New independent contractor rule faces reversal in federal court

A New Mexico trucking company is asking a federal court to undo the Department of Labor’s new independent contractor rule that went into effect in March.

Albuquerque, N.M.-based Colt & Joe Trucking filed a motion for summary judgment in a New Mexico federal district court in a lawsuit challenging the DOL’s independent contractor rule. The trucking company wants the court to rescind the new rule defining when a worker can be considered an independent contractor.

Colt & Joe Trucking’s lawsuit is the second challenge to the new rule filed by a trucking company. Frisard’s Transportation filed a similar lawsuit in a Louisiana federal district court earlier this year.

Both lawsuits argue that the new standard is arbitrary and capricious and in excess of the DOL’s statutory authority.

“The new rule’s vague test provides no objective direction and would enable the department and trial lawyers to deem anyone performing services for another company an ‘employee’ under essentially any circumstance,” Colt & Joe Trucking states.

New independent contractor rule

In January, the DOL published its final rule, titled “Employee or Independent Contractor Classification Under the Fair Labor Standards Act.”

The new rule uses a six-factor “economic reality test” to determine whether a worker is an employee or an independent contractor under the FLSA:

1. Opportunity for profit or loss depending on managerial skill
2. Investments by the worker and the employer
3. Permanence of the work relationship
4. Nature and degree of control
5. Skill and initiative
6. Whether the work performed is integral to the employer’s business

According to the DOL, all factors should be considered, and no single factor determines who can be considered an independent contractor. Additionally, no one factor or combination of factors holds more weight than others.

Guidance set by the new economic reality test is a departure from the previous independent contractor rule set in 2021, which had fewer considerations and focused on two factors.

Previous federal independent contractor rules considered the following:

1. Opportunity for profit or loss
2. Nature and degree of control
3. Permanence of the work relationship
4. Whether the work is part of an integrated unit of production
5. Amount of skill required for the work

The first two factors were considered “core factors” and held the greatest weight in determining independent contractor status. The other three “guidepost” factors would be used only if the core factors were not determinative.

Although the new rule has raised concerns within the trucking industry, it avoided adopting the highly restrictive ABC test that California uses. The Owner-Operator Independent Drivers Association has pointed out that the new rule largely maintains the status quo under which independent contractor truckers operated for decades prior to 2021, with the final rule including numerous changes and clarifications at the Association’s request.

“While OOIDA generally supported the previously-issued 2021 Independent Contractor Rule, we strenuously objected to a provision in the final rule that enabled large carriers to mandate that their independent contractors use dangerous speed limiters, inward-facing cameras and any other requirements of control that our members strongly oppose,” OOIDA President Todd Spencer said in a statement. “Continuance of that provision, which was requested by ATA to benefit their corporate trucking members, would have eliminated the independence owner-operators desire. DOL was right to eliminate it when issuing the new rule.”

No legal precedent

Two federal lawsuits filed by trucking companies argue the new independent contractor rule flies in the face of court precedent.

Plaintiffs claim that the 2021 independent contractor rule that is being replaced was simple and objective. Conversely, the new rule replaces clear guidelines “with an open-ended balancing test that obscures the distinction between contractors and employees, making it impossible for businesses like (Colt & Joe Trucking) to hire independent contractors without risking (FLSA) liability,” the complaint states.

According to the lawsuits, the DOL’s main reason for changing the independent contractor standard is based on the notion that emphasizing any factors is inconsistent with the FLSA. However, the trucking companies argue that neither the act nor case law interpreting it prohibits certain factors from holding greater weight than others.

Considering that the trucking companies have relied on the 2021 rule when hiring truckers as independent contractors, the new rule could potentially cause them severe economic harm by retroactively deeming the owner-operators as employees.

Questions about DOL Acting Secretary Julie Su’s authority

Colt & Joe Trucking argues that even if the court disagrees with its understanding of the law and previous court decisions, it should still overturn the new rule on independent contractors because Su didn’t have the power to make it.

After former Secretary Marty Walsh announced his resignation in February 2023, President Joe Biden nominated then-Deputy Secretary Su to take his place. Lacking support from Congress members and stakeholders, that nomination expired. Despite the failure, Su’s nomination was renewed in February.

As of early August, Su’s nomination has not been confirmed. According to the Colt & Joe Trucking’s lawsuit, her service as Secretary of Labor for more than a year is the “longest such period of any nominee from a president whose party holds a majority in the Senate.”

Statue allows for the deputy secretary to exercise the secretary’s power temporarily after a resignation. However, the lawsuit argues it does not allow Su to serve as acting secretary indefinitely with no good-faith attempt to legitimately fill the position. Plaintiffs in the challenge to the new independent contractor rule claim that Biden’s refusal to withdraw Su’s nomination is an attempt to circumvent the required Senate confirmation.

Su’s history with independent contractors has played a major role in the opposition to her nomination. She was California’s labor commissioner when the state enacted AB5, a controversial law that makes designating a worker as an independent contractor extremely difficult.

“Julie Su has unlawfully overstayed her term as Acting Secretary of Labor, so she lacks authority to issue this rule,” New Civil Liberties Alliance President Mark Chenoweth said in a statement. “A Senate controlled by the President’s party would not confirm her due in part to her views about this policy. Yet, she persisted in promulgating a rule implementing the very idea for which the Senate refused to confirm her. This is outrageous behavior on many levels, and the courts should have no qualms about setting aside this rule.”

What’s next?

The Frisard’s Transportation and Colt & Joe Trucking’s lawsuits are in different stages of litigation, with the new independent contractor rule ripe for a Supreme Court review.

Colt & Joe Trucking filed its motion for summary judgment on Friday, Aug. 2. The DOL still needs to file its reply before Judge Kea W. Riggs, a Donald Trump appointee, makes a decision. That decision will likely be appealed to the Tenth Circuit.

Meanwhile, Judge Eldon E. Fallon of the Eastern District of Louisiana federal court, a Bill Clinton appointee, denied Frisard’s Transportation’s request to issue a preliminary injunction and set aside the 2024 independent contractor rule. That decision is currently under appellate review in the Fifth Circuit, which is widely considered one of the most conservative circuit courts in the nation.

There are at least three other federal lawsuits challenging the new independent contractor rule filed by freelance writers and business groups. Motions for summary judgment are pending in all three cases.

Decisions rendered at the district court level are nearly assured of being appealed, and any significant ruling from a circuit court has the potential to be reviewed by the Supreme Court. LL