A proposal issued by the Department of Labor in late September would provide motor carriers with long-sought clarity on how to properly classify company employees vs. independent contractors, at least under the federal Fair Labor Standards Act, whose gray areas often are used as a sword against fleets in lawsuits alleging driver misclassification.
A considerable drawback, though, is that the DOL’s new test for determining a worker’s status would have little impact on state-level labor laws — with which fleets will still need to comply even after the Labor Department finalizes its definition.
So while a fleet’s independent contractor set-up might be fine within FLSA under this updated definition from the Labor Department, state laws could be more restrictive in their definitions of an independent contractor, such as California’s A.B. 5 law, the nation’s most restrictive worker status law that in large part bans the use of independent contractors. (Motor carriers are operating under a court-issued exemption of that California law until a lawsuit against it unfolds.)
The proposed DOL criteria would “create consistency for FLSA, which is good for the industry,” said Elena Adang, an attorney at the nationwide transportation-focused law firm Taylor & Associates. “But the area remains complex as states have the ability to make these laws broader and to provide more protection for employees under wage and hour law.”
Carriers should pay attention to what the labor laws are in the state where their drivers are domiciled. “A driver or a set of drivers could bring a claim under either FLSA or under state law. It’s important to know both,” Adang said.
Nonetheless, DOL’s definition is meant to provide guidance where none has existed within the FLSA for employers and for courts in determining whether a worker is misclassified under the Fair Labor Standards Act.
The notice of proposed rulemaking, available for public comment here until Oct. 26, sets a five-point test for determining whether a worker should be classified as an employee or whether they can be classified as an independent contractor.
The so-called economic realities test weighs two points most heavily: (1) an employer’s ability to exert control over their contractors, such as, in the case of trucking, a motor carrier dictating loads, schedules, routes, etc., to an independent contractor and (2) the contractor’s opportunity for profit and loss.
If both of those points weigh toward contractor status, the worker can be classified as an independent contractor under the DOL’s proposed definition. If those points are split or are still unclear, courts and employers are then instructed to consider the other three factors — skills required, permanence of the working relationship and whether the worker is part of an integrated unit of the company’s production.
In short, “the test considers whether workers are in business for themself or are economically dependent on another enterprise,” said Brent Hockaday, an attorney at from Bell Nunnally & Martin, a Dallas-based firm. “Courts like to defer to the Department of Labor,” in making these types of determinations, he said.
“For carriers, you can feel like you have the best written contract in the world, and both parties [intend] to be in a contractor relationship — but it could be interpreted differently by the courts. They could be employee despite having contract.” DOL’s definition would help mitigate that, he said, especially when the relationship between a driver and a carrier breaks down, which is when lawsuits arise.
For instance, take an owner-operator who owns their own truck and operates under another motor carrier’s authority. If they largely work a carrier’s load board or with dispatch to select their loads and then set their own routes and schedules to execute those hauls, they would likely be considered an independent contractor under this definition. Or, for a driver whose loads and work schedules are dictated by their carrier, even if they’re deemed an independent contractor by that carrier, likely would not meet the criteria of the economic realities test.
“I think that this is a step in the right direction for both motor carriers and independent contractor owner-operators,” said Adang. “Because it’s providing clarity on how owner-operators can continue to do the work they want to do in the way they want to do it,” she said, “while providing carriers a clearer legal standard for those contractor relationships.”