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Independent Contractors

posted by Trent Tillman on Thursday, March 31, 2016

The following article was originally featured in Issue 2 (2015) of Iowa Motor Truck Association (IMTA)'s publication, Lifeliner Magazine. Please visit here to access a digital copy of the publication in its entirety. 

While legal challenges involving the misclassification of independent contractors are often resolved at the state level, the Department of Labor (DOL) has recently weighed in on the matter, releasing a report on how the Fair Labor Standards Act (FLSA) should be interpreted in misclassification cases. In brief, the report concludes that an economic realities test should be applied in light of a broad definition of employ - meaning in favor of employment over independence.

According to the DOL, "whether an entity employs, suffers or permits an individual to work, is a matter of whether the worker, as an economic reality, is dependent on the employer." The DOL has provided guidance on weighing each factor of the economic realities test in light of the broad definition of employ and FLSA's intent to provide broad coverage to workers. The goal is to determine whether an individual is truly in their business for him of herself. 

A. Is the Work an Integral Part of the Employer's Business? 

This is a difficult factor to overcome. Even if the work is just one component of the business, DOL suggests that it can still be considered integral to the business. In trucking, this factor will weigh in favor of employment.

B. Does the Driver Exercise Managerial Skill Which Can Impact His/Her Ability to Make a Profit or Loss?

Even if one can show that a driver can affect profit/loss by determining number of hours or miles driven, this factor is not about working more hours, but rather whether the driver has the managerial skill necessary to make decisions about operating a business that impacts profit/loss. A driver's ability to choose their own routes or acquire specific materials or equipment may show the requisite judgment to operate a business, for example.

C. Driver's Investment Compared to Employer's Investment: 

The driver must undertake some risk to show they are an independent contractor. And, purchasing materials and equipment has not proven to be dispositive, or absolute. ICs must show they have more at stake, for example, having spent money on marketing, insurance, and equipment, for their benefit, not the benefit for the Motor Carrier may help weigh in favor of independence.

D. Does the Work Require Special Skill?

This prong refers to a driver's business skill, judgment and initiative - not technical skill. Like prong (B), this factor seems to reference a kind of business acumen necessary to operate a business, like making decisions about ordering products, marketing, or other decisions demonstrating business-like initiative.

E. Is the Relationship Between the Driver and Employer Permanent or Indefinite?

The DOL suggests that this prong is met when there is not a continuous relationship. A relationship that is project-based or based on the driver's own business initiative would qualify. ICs who work for multiple motor carriers or get paid job-by-job may meet this prong. 

F. What is the Degree of the Employer's Control?

Ensuring customer satisfaction or regulatory compliance are not justifications for control. The driver must control meaningful aspects of their business to show they are independent. And, this factor should not overtake the economic realities test. It should aid in the analysis of whether the driver is economically dependent on the employer. 

The economic realities test serves to show that the driver is truly operating his or her own business that is independent from the motor carrier or logistic provider. The DOL concludes that "most workers are employees" under this test and therefore, it is an extraordinary test to overcome.

It is important to note that the DOL's interpretation is not the rule of law, but it may influence future case law and legislation. Motor Carriers who run trucks interstate should be aware of the DOL's position on this issue. As the attorneys at Scopelitis Garvin Light Hanson & Feary state, "[t]he Guidance nevertheless make the DOL's position clear, and at the very least, motor carriers can expect increased audit activity." Our view is that this conclusion reinforces the need to be diligent in how carriers structure independent contractor programs and how daily operations and workflows regarding engagement with ICs is controlled.  

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