Federal Compliance Update

March 11th is shaping up to be a special day…

Judge Delays Effective Date of NLRB’s New Joint-employer Standard to March 11

On Feb. 22, 2024, a federal judge in the U.S. District Court for the Eastern District of Texas delayed the implementation of a National Labor Relations Board (NLRB) new joint-employer rule to Mar. 11, 2024. The NLRB’s joint-employer rule had been set to take effect on Feb. 26, 2024.

The New Joint-employer Standard

The 2023 joint-employer standard establishes new criteria for determining joint-employer status as applied to labor issues related to the National Labor Relations Act. It will rescind the existing 2020 joint-employer standard and replace it with a more inclusive law, making it easier for employers to be classified as joint employers. Notable changes to the joint-employer standard include the following:

A clarification of the definition of “essential terms and conditions of employment;”

• An identification of the types of control that are necessary to establish joint-employer status and the types that are irrelevant to the joint-employer inquiry; and
• A description of the bargaining obligations of joint employers.

The existing rule requires joint employers to “possess and exercise … substantial direct and immediate control” over one or more essential terms and conditions of employment. The new rule will require only that joint employers have the authority to control one or more essential terms and conditions of employment, regardless of whether such control is exercised or whether such control is direct or indirect. This more inclusive rule may result in more employers—particularly contractors and subcontractors—being reclassified as joint employers by the rule’s effective date.

Terms and Conditions of Employment

The 2023 rule limits essential terms and conditions of employment to:

·        Wages, benefits and other compensation;

·        Hours of work and scheduling;

• The assignment of duties to be performed;
• The supervision of the performance of duties;
• Work rules and directions governing the manner, means and methods of the performance of duties, and the grounds for discipline;
• The tenure of employment, including hiring and discharge; and
•  Working conditions related to the safety and health of employees.

Legal Challenges

On Nov. 9, 2023, the U.S. Chamber of Commerce and a coalition of businesses sued the NLRB in the U.S. District Court for the Eastern District of Texas, alleging that the new joint-employer rule is unlawful, overly broad, and contradictory to the common-law definition that limits joint employment to relationships of actual and substantial control of working conditions. It further alleges that the NLRB is acting arbitrarily and capriciously in violation of the Administrative Procedure Act. On Feb. 22, 2024, the judge overseeing the litigation issued a two-week stay to delay the effective date of the new rule to Mar. 11, 2024, and mentioned that an opinion with the court’s reasoning would be issued forthwith.

In addition to the pending litigation, Senators Bill Cassidy and Joe Manchin announced they would introduce a Congressional Review Act resolution to overturn the rule.

Impact on Employers

The new joint-employer rule will only apply to cases filed after the new effective date of Mar. 11, 2024. In anticipation of the amended effective date, employers, particularly contractors and subcontractors, should become familiar with the new rule and determine whether they may be reclassified as joint employer sunder the new standard. Employers affected by the new standard should also take precautions to ensure other joint employers comply with labor and employment laws for joint employees.

In-depth Analysis: The New Independent Contractor Rule’s 6 Economic Reality Factors

The U.S. Department of Labor (DOL) recently issued a final rule rescinding and replacing the current independent contractor rule that was published on Jan. 7, 2021. This new rule changes the agency’s guidance on how to analyze who is an employee or independent contractor under the Fair Labor Standards Act (FLSA), implementing a six-factor economic reality test (ERT) that employers must consider when making such an analysis. Proper worker classification requires employers to evaluate these factors when determining a worker’s status for FLSA purposes. Employers who fail to classify workers accurately may be subject to lawsuits and government action, resulting in costly civil and criminal penalties, back pay, liquidated damages, attorneys’ fees and costs.

The final rule will not impose any new requirements on employers until it becomes effective on March 11, 2024; however, the implementation of the DOL’s new independent contractor rule could be delayed due to legal challenges. Nevertheless, it’s vital that employers start preparing now and familiarize themselves with the rule and the ERT for evaluating proper worker classification to avoid potential legal violations. This article provides a general overview of the DOL’s new independent contractor rule and the ERT factors for assessing whether a worker is an employee or independent contractor.

Overview of the DOL’s Final Rule

The DOL’s final rule rescinds the current independent contractor rule and restores the multifactor analysis to assess whether a worker is an employee or an independent contractor under the FLSA. The final rule establishes the following six economic reality factors to consider when making that determination:

• The opportunity for profit or loss, depending on managerial skill
•  Investments by the worker and the potential employer
• The degree of permanence of the work relationship
• The nature and degree of control
• The extent to which the work performed is an integral part of the potential employer’s business
• The worker’s skill and initiative

The final rule analyzes all six factors equally without assigning a predetermined weight to a particular factor or set of factors. In addition to focusing on the factors of the ERT, the new rule allows additional factors to be considered if they are relevant to the overall question of economic dependence. According to experts, the DOL’s new rule will likely result in classifying a greater number of workers as employees.

Understanding the Economic Reality Factors

The DOL states that the six-factor ERT aligns both the agency’s pre-2021 guidance and the federal courts’ approach to evaluating worker classification under the FLSA. The DOL’s new independent contractor rule adopts a totality-of-the-circumstances analysis, which means that no one factor is weighed more heavily than others. The following is an in-depth analysis of the six economic reality factors under the DOL’s final rule.

