WASHINGTON, DC – U.S. Senator Sherrod Brown (D-OH) led a group of his Senate colleagues in a letter urging U.S. Department of Labor (DOL) Secretary Eugene Scalia to rescind a proposed rule regarding classification of workers as employees under the Fair Labor Standards Act (FLSA). The rule proposes a misguided test to determine if a worker is an employee under the FLSA, failing to address rampant misclassification of workers as independent contractors. This creates incentives for employers in all industries to further misclassify workers who should be protected by the FLSA. If finalized, this rule would exclude millions of workers from critical minimum wage and overtime protections, contribute to stagnating wages, and exacerbate economic inequality for American workers, particularly workers of color.

“It is unconscionable that DOL, the agency tasked with enforcing the FLSA, is proposing to exempt millions of workers from the law’s safeguards,” wrote the senators. “By issuing this proposed rule, particularly during a pandemic when millions of workers have lost their jobs and millions more are lacking critical benefits because they are classified as independent contractors, DOL makes clear that its intent with the rule is not to protect workers but to rubber-stamp corporate profit-maximizing schemes responsible for the hollowing out of the American middle class and growing the racial wealth gap.” 

In September, Brown, along with U.S. Senator Patty Murray (D-WA), and Congresswoman Rosa DeLauro (D-CT-03), introduced the Worker Flexibility and Small Business Protection Act, a landmark bill that will expand labor laws to protect workers classified as independent contractors and workers at sub-contractors, temporary (temp) agencies, and corporate franchises. Additionally, this legislation will help protect small businesses by putting larger corporations and their CEOs and top shareholders on the hook for workers’ rights violations so that small businesses are not forced to compete with fly-by-night operations that violate workers’ rights to undercut them for business.

Along with Sen. Sherrod Brown (D-OH), this letter was signed by U.S. Senators Patty Murray (D-WA), Chris Van Hollen (D-MD), Richard Blumenthal (D-CT), Edward Markey (D-MA), Jack Reed (D-RI), Tammy Baldwin, (D-WI), Kirsten Gillibrand (D-NY), Robert Menendez (D-NJ), Richard Durbin (D-IL), Elizabeth Warren (D-MA), Chris Murphy (D-CT), Sheldon Whitehouse (D-RI), Bernie Sanders (I-VT), Mazie Hirono (D-HI), Benjamin Cardin (D-MD), Tammy Duckworth (D-IL), Robert Casey (D-PA), Maria Cantwell (D-WA), Tina Smith (D-MN), Jeff Merkley (D-OR), Catherine Cortez Masto (D-NV), and Cory Booker (D-NJ).

A copy of the senators’ letter to Secretary Scalia can be found below and HERE:

 

October 22, 2020

 

The Honorable Eugene Scalia

Secretary

U.S. Department of Labor

200 Constitution Ave., NW

Washington, D.C. 20210


Dear Secretary Scalia:

We write in opposition to the proposed rule issued by the Department of Labor (DOL) regarding classification of workers as employees under the Fair Labor Standards Act (FLSA) (85 FR 60600).  The rule proposes a misguided test to determine if a worker is an employee under the FLSA.  In doing so, it fails to address rampant misclassification of workers as independent contractors and creates incentives for employers in all industries to further misclassify workers who should be protected by the FLSA.  As a result, the rule would exclude millions of workers from critical minimum wage and overtime protections, contribute to stagnating wages, and exacerbate economic inequality for American workers, particularly workers of color, and we urge the DOL to rescind it.

The proposed rule is not based in the statutory language of the FLSA and neglects Congress’ intent to extend critical protections to workers across the country.  Congress enacted the FLSA 80 years ago in response to the “existence…of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers.”[1]  To address these concerns, the Act established crucial wage, hour, and child labor standards to protect workers from mistreatment by their employers.  Congress intended these standards to cover workers broadly, which is why the term “employee” is defined as “any individual employed by an employer”; “employer” is defined as “any person acting directly or indirectly in the interest of an employer in relation to an employee”; and “employ” is defined to include “to suffer or permit to work.”[2]  In fact, the legislative history makes clear that Congress anticipated employers’ efforts to get around the law and specifically rejected proposals that would have encouraged employers to modify their business model to avoid the FLSA’s standards.[3]

DOL’s rule departs from long-standing case law and the FLSA’s blanket protections for workers and instead presents a flawed test that would deny millions of American workers protections under the law.  Specifically, the rule focuses on two core factors that purport to determine whether a worker is an employee or an independent contractor: 1) the nature and degree of the worker’s control over the work; and 2) the worker’s opportunity for profit or loss.[4]  Although a few other factors are included as possible secondary considerations, the rule’s fundamental failings stem from these misguided criteria. 

