Back to the Future: Biden Administration Seeks Return to Restrictive Standards for Businesses and Independent Contractors

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Sam Fendler:  Hello and welcome to this Federalist Society virtual event. My name is Sam Fendler, and I’m an Assistant Director of Practice Groups at The Federalist Society. Today, we’re excited to host “Back to the Future: Biden Administration Seeks Return to Restrictive Standards for Businesses and Independent Contractors.”

 

      Our speakers today are Evan Armstrong and Maury Baskin. Evan is a member of the Government Affairs team of the Retail Industry Leaders Association. There, he leads advocacy efforts related to workforce and employment issues before Congress and federal agencies. Maury is a shareholder at Littler Mendelson P.C. His practice focuses on national labor policy and challenging excessive government regulation on behalf of small and large businesses. If you’d like to learn more about our speakers, you can find their full bios at our website, fedsoc.org.

 

After our experts give their opening remarks, we will turn to you, the audience, for questions. If you have a question, please enter it into the Q&A function at the bottom of your Zoom window, and we will do our best to answer as many questions as we can. Finally, I’ll note that, as always, all expressions of opinion today are those of our experts, not The Federalist Society. With that, Maury, thank you for joining us, and I’ll turn it over to you.

 

Maury Baskin:  Okay. Thanks, Sam, and welcome everyone. And we have an exciting topic for today and certainly one where there’s a whole lot going on. We’re going to talk about the Department of Labor’s -- primarily, the Department of Labor’s proposed new independent contractor rule on which the comments have only recently closed—so we were timing it, waiting for that to happen—and explain how we got here and where we’re going, what the politics of it are, and that’s generally what will take up our first half and maybe more.

 

But then, closely related to that, the National Labor Relations Board is expected to decide the Atlanta Opera case, which is also threatening to change the independent contractors’ standard. Evan and I were talking, almost expected to see it come out right before our program because they’re issuing a bunch of decisions from the National Labor Relations Board this week as Member Ring, his last day is, I believe, Friday -- tomorrow, so we may see it tomorrow. Anyway, we know what it’s going to say pretty much about independent contractors, so we can talk about that too.

 

And, while we’re at it, the National Labor Relations Board has just proposed a new joint employer rule, which the Department of Labor has also talked about, and we’ll talk about those briefly also. That’s in the proposed rule stage. Again, the comments have just closed, so it’s timely. And there’s so much confusion between the independent contractor issue and the joint employer issue, so we want to explain that. In fact, I think it’s useful to just start with what are we talking -- which roles are we talking about here? Because the Department of Labor’s independent contractor rule, that’s really for the Fair Labor Standards Act only, minimum wage and overtime. And 50,000 comments just on that issue were filed by -- here in December.

 

And it’s different from the common law 10-factor test, which Congress requires the National Labor Relations Board to apply. It’s also different from the IRS 20-factor test. And then it’s different from the so-called ABC test, which is the three-part test that’s used in a number of states now, and it really started in California with that proposition and succeeds in defeating that test there. And, on top of everything else, it is different from the joint-employer issue. Which, to keep it simplest, the joint employer is trying to decide who is the employer versus the independent contractor rule is deciding who is the employee or who is an employee as opposed to an independent contractor. So we’ll try to navigate through this thicket while generally focusing, at least at the outset, on the Department of Labor’s proposed independent contractor rule.

 

So how did we get here? Well, it all starts in 1938. But since we have to get this done in about five minutes by the way of introduction, we’re not going to walk through all the things that have happened since 1938. Suffice it to say that for years and years, the Department of Labor had a Fact Sheet—Fact Sheet #13, if you care—in which they laid out six factors that dealt with so-called economic realities and were then interpreted by the courts—federal courts all over the country—and interpreted differently. Every court seemed to have a different standard. In fact, the same court would have different standards from case to case. And sometimes it’s six factors; sometimes it’s five; sometimes it’s ten. It’s just been a total morass, very confusing for employers.

 

Even though there was some commonality in the factors, particularly over control of the work, opportunities for profits and loss—those seemed to be the main factors in these cases—but there were others as well—integral part of the business, investments, skill and initiative, how permanent. But, over the years, the situation was just getting worse and worse. And the original six-factor test was devised well before there were such industries as franchising or the gig economy, and these tests were made at a different time.

 

And, so, in response to the massive confusion that was out there, the Trump folks in the Department of Labor thought they could give some better guidance. And, so, they created a rule that was a result of really exhaustive research and that showed into the cases that had been decided over decades. And they showed that there were two factors that really do predominate in these court rulings no matter how many factors they talked about. If there was control exercised by the supposed employer and the workers and if there was opportunity or no opportunity for profit and loss, then -- if those two things came together, it was pretty much a done deal one way or the other if it was independent contractor or an employee. And, so, the Trump rule said, “We should recognize those are court factors, but we’ll consider them all and the totality of the circumstances, and the basic goal in the end is to determine the economic realities.” That’s what the Trump rule said.