Opportunity for Profit or Loss, Depending on Managerial Skill

This factor considers whether a worker has opportunities for profit or loss based on managerial skill, including initiative, business acumen or judgment that affects the worker’s economic success or failure in performing the work. If a worker doesn’t have an opportunity for profit or loss, it suggests that the worker is an employee. Relevant facts to consider include:

• Whether the worker determines or can meaningfully negotiate the charge or pay for the work provided Whether the worker accepts or declines jobs or chooses the order or time in which the jobs are performed

Whether the worker engages in marketing, advertising or other efforts to expand their business or secure more work Whether the worker makes decisions to hire others, purchase materials and equipment or rent space

• A worker’s decision that impacts the amount of pay they receive, such as working more hours or jobs, when they are paid a fixed rate per hour or job generally does not suggest the worker exercises managerial skill.

Investments by the Worker and the Potential Employer

This factor considers whether any investments by a worker are capital or entrepreneurial in nature. Costs to a worker of tools and equipment to perform a specific job, costs of workers’ labor, and costs that the potential employer imposes unilaterally on the worker are not evidence of capital or entrepreneurial investment; as a result, they indicate employee status. Investments that are capital or entrepreneurial in nature, indicating independent contractor status, generally support an independent business and serve a business-like function. Such investments may include increasing a worker’s ability to do different types of or more work, reducing costs or extending market reach. A worker’s investments should be considered relative to the potential employer’s investments in its overall business. If the worker is making similar investments as the potential employer, even on a smaller scale, it suggests that the worker operates independently, indicating independent contractor status.

The Degree of Permanence of the Work Relationship

This factor weighs in favor of the worker being an employee when the work relationship is indefinite in duration, continuous or exclusive of work for other employers. On the other hand, this factor weighs in favor of an independent contractor relationship when the work arrangement is definite in duration, nonexclusive, project-based, or sporadic based on the worker being in business for themself and marketing their services or labor to multiple entities. Such conditions may include regularly occurring fixed periods of work; however, seasonal or temporary work by itself would not necessarily indicate independent contractor classification. Where a lack of permanence is due to operational characteristics that are unique or intrinsic to particular businesses or industries and the workers that they employ rather than the workers’ own independent business initiative, this factor is not necessarily indicative of independent contractor status unless the worker is exercising their own independent business initiative.

The Nature and Degree of Control

This factor considers the potential employer’s control, including reserved control, over the performance of the work and the economic aspects of the working relationship. Facts relevant to the potential employer’s control over the worker include whether the potential employer:

•  Sets the worker’s schedule
• Supervises the performance of the work
• Explicitly limits the worker’s ability to work with others

Additionally, considerations relevant to the potential employer’s control over the worker include whether the potential employer:

Uses technological means of supervision to supervise the performance of the work Reserves the right to supervise or discipline workers

•  Places demands on the workers’ time or restrictions on workers that do not allow them to work for others or work when they choose

Whether the potential employer controls economic aspects of the working relationship should also be considered, including control over prices or rates for services and the marketing of the services or products provided by the worker.

The Extent to Which the Work Performed Is an Integral Part of the Potential Employer’s Business

This factor considers whether the work performed is an integral part of the potential employer’s business. It does not depend on whether any individual worker in particular is an integral part of the business but whether the function they perform is an integral part of the business. This factor tilts in favor of an independent contractor relationship when the work performed is not critical, necessary or central to the potential employer’s principal business.

The Worker’s Skill and Initiative

This factor considers whether the worker uses specialized skills to perform the work and whether those skills contribute to business-like initiative or if the work is dependent on training from the potential employer. This factor indicates employee status where the worker does not use specialized skills to perform the work or where the worker is dependent on training from the potential employer to perform the work. Where the worker brings specialized skills to the work relationship, this fact is not indicative of independent contractor status since both employees and independent contractors may be skilled workers. It’s the worker’s use of those specialized skills in connection with business-like initiatives that indicate that the worker is an independent contractor.

Additional Factors

The new rule allows additional factors beyond the six ERT factors to be considered if they are relevant to the overall question of economic dependence.

Summary

It’s likely that the DOL’s new independent contractor rule will be challenged in court. This could delay the final rule’s implementation. There’s currently a lawsuit pending over the Biden administration’s attempt to withdraw the 2021 Independent Contractor Rule. In this case, a federal court concluded that the Biden administration violated federal law in rescinding the regulation, and it reinstated the 2021 rule. This lawsuit has been delayed for months while the DOL prepared its new rule. The case will now likely restart since the agency released the final rule.

If the DOL’s final rule becomes effective, it will significantly impact most employers. Accordingly, employers should start evaluating their worker classifications and understand the final rule’s potential impact on their organizations. Failing to do so could result in worker misclassification, resulting in civil and criminal penalties, government audits, back pay, liquidated damages, attorney fees and costs. By taking a proactive approach and revisiting worker classification, employers can help ensure they meet any compliance requirements and mitigate any potential legal risks.

It’s critical for employers to stay informed on and proactive about the DOL’s final rule. Contact us today for more workplace guidance and resources.

State Compliance Update

Nothing for this Month...

Compliance Calendar

March

3/1 – Provide ACA Form 1095-Cto Employees 3/1 – Provide ACA Form 1095-Bto Employees 3/2 – Submit Electronic Reports to OSHA

3/31 – Deadline for Filing the EEO-1 Report With the EEOC

April

4/1 – Forms 1094-B,1095-B, 1094-C, and 1095-C Filing Deadline for Electronic Filers

4/30 – Form 941 Filing Deadline(first quarter)

4/30 – Remove OSHA Form 300A

May

Nothing for this month so far…

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