump rule did, “is fully consistent with the Act—not to mention commonsense.”
Brett Coburn, a partner at the management-side firm Alston & Bird LLP said the DOL will likely face headwinds overcoming those challenges because of US courts’ skepticism towards agency actions they perceive to be “political flip-flopping,” as well as the US Supreme Court’s 2018 ruling in Encino Motorcars v. Navarro.
“There is a lot to be said for the argument that prior caselaw premised on the ‘remedial purpose’ of the FLSA can no longer serve as the basis for agency rulemaking, given the Supreme Court’s holding in Encino Motorcars that the remedial purpose of the FLSA cannot drive a court’s interpretation of the statute,” Coburn said. The Georgia freelancers, Colt & Joe Trucking, and the coalition of businesses in Texas have cited the Encino case as part of their argument.
Supporters of the rule counter that the Biden standard is based on an analysis developed by the courts themselves.
“It is a simple and necessary course correction that just restores multi-factor analysis developed by the Supreme Court and appellate courts for nearly a century,” said Sally Dworak-Fisher, senior legal counsel at the National Employment Law Project, which has submitted amicus briefs in support of the rule in some of the cases. “Businesses are or should have been well aware of the analysis, and to the extent they were compliant prior to the 2021 rule, they should be compliant under the current rule.”
All five of the cases are still being briefed and haven’t yet been scheduled for oral argument.
The cases are Colt & Joe Trucking LLC v. DOL, D.N.M., No. 24-00391; Coalition for Workforce Innovation v. Walsh, E.D. Tex., No. 21-00130; Littman v. DOL, M.D. Tenn., No. 24-00194; Warren v. DOL, N.D. Ga., No. 24-00007; and Frisard’s Transp. v. LABR, 5th Cir., No. 24-30223.
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