 

Now, the other side—and let’s just say the progressive side of the equation—they said, “That’s changing the standard, and it’s not correct. And it shouldn’t be allowed to continue.” And, so, the Biden administration, when they came in, felt strongly that it should be withdrawn, and they, in fact, froze it almost immediately. I should add that the Trump rule was finalized -- not finalized until January 7 of 2021, the day after a date you’ve been hearing a lot more about over the last year or so. But on January 7, they issued the final rule. It was not supposed to go into effect until March 8 of 2021. Well, the Biden people, soon as they came in, they froze all the rules that had been proposed that were -- whether they were purportedly final or not. And they delayed the effective date of the Trump rule. They did this without proper notice and comment. A lawsuit was filed by the coalition for Workforce Innovation, CWI, which Evan is a prominent leader, and also associated builders and contractors and later added a financial services institute challenging the delay.

 

But then they went ahead. There was no injunction immediately. And they withdrew the Trump rule. First, they delayed it from March 8 until May 7, and then literally, the day before it was supposed to go into effect, they withdrew the rule. Well, the complaint took a while, but a federal judge ruled at the beginning of this year -- well, March 14 of this year, 2022, a federal judge in Texas issued an injunction nationwide saying that the withdrawal of the Trump rule by the Biden administration violated the Administrative Procedure Act.

 

The main thing she identified was the failure to consider reasonable alternatives though there were other potential issues raised in the complaint. So she declared that the Trump rule, in fact, went into effect on March 8, 2021, and the Trump rule is still in effect today. But the Department of Labor appealed and then announced it would revisit the rule, and that resulted in a stay of the appeal. So the appeal has been stayed. The Trump rule is still in effect, but the Department of Labor has now issued—and this came out on October 13 here, 2022—they issued a proposed rule. Comments were filed by December 13, and it was basically, like I said, 50,000 comments.

 

So where do we stand with this proposed rule? And, as we’ve already seen from one of the questions being asked, it’s a potential disaster for a number of industries. Because, rather than returning to the previous tests that were in place—the factors in Fact Sheet #13 of the pre-Trump era—the proposed rule changed the test in subtle ways and frankly not so subtle ways to tilt it more towards finding employees. And many industries have said in their comments that if this goes into final effect, it threatens their entire business models. The franchising industry is very concerned. The technology industry’s construction and the independent contractors themselves, many, many comments have been filed as well as studies that have shown that most independent contractors like being independent. It’s not some exploited group. They want the independence. They don’t want to be employees. And freelancers in particular that have been well recognized, they want to maintain that status. And that clearly is going to be made more difficult by the proposed rule.

 

We don’t have time to go into all the details of the rule changes. I’ll just give a few examples of some of the changes, just for an example. First of all, they have eliminated this concept that control and opportunity for profit or loss are core factors, whatever that means. They misinterpret that, what’s meant -- what the Trump rule meant by core factors. They keep saying that the Trump rule is saying they’re only going to be considered. That was never what the rule said, and it was clear that it was going to consider the totality of circumstances. But, regardless, they’re saying it’s no longer a core factor for control or opportunity for profit and loss. But, on top of that, they’re saying the control factor’s going to be diluted because they’re going to consider reserved control. So it’s not any longer actual control but this new concept—relatively new—of reserved control. And they’re going to expand the definition of control to include enforcement of government safety regulations, which over many years have been felt. That’s not really fair to blame the employer, the so-called employer, for that because the government requires everybody to obey these same regulations, various safety types. And, so, that shouldn’t have much weight as part of control.

 

The new rule, the new proposed rule says, “Oh, yes, it should,” and how much remains to be seen? They modified the opportunity for profit and loss to make it more dependent on managerial skill, implying that to be an independent contractor, you have to have a staff. You have to market your business. You have to manage. You have to have someone to manage, which really kind of eliminates the concept of a freelancer or an owner/operator in the construction industry if it’s carried to its inclusion. Some of the verbiage, they go kind of both ways, and we’re just trying to give just a quick summary here. These are the points that have caused people concern.

 

Now, this is not a final rule. It’s proposed, so maybe they’ll take these concerns into account and make it less threatening in the final rule. But nobody’s really counting on that. A couple other examples before I turn things over to Evan to talk about the politics of all this is in making the worker investment a separate factor from opportunity for profit and loss, minimizing -- what this does is it minimizes the investment in equipment or vehicles, saying there’s distinction between those kind of things and so-called capital investment. Again, they want the -- they’re saying that to be an independent contractor, you have to actually run a business with staff and capital and investment of a type. And then they want to compare to the supposed employer, which is always going to be an unfair comparison. For an owner, operator, or freelancer, their investment is going to be -- while it may be significant for them, it’ll never compare to the investment by the purported employer.

