One significant 2020 development in the area of labor law involves independent contractor status. In September, the U.S. Department of Labor (DOL) proposed new standards for determining whether someone working on your company’s behalf can be considered an independent contractor or must instead be treated as an employee. Employee status puts greater legal burdens on employers and confers more rights on workers than they have as independent contractors or gig workers.
The DOL is expected to finalize the rule, which is considered more employer friendly than the prior regulations, before the end of the Trump administration. However, Democrats in the U.S. House of Representatives are seeking to reverse course on that and other Trump-era labor policies. It’s possible that effort will fail, even with a Democrat in the White House. (Keep in mind that state law, such as California’s, can set the bar higher than the federal standard.)
Economic Reality Test
The new DOL independent contractor regulators feature a five-factor “economic reality” test. These two factors are assigned the greater weight than the others:
1. The extent of control exercised over key aspects of work, and
2. The worker’s opportunity to make a profit or to lose money under the arrangement.
Other factors to consider include:
- The amount of skill required for the work,
- The degree of permanence of the working relationship, and
- Whether the work is part of an “integrated unit of production.”
The original rules featured more standards, all of which were given about the same weight in terms of importance. House Democrats who want to maintain the original approach seek to put the burden of proof on employers when it comes to showing a worker isn’t an employee. Using a “rebuttable presumption of employee status” standard in the absence of adequate proof that a worker is an independent contractor, the worker will be considered an employee.
Another key Trump-era labor rule targeted by House Democrats involves joint employer status. New DOL rules under the Fair Labor Standards Act (FLSA) that took effect in March 2020 sought to clarify when, for example, a company that uses labor provided by a staffing company is a joint employer of those individuals. Workers who are deemed to be employees of both joint employers could be paid better with that status. The new regulations replaced an Obama administration rule that took effect in 2016.
The new rules generally made it more difficult for staffing company employees to assert that they’re also employees of the company where they perform their work. A provision of the regulations states that joint employer status doesn’t exist simply because the company where the work is performed has power over the workers. Joint employer status requires that the power must actually be exercised.
A related issue that the rules address is whether a franchisor, such as McDonald’s, by virtue of the nature of its business, is more likely to be deemed a joint employer (along with the franchisee). The new rule stresses that a company operating as a franchisor is no more likely than not to be a joint employer, and that its status must be determined by the same criteria applicable to other companies.
House Democrats pledged an attempt to rescind those rules, so that the law would revert to those in place in 2016. Their goal was recently supported by a federal district court ruling in September that invalidated major portions of the new regulation. In theory, however, that ruling could be overturned on appeal.
Another possible target of House Democrats is the new threshold for nonexempt employees’ income that’s used to determine their eligibility for overtime pay. It became effective in early 2020.
To qualify for exempt status under the FLSA, an employee must:
- Be salaried,
- Have job duties that are executive, administrative or professional in nature, and
- Have earnings above the prescribed salary threshold.
The minimum salary figure jumped to $35,568 ($684 per week) on January 1, 2020, up from $23,660 ($455 per week). The new rule also allows nondiscretionary bonuses worth up to 10% of the employee’s salary to count toward the higher income threshold.
That increase was the first since 2004, and the Obama administration had sought to raise it to $47,476. Presumptive President-Elect Joe Biden has indicated support for raising the minimum salary amount for exempt status.
One noteworthy employment-related regulatory move in 2020 is unlikely to change in the year ahead: easing employers’ disclosure burdens with respect to their retirement plans. The DOL has sympathized with employers that complained about the hassle and cost involved in sending their retirement plan participants reams of legal documents that go straight into the recycle bin when they arrive at employees’ homes.
New safe harbor rules took effect on July 27, 2020, that, among other things, put the onus on employees to request paper forms if that’s what they prefer. Previously the default method of dissemination was paper, and employees had to opt-out if they preferred electronic notification.
Under the new e-disclosure safe harbor, employers must first send retirement plan participants a written notice of their intention to switch to emailing electronic documents. If employees don’t opt out of e-disclosure, the employer can proceed to send these documents electronically. Employers stand to not only benefit from lower administrative costs, but they also may win the gratitude of employees who prefer not to receive documents they’re unlikely to read.
A new year always brings some unknowns. With any luck, 2021 won’t bring an immediate flood of labor law regulatory changes, and employers can fully digest those that took effect this year before facing the need to adapt to new ones. An employment law attorney can help you along the way.