How the U.S. Department of Labor looks at the status of a worker as an employee or as an independent contractor is again in flux. In March 2024, the Biden Labor Dept. implemented a six-factor “economic reality test” to determine employment status under the Fair Labor Standards Act (FLSA):
- Opportunity for profit or loss depending on managerial skill
- Investments by the worker and the potential employer
- Degree of permanence of the work relationship
- Nature and degree of control
- Extent to which the work performed is an integral part of the potential employer’s business
- Skill and initiative
Applying those six factors equally replaced the first Trump Administration’s test which had emphasized two “core factors” out of the six factors overall – the nature and degree of control over the work and the worker’s opportunity for profit or loss (https://prepass.com/blog/new-independent-contractor-rules-will-affect-owner-operator-truckers/). Those two “core factors” were regarded as generally favorable to a determination of independent contractor status.
Now, with Trump returning to office, the current Labor Dept. has issued a memo to its field offices to discontinue use of the Biden-era test while the entire matter is under review. What that review will produce is unknown, as Trump made a point of courting union officials and workers during the presidential campaign. On the other hand, Labor Secretary Lori Chavez-DeRemer told the American Trucking Associations’ Mid-Year Management Session, “I’m here today to deliver a clear message: President Trump and I are proud to have your back,”
The FLSA sets the federal minimum wage rate for all hours worked and requires overtime pay of at least time-and-a-half for every hour worked over 40 in a workweek. Independent contractors, by definition, are in business for themselves and are not covered by minimum wages or overtime pay. However, these are other implications from the determination of employment status. Under federal law, only employees can unionize. Similarly, only employees would be covered under the “joint employer” rule of the National Labor Relations Board, which says more than one employer may be held responsible for an individual worker’s grievances.
While the federal FLSA sets certain minimum wage requirements for employees, it does not preempt state and local governments from adopting higher minimum wages and overtime rules or from applying different tests of employment status:
- That is why California can cling to its “ABC test” in determining employment status, where the “B” prong of the test – whether the worker performs functions “outside of the usual course of business” of the hiring entity — is difficult for owner-operator truckers to meet.
- That is why Illinois can use its “ABC test” to say that any use of an owner-operator in the state, no matter how minimal, subjects the hiring motor carrier to the Illinois Wage Payment and Collection Act (IWPCA), a burdensome system.
- And that is why New Jersey could recently expand its “B” prong to apply not just to worker functions but to every physical location a worker may go – think of the truck driver arriving at multiple customer locations.
Interstate motor carriers are subject to labor laws at the federal, state and local levels. We will watch the Trump Labor Dept. to see what federal changes may be in store.