 

The degree of permanence is a factor that’s always been in part of the test. They want to require proof that the temporary -- even when it’s temporary, that it results in the worker’s own initiative and not the decision of the punitive employer. It wasn’t a layoff. It wasn’t seasonal. It was you have to prove that it was the worker’s idea to move on, which again is a tough thing to meet. And then what’s integral to the business? They’re expanding the focus on literally any important functions of a worker rather than whether there are integrated into a unit of production, which is what that factor originally meant many years ago.

 

So it’s challenging and many people think this is an attempt to include the B factor from the ABC test from California, incorporate that into the federal standard, which has never been there before. And, lastly, still and initiative, that would be limited to where the skills are used in what so-called business-like initiatives, such as market. They talk about marketing, that word must, if you do a word search, must be a hundred times that they want -- to be an independent contractor, you have to do a lot of marketing and have a staff and have those management skills, which many independent contractors simply do not have.

 

So let’s turn to what’s next, what’s going to happen with this. They’ve issued a proposed rule. All these comments—they actually are supposed to read them—and that takes time. They’ve done some other rulemakings. They’ve generally taken about six months, some longer, some shorter. So let’s say three to six months. I think it’s more like six months to a year before they issue it. But, then again, Evan will talk to us about what might come out and will happen in Congress that might affect that too. Then, the question is they go to -- we have this case pending. It’s sitting there on appeal. They will no doubt move to dismiss the case as moot at that point. Then there’s some legal jujitsu that will happen. Either it will be continued—we will be seeking to continue it in the appeals court—or it could be remanded to the district court to examine this revised rule. But all options are open. Until we see the final rule, no telling what the coalition that exists will decide to do. So, meanwhile, the Trump rule stays in effect, and, with that, let me turn it over to Evan who’s been waiting patiently to tell us what’s going to happen politically. Evan.

 

Evan Armstrong:  No. It’s a long journey that we’ve been on to get here. So I think you put it as succinctly as you possibly can while not avoiding any details. I think the folks need to know that Maury is here to bring the steak and the substance, and I’m going to bring a little sizzle and talk some politics on what all this is going to mean now and into the future when we get into the next Congress.

 

I think one just response to what Maury laid out in terms of these factors and how the Department is going to view them, I think the moral of the story is they wanted to be intentionally vague. I think that gives them more discretion to use any one factor in a way that they want to get to the decision that they want, which is more often than not going to find that an individual is classified as an employee under the test. So the vagueness of these factors, the 160-plus pages in the proposed rule, I think was giving them as much leeway as they can, and I think that’s what folks need to be counseled on while they’re making plans internally and certainly something that we’ve discussed with our retail executives who are tracking this issue.

 

So when the Trump rule came out, CWI—which is the Coalition for Workforce Innovation—we were very supportive of just the clarity that it provided trying to synthesize the rules a little bit more clearly and just give it a little bit more rules of the road for both individuals who want to be independent contractors, independent workers, and organizations that utilize those services. And we all know it happens a million times a day, every day, throughout the economy. And that was really the story that CWI tried to lay out over and over again in advocacy to the Department of Labor.

 

But knowing that they’re going to do what they set out to do, which is to create this standard that is easier for them to apply and find individuals as employees, much of the comments that CWI submitted really laid the groundwork potentially for a challenge in the future. As Maury mentioned, CWI was the lead plaintiff against the Department of Labor -- against the Biden administration when they rescinded the rule. So I think a lot of what our commentary provided was again that basis for finding that this decision, again, was arbitrary and capricious and something that we’ll look at.

 

In the interim here, they’re going to be reviewing the comments. As Maury mentioned, it’ll take them a while, or it should. Hopefully, they do read all 50,000 comments carefully. That will take them into the spring or summer to get to a final rule just in terms of that’s typically how long it takes for an agency to get a major rulemaking out. It could be ever longer. So we have a little bit of a respite here before more action is taken. And, again, the Trump rule has been in place. It will continue to be in place. And I think one of the arguments that the Department of Labor received was they’ve been utilizing it effectively to find misclassification in many cases. I think they’ll continue to do that, which will further deteriorate their basis for creating a new standard here, which is what they’re doing. So more to come on that.

 

I think politically, you’re going to see a very unified Republican conference in the House on this issue. They’re unified in not a lot of ways. There’s a lot of infighting right now as they get themselves organized going into next Congress. But over and over and over again, you hear a lot of opposition to what the Department of Labor and the administration are doing towards independent contractors. So I think the issues that can really animate the Republican conference in the House where they will have a slim majority, I think those are the ones that are going to rise to potential full action by the House. And, so, I think that the House Education and Workforce Committee—whether it’s chaired by the current ranking member, Virginia Foxx, or new chair Tim Walberg—next year, this issue will be a priority. So I imagine multiple hearings in the first half of next year on independent contractor issues.

