Labor Department’s new independent contractor rule is a mess. We need a clear national standard instead.

Two weeks ago, the U.S. Department of Labor released a new report. rule To distinguish between employees and independent contractors. It has also released more than 300 pages of “guidance” explaining the rules.

Despite (or perhaps because of) this extensive guidance, this rule has caused widespread confusion.Some people I wondered How does it affect access to benefits and the right to join a trade union? Some have asked how the rule would affect state laws, such as California’s current law. infamous AB5.

some even have was suggested The new rules preempt state law and require companies to reclassify all contractors as employees.

The answer is that it’s complicated. Rather than creating a new uniform standard for classifying employees, this rule simply adds another layer to the existing web of overlapping classification tests. This dispute has become so complex that even practicing lawyers find it impossible to unravel it. So this rule only highlights how badly we need genuine national solutions.

On its face, this rule has only one purpose. It distinguishes between contractors and employees under the Fair Labor Standards Act. To do this, a six-part test is used, which is very confusing because none of the elements determines the outcome by itself.

Instead, companies must consider all factors, “weigh” them against each other, and make a decision. As if it wasn’t confusing enough, all the elements are relative. They use words like “well-rounded” and “highly skilled,” but they mean nothing without specific comparisons. To make matters worse, this rule also adds his seventh “catch-all” element, which excludes everything else that might be relevant to a particular case.

This structure is complex enough on its own. But the rule also flies in the face of six existing federal tests. These tests determine the status of workers such as: Forming a labor union, anti-discrimination, taxand advantage. These other tests also all “weight” different factors. Therefore, a worker could theoretically be an employee under one federal law and a contractor under another.

In each state, the situation becomes more complex. Every state in the country has its own classification test. And the tests vary from law to law, even within the same state. The state is her 11-part “economic reality“Wage and Hour Law Tests, 3 Parts.”ABC“Unemployment Law Test and Free Responses”common law” Workers’ Compensation Law Test.None of these tests match Most of them are different from their federal counterparts. As a result, workers, businesses, and even regulators are often at a loss when trying to understand the appropriate classification.

This confusion has serious consequences. Worker classification affects not only minimum wages and overtime, but also fringe benefits, taxes, insurance, injury liability, and union organization.That’s also possible Involved antitrust law. Therefore, if a company misclassifies a worker, it can face significant legal penalties. And these penalties aren’t just financial. Some states even impose fines for misclassification. crime.

Don’t get me wrong. This is not just an issue for companies. It’s also a problem for workers. Look at what happened in California. In 2020, the state changed its classification rules to crack down on what it called misclassifications. The state’s goal was to transition workers from independent contractors to employment. But not only have contracts dried up, so have study Research shows that more than 10 percent of contractors and 4 percent of employees in affected professions simply lost their jobs. Companies were so afraid of the new classification rules that they shut down opportunities altogether.

The result is chaos that demands a national solution.we need a single uniform standard To classify workers. Workers and businesses need to know how to organize their operations. If you want to be an employer or an employee, you need to know how. And if you want to become an independent contractor, you need to know how to do that too.

Criteria must be clear, objective and definitive. Companies and workers should be able to choose their own path. Equally important, it should help them feel confident that their choices apply everywhere and for all purposes.

Unfortunately, the content presented by the Ministry of Labor is neither uniform nor clear. This is just one more complex multifactor test on top of an already complex pile of tests. It’s time to purge the pile and replace it with workable standards. The department has not yet done so, but one can hope that the new administration will do so.

Tammy McCutchen served as administrator of the Department of Labor’s Wage and Hour Division under President George W. Bush. Alex MacDonald is a shareholder in Littler Mendelsohn’s Workplace Policy Institute.

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