Independent Contractor Rule Changes Affect Owner-Operators

In the world of trucking, where the open road meets the driver’s seat, recent changes in independent contractor rules have left many truck drivers and trucking companies wondering about the future of the owner-operator model. The U.S. Department of Labor has introduced a new set of regulations that could impact how truck drivers are classified, and understanding these changes is crucial for those involved in the industry.

The Department of Labor’s Final Rule

Published in the Federal Register on January 10th, 2024, the Department of Labor’s final rule on determining independent contractor status has introduced a multi-factor approach. This approach takes into account six key economic reality factors to determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. These six factors include:

1. Opportunity for profit or loss depending on managerial skill.
2. Investments by the worker and the potential employer.
3. The degree of permanence of the work relationship.
4. The nature and degree of control.
5. The extent to which the work performed is an integral part of the potential employer’s business.
6. Skill and initiative.

The totality of these factors will be considered, meaning no single factor will solely determine a worker’s classification. This approach aims to provide clarity and fairness in classifying workers in various industries, including trucking.

Maintaining the Independent Contractor Business Model

It’s essential to note that the Department of Labor’s new rule is not intended to disrupt the businesses of independent contractors who are genuinely operating as businesses themselves. Instead, it aims to establish a fair and comprehensive system for classifying workers.

Replacing the Previous Rule

The new rule repeals and replaces a 2021 Trump administration rule, which was welcomed by the trucking industry but criticized for making it harder to prove that employees were not being misclassified as independent contractors. The previous rule focused on two “core factors” related to control and opportunity for profit or loss, simplifying the classification process.

The Biden Administration attempted to withdraw the 2021 rule but faced legal challenges. As a result, the Department of Labor embarked on a new rulemaking process that led to the current final rule. While some changes have been made in response to industry feedback, many in the trucking industry believe that the final rule still presents challenges for trucking companies to demonstrate the independent contractor status of their owner-operators.

No ABC Test

One positive aspect of the final rule is that it does not implement a restrictive “ABC test,” where all three factors must be met for a worker to be considered an independent contractor. This test had been a source of concern for many in the trucking industry.

The Economic Reality Test

The Supreme Court has previously ruled that the economic reality test, which looks at “the circumstances of the whole activity,” should be the standard for determining workers’ classification under the Fair Labor Standards Act. This test considers various factors, and the Department of Labor’s final rule aligns with this approach.

Challenges Ahead

The new rule is scheduled to take effect 60 days after publication, but there are expectations that business groups may challenge the Department of Labor’s authority to issue this regulation in court. This uncertainty adds to the concerns within the trucking industry.

Trucking Industry Concerns About the Owner-Operator Model

The trucking industry has expressed concerns about how the new requirements may impact the owner-operator model. The Intermodal Association of North America warns that over 80% of intermodal drayage drivers currently classified as independent contractors could face reclassification. Many owner-operator drivers choose this model for its freedom, flexibility, and independence.

The American Trucking Associations (ATA) has also vowed to fight the new rules, emphasizing the importance of individuals being able to choose work arrangements that suit their needs and ambitions. The ATA argues that the rule change could weaken the supply chain and harm the livelihoods of hundreds of thousands of truckers across the country.

Increased Scrutiny for Trucking Companies

The change in the law may lead to increased scrutiny of trucking companies regarding worker classifications. As the industry relies heavily on the use of independent contractors, trucking companies could find themselves under the Department of Labor’s scrutiny to ensure compliance with the new final rule.

A Convoluted and Contradictory System

Various industry stakeholders, including the Transportation Intermediaries Association, have raised concerns about the potential confusion and conflicts that could arise from the new classification system. The reclassification of independent contractors as employees could have far-reaching effects on the supply chain, small businesses, and the American economy.

Uncertainty for Truckers

Truckers themselves are facing uncertainty due to the changing regulations. The Owner-Operator Independent Drivers Association (OOIDA) has voiced concerns about the constant changes in classification rules and the resulting uncertainty that makes it difficult for truckers to operate their businesses.

While OOIDA supports the Department of Labor’s intent to follow decades-long practices for classification under the Fair Labor Standards Act, it remains concerned that some details of the final rule may not align with the specifics of the trucking industry.

Understanding the Six Factors

To navigate these changes, it’s essential for truck drivers and trucking companies to understand the six factors outlined in the Department of Labor’s final rule:

1. Opportunity for profit or loss depending on managerial skill: This factor assesses whether a worker has the opportunity to make managerial decisions that affect their economic success.

2. Investments by the worker and the potential employer: It considers whether the investments made by the worker are capital or entrepreneurial in nature, supporting an independent business.

3. Degree of permanence of the work relationship: This factor looks at whether the work relationship is indefinite or project-based, which can affect the classification.

4. Nature and degree of control: The amount of control an employer has over a worker is crucial, and this factor covers various aspects of control.

5. Extent to which the work performed is an integral part of the potential employer’s business: Determining whether the work performed is integral to the employer’s business is key.

6. Skill and initiative: Specialized skills and business-like initiative play a role in classifying workers.

The Path to Now

The Fair Labor Standards Act, enacted in 1938, aimed to protect workers and ensure fair labor conditions. Over the years, courts and the Department of Labor have used the economic reality test to determine worker classifications. This test considers various factors, leading to a totality-of-circumstances analysis.

The 2021 rule marked a departure from this approach, introducing two core factors. However, the rule faced legal challenges, resulting in the new final rule.

In Conclusion

The Department of Labor’s new independent contractor rules are bringing significant changes to the trucking industry. While the goal is to ensure fair classification of workers, the impact on the owner-operator model and the trucking supply chain remains uncertain. Truck drivers and trucking companies need to understand the six factors outlined in the final rule and stay informed about potential challenges and developments in this evolving landscape. Adaptation and compliance will be key as the trucking industry navigates these changes.