 

I think the committee will develop specific legislation to codify a standard that makes sense so we don’t have the ping-pong effect between administrations that we commonly have on labor issues, whether it’s at DOL or the NLRB. I also think they may pursue something called the Congressional Review Act, which will allow Congress to rescind a final rule by an administration. The trick there is that you obviously need a Senate to agree with the House action here. Democrats do control the Senate with a 51-49 majority, but the independent contractor issue does not unify the Democrats as much as it does Republicans because there are several Democrats who support the independent contractor model, who support the franchising model, and understand that the impact of this rule in the way the Department of Labor may apply it could be pretty damaging to their constituents, to business owners, to individuals who they’re hearing from on a day-to-day basis that are worried about what the Department is doing.

 

So I think the politics of this are very interesting. Again, I think Republicans will put votes out that may put some Democrats in a tough position on the issue. And you only need a simple majority in the Senate to pass a Congressional Review Act, and that would go to the president’s desk and make him make a decision about whether he wants to veto it or pass it. I think it’s likely that the president would veto legislation that would rescind a rule that his administration passed. But, again, I think it puts the conversation out there, and I think it puts people in a difficult position perhaps within their conference—namely Democrats—to either say they support independent work and the positive impact it has on the economy or sort of toe the party line on this issue.

 

So that’s kind of the next steps in terms of what we’re going to see legislatively. Most of the action is going to be in the House because the Republicans do control the majority there next Congress. But I do think there’s opportunities in the Senate to make hay on this issue. I’m certain that CWI and RILA and many organizations that are impacted by this will continue to call on Congress to act in opposition to what the Department of Labor is doing.

 

Maury Baskin:  Great, Evan. Thanks. We have gotten some questions already, good questions. I can briefly answer. And maybe, Evan, if you see anything different, feel free to chime in. One was whether there’s going to -- we expect a rush for exemptions before the final DOL rule is put forward if they’re reading through the comments. That’s where the request for exemptions would happen. That’s where the rush would be. Although, in California, they did it legislatively. And, so, following up on what you just said, Evan, it’s certainly possible somebody could try to get a carve-out through Congress and that Biden might sign for his favorite industry or two, and that really was kind of unseemly rush for carve-outs there in California and also added to the whole arbitrariness of the whole thing, and so it is not a good way to legislate.

 

In the comments themselves, I know one exemption that was pretty prominent was that people were asking for was a small business exemption. In fact, even the Office of Advocacy of the Small Business Administration, which is part of the administration, they came out on the side of the business community there saying, “This has a whole lot of impact. It’s not properly acknowledged by the department, and it should be rethought at minimum.” Meanwhile, the department has said pretty much they’re not -- they mentioned that as an alternative they considered and good enough. So it actually wasn’t a vote. They just did not do it in their proposal. And I think individual industries have made statements along those lines. And, Evan, have you seen anything on the carve-out front in technology or do the other members of your coalition?

 

Evan Armstrong:  I know there was conversations before we saw the proposed rule, that folks thought that it may be focused on certain industries that I think, to quote the Department of Labor, had a history of misclassification. I think they name-checked construction as being one area. And, so, I think there was ideas of whether certain industries were not going to be the prime focus here. I think now we know what the proposed rule is. We know how broad it can be utilized. And I don’t know that if I was an industry that utilizes independent contractors that I would feel safe as it stands now. But a question I’ll throw back to you, Maury, if they create certain exemptions or they explicitly state to focus on one industry over another, does that add to an argument that it is arbitrary and capricious that it’s not a dutifully passed rule under the APA?

 

Maury Baskin:  Let’s just say it’s a double-edged sword at the least. They could up the ante. One could say they chose -- they thought through alternatives that are reasonable but also that they’re acting just, well, arbitrarily. So I think -- I’m not expecting, frankly, that they will do the right thing or -- right or wrong depending on which way you think it is. Anything that narrows it I think would be the right thing considering how broad it is. And that raises a question, next question that we’ve been asked, which is, is this a candidate for challenge under the major questions doctrine? And those of you -- I’m sure all of you as good federalists know that that doctrine is potentially very important because the Supreme Court is saying, “Well, the separation of powers in the Constitution means something, and it’s wrong for Congress to just turn loose these administrative agencies without explicit guidance.”

 

What’s different here or more of a challenge to make that argument is that the case law that I skipped over—I said wasn’t going go through everything since 1938—there’s a lot of cases in there, including Supreme Court cases, that indicate deference to the department but also certain factors that need to be considered. So it’s not a new development, which the other cases where the major questions doctrine has been applied have generally been. But I believe it’s always now any administrative action should be considered with an eye to the major questions doctrine. And, since handling the lawsuit, I can tell you that that will be considered as a possible argument. And particularly, the broader they make this rule, the more they are subject and open to that type of challenge. And the judge is down there in the circuit, Fifth Circuit, which has expressed interest and support for the major questions doctrine.

