Earlier this year, the Department of Labor issued a final rule that describes how it differentiates between employees and independent contractors under the Fair Labor Standards Act.

The rule is important because it determines who receives FLSA benefits; employees are guaranteed overtime pay and a minimum wage, which is not the case for independent contractors.

But of course, there is much more. The independent contractor classification has implications beyond the FLSA itself, and the designation has specific effects on the transportation industry.

The rule is the most revolutionary, however, because it is the first interpretative guide to the FLSA classification.

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How We Got Here: A History of the FLSA Classification

Prior to May 2024, the FLSA classification did not have an interpretation guide to follow. Courts have used case law to navigate nuanced classifications.

Perhaps the most important case in the history of the FLSA classification is the Supreme Court’s decision in United States v. Silk in 1947, which has given way to the test of economic realities.

In this decision, the Supreme Court decided that employees are “those who, from the point of view of economic reality, depend on the company to which they provide service”. The Court set forth five factors (sometimes called Silk factors) that are particularly important in distinguishing employees from independent contractors.

However, the Court also warned in Rutherford Food Corp. (the same day as United States v. Silk) that no single factor should determine classification, but rather “the circumstances of the entire activity”.

In 2006 under Schultz v. Cap. International Sec., Inc.the Fourth Circuit Court of Appeals would expand the five Silk factors to a list of six key factors, as Tim Coffield writes:

1. The degree of control the putative employer has over how the work is performed
2. The worker’s opportunities for profit or loss depend on his management skills
3. The worker’s investment in equipment or materials, or his employment of other workers
4. The degree of skill required for the job
5. The permanence of the employment relationship
6. The extent to which the services rendered are an integral part of the putative employer’s business.

Using the economic realities test, courts have determined workers’ reliance on six factors, none given more weight than the others. This test defined the FLSA classification until the Department of Labor intervened.

The Trump-era rule

The DOL began publishing its interpretative rule in September 2020when it issued a notice of proposed rulemaking during the Trump administration. The rule was intended to clarify worker classification and make the classification process more efficient.

DOL issued the final rule: “Independent contractor status under the Fair Labor Standards Act,» in January 2021.

“The 2021 rule was the first time the Department of Labor wrote into the Code of Federal Regulations its interpretation of employee status, under the Fair Labor Standards Act, versus independent contractor status,” Nathan Mehrens, vice president of workforce policy for ATA,” FleetOwner said. “Prior to the 2021 rule, nothing in the Code of Federal Regulations defined the Department’s view on this matter. »

Mehrens was at the DOL at the time of the first rule. He served the department from 2017 to 2021. Mehrens acted as deputy secretary when the final rule was promulgated. Mehrens said he did not write the rule but was in the process of discussing its development.

“What the department was doing in 2021 was trying to distill decades of case law and put it into an easily understandable framework,” Mehrens explained.

The rule departs from case law by using a five-part test and making the first two fundamental factors the most important in determining worker classification:

1. The nature and degree of worker control over the work
2. The possibility of profit or loss for the worker
3. The skill level required for the job
4. The degree of permanence of the employment relationship between the individual and the potential employer
5. If the work is part of an integrated production unit

“In my opinion, you passed a fairly simple test; it was easier for most people to understand if you just look at those two factors in the 2021 rule,” Mehrens said.

Factors three through five were only relevant to the DOL if the first two factors led to different conclusions.

“Those are really the first two things that were considered determinative under the Trump administration,” said Rick Schweitzer, general counsel at the firm. National Private Truck Counciltold FleetOwner.

Also included is the Trump-era DOL rule an important decision for truckingmaking it clear that speed limiters would not constitute a “control” under the first essential factor.

However, a day before it took effect, the Biden administration’s DOL withdrew the final rule on May 5, 2021.

The Biden administration’s DOL said the repealed rule “is in tension with the text and purpose of the FLSA, as well as relevant judicial precedent.”

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The Biden era rule

The DOL has submitted a Notice of Proposed Rulemaking for another final rule for independent contractors in October 2022.

“If you look at the Biden administration’s list of factors and compare it to those in the 2021 rule, they’re not much different,” said Bryce Mongeon, the Biden administration’s legislative affairs director. Association of Independent Owner-Operator Driverstold FleetOwner. “There are significant differences, but it’s the same kind of thing.”

The final rule, published in January 2024 under the title “Classification of Employees or Independent Contractors Under the Fair Labor Standards Act», returns to a six-factor test without predetermined weight:

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

The rule took effect on March 11, where the problem arises today. Trucking trade groups, such as the ATA, are critical of the new rule.

“From a regulatory compliance standpoint, it’s much less certain,” Mehrens said. “I think this introduces a lot of uncertainty and requires a lot more analysis to come to a final conclusion.”

It’s not yet clear how the new rule will shape the industry, Mehrens said, especially after Supreme Court overturns deference to Chevron— weaken the interpretative authority of administrations.

“We’re in an uncharted world in terms of exactly how the courts are going to deal with this issue,” Mehrens said.