 

I’ll mention another question here. How can deliberate ambiguity in the tests for independence be consistent with the rule of law? Well, darn good question. And I think they are going to have to answer for that. That was the whole reason for the Trump rule, which was -- that was so confusing under the original ambiguous standards that—and the courts have made it all worse—that this would help streamline. If they would just leave it in place and follow it and see how it works out, all the scare talk about how the Trump rule just makes everybody an independent contractor is certainly not true. There are actually a couple of courts that have implied the Trump rule. And it doesn’t come out that was unnecessarily so. But it does—it did—and still does. It’s still in effect. And, if you get an investigation, by the way, if your company has one going on, you want to be sure the investigator realizes he’s still bound or she is still bound by the Trump rule. So the best answer is you’re right, but it’s up to the courts to decide that. Evan?

 

Evan Armstrong:  And, Maury, just to -- because this is something that CWI comments, one of the arguments to undercut the rulemaking here is the affected stakeholders have to know whether they’re in compliance is a key component here. And I think the ambiguity and the vagueness of these factors and how they can be applied would indicate it may be difficult. You may think that you’re in compliance, but it’s a very difficult proposition.

 

Maury Baskin:  Yeah. Extremely frustrating, especially to advise people about this because -- if only this were the only test. There are different laws. In fact, the next question relates to that. Someone said, “I get the income tax issues, but why -- what are the remedies, and what is the threat?” Well, here, under the Fair Labor Standards Act, the threat is quite severe because for minimum wages and overtime, particularly the overtime, if you don’t pay those because you classified someone as independent contractors, you’re open to class actions. And they have been filed for years over and over costing potentially millions of dollars to companies who thought their people were independent contractors, who were not entitled to overtime and even minimum wage. But they found out the hard way that because somehow these factors were interpreted, which were so ambiguous—they had no real clear notice—they owed a lot of money. And, so, this is why the Department of Labor’s ruling on this is extremely important from a remedy standpoint.

 

One other related argument is how important is it really because the courts don’t necessarily pay attention to what the Department of Labor is saying. They actually do give deference to the Department’s rules. Some more than others, depending on how valid they think the rule is. So it is -- well, for one thing, it was an opportunity when the Trump rule went into effect to make a change for the better, and now that opportunity will be lost. But, also, it’s going to be made worse because they did not simply go back to pre-Trump standards. And that’s something else they have to answer for. When an agency changes position, they have to give a reasonable explanation, and they have to acknowledge that they made a change. So here, they certainly acknowledge that they made a change from the Trump rule. But they have not really acknowledged how different their standard is from the previous Obama and earlier administrators. So they’ve got something to answer for there also.

 

They mentioned the Congressional Review Act, which you brought up, Evan, so I’ll let you answer this question. Oh, I’m sorry. Did you not see it? It’s, “Would the vote need to be scheduled by the Senate leader? And does that mean it can’t happen?”

 

Evan Armstrong:  So good question. So I’m a House guy. I will get in trouble talking too much about Senate process. Senator Burg would roll around in his grave. But my impression is it’s what’s called a privileged motion, which it can be brought to the floor without the consent of party leadership. So the most recent example we have here is Senator Braun and several others led a Congressional Review Act motion to rescind the OSHA vaccine mandate. Now, they actually did pull a couple Democrats on their side and had 51 votes, and it did pass the Senate. Interestingly, before it got to the president’s -- or before it went to the House, the Supreme Court came in and basically made everything moot by saying the mandate was unlawful. But that is the most recent example, Senator Braun, Republican in the minority bringing a CRA to the floor and getting a couple Democrats on board.

 

To my earlier comments, I think the independent contractor issue is eligible to get that kind of wedge issue on a few Democrats. It may be worth noting that there are several Democrats up in swing states in 2024, including Kyrsten Sinema, who’s typically a bit of a maverick from the Democratic side. You have Joe Manchin, who has already expressed concern about an issue we’re going to talk about on the joint employer’s side. He is very interested to protect construction and the franchise model. So I think, to my point, there is going to be an opportunity potentially on this issue to get some Senate action, and I would point to Senator Braun’s office as being a potential lead on that as well with a few others, like Senator Tim Scott. So more to come, but they certainly can press for action.

 

Maury Baskin:  And speaking of voters in Congress changing sides, someone has asked—although we shouldn’t even entertain this, since they’re asking about the PRO Act and not our subject of today—but it’s a subject everybody needs to be concerned about. So pointing out that the five Republicans actually voted past the PRO Act. I, for one, don’t believe we should -- that no one is sitting around just resting on their laurels and assuming the PRO Act will just go nowhere. And it’s vital that it not pass the House because if it passes -- happen now it’s more likely to pass the Senate, although a couple of vote switchers may prevent that. The reason actually the PRO Act does apply here or has relevance is because in the PRO Act is a nationwide ABC test, similar to California test. Although, it’s only for the National Labor Relations Act currently. And we’re about to talk about that. But still, so there is a relevance to independent contractor. It’s a legitimate question. And, Evan, what’s the answer? Is the PRO Act going to suddenly rear up again in that control House?

 

Evan Armstrong:  I’ve spent far too much of my life the last two years talking about the PRO Act, but it is something we have to continually be vigilant about. I don’t not expect the PRO Act to ever come to the floor in a House controlled by the Republicans. I think at least three of the Republicans that voted in favor of the PRO Act this Congress are no longer there and will not be there next Congress. One of them was Don Young, who passed away a few months ago from Alaska. So I don’t worry about the House moving on the PRO Act. They’re more likely to vote on something called the Employee Rights Act, which is the exact opposite informant function to that. So I think rest easy there. I think on the Senate side form the PRO Act standpoint, that’s a little bit more of a risk. Although, I am skeptical that Mr. Schumer would bring up a very controversial bill again going into a ’24 cycle when many of his colleagues are up for reelection in tough states. I think we’ll continue to monitor it, but I’m dubious that it will get a vote in the next Congress.

 

Maury Baskin:  Okay. The last question we can take in this segment—although, we’re going to go into other aspects, which keep sending them in—but it has to do with in tort, the ground rules there look to stay precedent. Why are we even looking at federal standards? And one thing it’s worth bringing up about this is that the Fair Labors Standards Act, the courts have held, going back to 1938 practically and certainly 1948, that the standard is different from the common law because the Fair Labor Standards Act uses this language about suffering or permitting people to work. And that’s been viewed as setting a different test.

 

So, for this limited purpose, now one could ask, “What’s the logic behind having state governments at all?” This is The Federalist Society, so we support having state governments. The state laws are different in some respects. But it is certainly confusing. As you saw or heard from the beginning, keeping all these different things straight—and it’s not just the state governments, but it’s so many different standards at the federal level—what’s the logic for that? Except, as I’m about to explain, the National Labor Relations Board is governed by the common law because the Congress in the Taft-Hartley Act overturned their efforts to put through something like this economic realities test that is now being applied. And they said, “No, none of this economic realities. Use the common law standard.” And everybody knows what that is—actually, are less than quite clear—but they came up with this 10-factor test for the common law. And, so, the National Labor Relations Board has a different standard that it must meet from what the Department of Labor is doing under the Fair Labor Standards Act.

 

So the National Labor Relations Board is about to issue a new case on this independent contractor test. And what factors do they apply? And the courts have already held, particularly in the FedEx case that we worked on, that they are bound by the common law, they can’t go their own way, and the courts owe no deference to the National Labor Relations Board when it adopts a test that is inconsistent with the common law. That didn’t stop the Obama board from trying to impose a new test that was broader. And the DC Circuit slapped them down, said, “You are bound by this”—and twice actually—“you’re bound by the common law standard.” And that’s where things have stood, but they are now proposing -- well, what caused the new situation is that the Trump NLRB issued on its own a rule, which is kind of rare for that agency.

 

They usually just decide case-by-case. They issued a rule in which they wanted to clarify the joint employer says requires direct evidence of control over essential working conditions by both the employers who are at issue, and so in direct control could also be considered. So they imposed the joint employer rule as a proposed rule. The independent contractor change that’s about to happen is in a case. The case is Atlanta Opera, and it has really very little to do with the gig economy or franchising. It’s about makeup artists in an opera company. But they have picked this case and declared that they want to use it to create a new standard that harkens back to the FedEx standard for independent contractor status, overturns this super shuttle case.

 

Which the key issue which the board is hinging it on, some of the factors about control and opportunity, they’re similar to what the Department of Labor has talked about that we’ve spent most of the time talking about. But in the NLRB case, a lot is hinging on the opportunity, entrepreneurial opportunity, and that if employees, so-called employees, have that entrepreneurial opportunity, then they’re really independent contractors provided that the control factors are present and other tests about permanence and the other seven or eight tests that they follow. And, so, a lot hinges on that entrepreneurial opportunity because the freelancers, the Uber drivers of the world, that’s an important factor for them. And, so, everybody’s waiting to see what they do in this Atlanta Opera case, which literally could come out tomorrow, even tonight, because people are expecting it to happen before the Republican board member leaves the board, which is tomorrow at close of business, I believe, unless it’s midnight. And, so, we are expecting that.

 

And then the question is, if they do it based on a case like this, normally that’s challenged in the courts of appeals. There’s question because this is happening in the context of an election. Will it be possible to immediately challenge it, or will it have to wait a year or two before a different case is brought in the unfair labor practice climate or environment? So there’s a lot of confusion. That part is guaranteed. When they issue this new decision, it’ll be a lot of confusion about how it applies because they’re going to be trying to make general principles out of case that is really—I don’t want to say unique—but unusual. So it’s really a poor vehicle. Part of me still says or thinks, “Gee, maybe they’ll actually recognize this is a horrible case to make broad principles law out of,” but we’ll just have to see. Everyone thinks pretty much that they’re going to in some way return to the pre-Trump standard for independent contractors, except that that was in total flux prior to Trump because the courts disagreeing even then was what the Obama administration was doing.

 

So that’s what’s happening with the board and the impending contractor. And, as I mentioned, the board is separately issuing its own proposed rule to deal with the joint employer status. And the Department of Labor, ironically, they got that rule vacated during the Trump administration, and the Department of Labor has not yet proposed another joint employer rule. They’re just continuing to enforce it pretty much the way it was being enforced prior to the Trump administration. So, again, I don't know if this clears things up or makes it even more confused. Well, it definitely makes it more confusing, no question about that. But let’s see, what do you think politically there, Evan? What do you think is going to happen with the board? We only talked about the PRO Act.

 

Evan Armstrong:  Yeah. We live in a world of confusion. That’s always fun. Yeah, I think politically, it’s a similar message on the independent contractor front from what the Department of Labor is doing. There is quite a bit of opposition to this vague, indirect joint employer standard that the board is moving back towards. And I think there was a really good indication on the prospects of congressional action via the Congressional Review Act that happened last week, which was a bicameral, bipartisan letter of disapproval to the board about the rule. And that is important because it had 51 senators sign it.

 

And, so, they have a proxy vote to do a Congressional Review Act to rescind this joint employer rulemaking by the National Labor Relations Board. The Democratic senators who supported the letter are Machin and Angus King, so I think that is a really good indication on where this issue might head in the next congress. Again, those senators deeply care about certain industries, namely franchising, which has done a great job of lobbying and advocating against these vague joint employer standards for the last several years, and I think have borne some fruit out with support on their position. So I think much action will happen there similar as it has happened on the independent contractor side.

 

Beyond where Congress is, organizations like CWI and RILA and many others will continue to press on oversight hearings, certainly on the House side where, again, either Virginia Foxx or Tim Walberg will chair the education and workforce committee in the House and will have the ability to call witnesses in to talk about these issues, to talk about some overreach, bad policymaking by these agencies, and continue to sort of beat the drum on this. And, to Maury’s point, I think a challenge on the Atlanta Opera front will sort of -- will have to determine what that will look like, right? If it’s applied in a different case that makes sense for some amicus to be filed from CWI or others, I think that we’ll have to make that decision. But I will say it is a lot of—what do you say—a lot of known unknowns and a lot of known knowns and plenty of unknown unknowns out there, but we’ll be ready to commentate on it.

 

Maury Baskin:  Right. Okay. We can take a few more questions at this point. I do think that the joint employer rule that the board is proposing is particularly dangerous to a lot of industries because it’s similar too in that they purport to be going back to the Obama standard, but they’ve actually gone beyond it. Because even the Obama standards of the NLRB, which dealt with the Browning-Ferris case that some of you may recall, they said that indirect and potential authority could be a factor. And, in fact, the Trump rule says that right in there. It could be a factor indirect, but it’s not the sole reason. You can’t be found to be a joint employer based solely on the indirect or reserved or potential control.

 

But this proposed rule, which would rescind what the Trump board did, they are saying—and this is different from what the Obama board had said—that merely, the sole thing you got, is reserved indirect potential control between employers who are both have employees working in a worksite or other -- pretty much anyone that you have a contract with if you’re running a business. So vendor or contractor, a technology person, a freelancer, you’ve got this potential for joint employer based on a contract or just understanding that are just open to interpretation. That combined with similar to the independent contractor rule is the notion that safety conditions where there is control exercised in the vague sense that as a standard part of doing business—you’re welcoming a vendor into your plant—you got to make sure that they are subject to the same safety rules as everybody else or in a construction jobsite or in technology situations or franchising. And franchising needs to protect the brands according to franchising law.

 

So they’re being put into this impossible situation, the franchisors or the vying contractors or the other examples I just gave. It really is an impossible situation if the government has regulations and all you’re doing is saying, “Well, everybody in our building needs to obey these regulations or everyone at this construction site.” That is not the kind of control that was traditionally recognized. And there are many cases, especially on the NLRB side, that says that is inconsistent with the common law test. So I think that puts the board if they stick to that, what’s in the proposal and they stick to that in the final rule, they’re really asking for trouble, I think, with the courts. Of course, who knows what the court -- who the judges are going to be by the time they get there, and that makes a huge difference, but it still -- and particularly because it may take longer to get there. If this Atlanta Opera case is the vehicle, grave concerns about will be a posture that can be immediately appealed, or will it have to go through more unfair labor practice complaints and work their way back up to the board and more confusion and meanwhile more judicial appointments from the Biden administration? So that’s a concern as well.

 

So those are our thoughts on both sides of this, the board, the NLRB, the Department of Labor, and even to a limited extent the states. Hope we answered your questions. If there’s any -- looks like you all have ran out of steam question wise, so we’ve answered them. And I think we can let you enjoy the rest of your day unless, Evan, you got some closing thoughts.

 

Evan Armstrong:  Well, Maury, I had one question. You talked about the DC Circuit. I think in both the joint employer and independent contractor instances, they’ve expressed concern with the approach. You talked about in the FedEx case with the Obama administration, you have -- I believe the DC Circuit expressed concern about an indirect, vague standard in joint employers. So what does that do to the current administration’s ability to win in the DC Circuit when they have some bad precedent already on the books?

 

Maury Baskin:  Right. Now, of course, the DC Circuit has moved a little to the left since those decisions were issued, but they’ve also shown that they generally apply their own precedents. Particularly in that FedEx case, they were very firm about saying, “When you come back to us with exactly the same issue, we’re going to tell you exactly the same thing that we said before.” And you’re right about the Browning-Ferris -- one of the fall-out cases from Browning-Ferris when the union tries to enforce is the board, it recognized the ability to use the indirect test for a joint employer but said that it could only be for essential working conditions, not just anything, because otherwise it’s impossible. Everyone is a joint employer with everyone else unless you limit it in some way. And, so, they instructed -- they denied enforcement. They instructed the board to do a better job of articulating what are the essential working conditions and how does the control factor relate to them.

 

So what did the board do? They came back, and basically the Biden board has come back and said, “Well, it’s pretty much everything is an essential working condition.” So that’s their answer. They make such a long list that it becomes meaningless one could argue. And I think they’re going to have trouble with that because they are clearly acting in defiance of what the appeals court told them, and any board case challenge can be filed in the DC Circuit. Although another interesting court to all this is pending right now a case over where appeals from NLRB rules are supposed to be filed. Are they filed directly in the DC Circuit, or are they filed in the district court? Now, we’re really getting lawyerly technical but since there are lawyers among you. Ironically, this case has been pending, that issue has been pending in front of the DC Circuit on another board rule dealing with elections. And they’ve been stuck on that case. It could come out at any time, but they’ve spent more than a year thinking about it primarily over that very question. So we’re hoping they figure it out before these rules go final and we actually want to challenge them. It’d be nice to know which court we’re supposed to go to. So, anyway, that’s a little interesting trivia fact.

 

Evan Armstrong:  Well, Maury, we got two questions. I think they can be answered pretty quickly. I’ll take the first. It’s pretty pro forma for agencies to extend comment periods. Typically, they may initiate a 30-day and a lot of times will give a 15/30-day extension if enough people ask. So I think the regulated community and the folks here in DC know that when the initial comment period is released, there’s an opportunity to immediately send a letter saying, “Well, if you want a thorough comment, if you want good data and evidence, you need to give us more time.” So it’s generally a pro forma exercise in most cases with most agencies. Maury, if you had more to add on that, but I know that somebody asked -- Ethan asked the name of the case you referenced about jurisdiction of NLRB cases.

 

Maury Baskin:  Yeah. When he said, “What is the name of this case?” I was trying to remember. What was I talking about at 4:23 PM? But I think you’re right. And I believe, if we’re both on the right connection here, it’s the case AFL-CIO v. the National Labor Relations Board because AFL-CIO is the one that challenged some parts of the election rules, which Judge -- as I recall, it was now Justice Jackson actually issued an opinion that upheld most of the rules but struck down some and then upheld some. So both sides kind of appealed from that. And the board itself raised the question in that case, “Hey, this challenge was filed improperly because they filed in the district court, and they should have gone directly to the DC Circuit.”

 

Which other cases that had been challenged of NLRB rules -- like some old people may remember the American Hospital Association case, or even younger people like me remember that case and that was done in the district court, and nobody made a peep about that. But now, it’s a new theory and apparently is causing angst in the DC Circuit. So we’re waiting to see anyways. It’s AFL-CIO v. the National Labor Relations Board. Okay. Well, great. Great questions, and I think we’ve done all we can today to sort this out and more to come on both fronts, that’s for sure. So, Sam, take us out.

 

Sam Fendler:  Well, gentlemen, on behalf of The Federalist Society, I want to thank you both very much for sharing your time and your expertise with us today. I want to also thank the audience for joining us. We greatly appreciate your participation. Please check out our website, fedsoc.org, or follow us on all major social media platforms @fedsoc to stay up to date with announcements and upcoming webinars. Thank you all once more for joining us, and we are adjourned. Have a great evening.