According to the first core factor, workers are independent contractors if they choose their own schedules or assignments and are able to work for other companies, including competitors.  This logic is not based in economic reality. [5]   Employers can and do give employees control over their schedules and assignments, and employees are commonly allowed to work other jobs, including for a competitor.  In addition, those determinants ignore other critical matters of control that an employer typically exercises or retains the right to, including setting the rate of pay and the manner in which the work must be performed and disciplining workers who do not meet their standards.

The second core factor has similar flaws. It assesses workers’ opportunity for profit or loss, but it does not take into account the extent to which employers force workers into situations where they must assume costs and financial risk in order to obtain work, such as requiring them to purchase a franchise or their own equipment, including a vehicle.[6]  Requiring workers to take on financial risk as a condition of employment does not convert an employee into an independent contractor under the FLSA.  Furthermore, the rule’s treatment of skill and initiative in this factor is incomplete at best.[7]  Just because employees can increase their wages by exercising skill or initiative does not mean they are running a separate, independent business, particularly if they cannot pass along costs to customers.  The rule does not include additional, critical considerations of skill and initiative that are necessary to define an employment relationship.  By overemphasizing opportunity for profit or loss as a core factor in the test, DOL would encourage employers to push increased risk and debt onto their workers in order to justify their classification as independent contractors.  As a result, workers could become trapped in situations where they must incur debts in order to obtain work and must work indefinitely to pay off these debts. 

These two core factors are not in line with the congressional intent of the FLSA, the language of the text, or Supreme Court and federal circuit court decisions, and are wholly inadequate in determining whether a worker is an employee.  As a result, this proposed rule would increase workers’ economic insecurity and exacerbate the racial wealth gap.

An expansive reach of employee status under the FLSA is required by the text itself and essential to upholding workers’ rights and protecting them from the increasingly common business model that misclassifies workers, and sometimes entire workforces,[8] as independent contractors.  DOL’s own analysis estimates that nearly 19 million American workers, or over 12 percent of all workers, performed work as independent contractors in 2017, the most recent year for which data are available.[9]  More than 10 million of those workers – nearly half – performed this work for their primary jobs.[10]   DOL acknowledges, however, that estimates on the number of independent contractors vary, and other sources point to a higher and growing number.[11]  The use of independent contractors and worker misclassification,[12] has become more prevalent in health care,[13] transportation and trucking,[14] construction,[15] and the tech sector.[16]

This uptick in workers being classified as independent contractors instead of employees is not because the nature of work has fundamentally shifted; it is an effort by employers to reduce their labor costs by evading the FLSA and other laws at the expense of workers.  A report published by the Department of Treasury in 2013 pointed to this motivation and scale: “employers misclassify millions of workers as independent contractors instead of employees…[which] allow[s] employers to avoid paying a significant amount of money in employment taxes.”[17]  Cracking down on employers’ misclassification of workers as independent contractors should be one of DOL’s top enforcement priorities.  Instead, the proposed rule would legitimize the current trends of rampant misclassification and encourage more corporations to misclassify workers by following this proposed rule’s roadmap.

The loss of employee status has serious financial consequences for workers.  DOL’s proposed rule acknowledges that “independent contractors, on average, may be less likely to have health insurance coverage” and admits that the provision of employee benefits such as health insurance, retirement contributions, and paid time off would “decrease with an increase in the use of independent contractors because independent contractors generally do not receive these benefits directly.”[18]  DOL incorrectly asserts without supporting citation that companies may raise the wages of employees who subsequently are classified as independent contractors to offset the increase in payroll tax contributions the workers would pay as independent contractors in order to maintain equity with employees’ wages.  There is substantial evidence that contradicts this claim.  According to the Federal Reserve, when workers’ primary source of income is derived from an independent contractor position, they experience more “financial fragility.[19]  Independent contractors’ wages in low-paid industries lag behind those of their employee counterparts.[20]  And they are less likely than employees to have health and retirement benefits.[21] 

Workers of color are disproportionately represented in industries in which the use of independent contractors and workers’ misclassification is increasing.[22]  By encouraging more employers to classify their workers as independent contractors, this proposed rule would exacerbate the racial wage and wealth gap.  Black and brown workers experience more economic insecurity than white workers.[23]  This is directly linked to systemic inequities that result in workers of color being paid less than white workers[24] and their over-representation in low-wage sectors.[25]  Lower earnings leave Black and brown workers with much less in retirement savings, if they have any at all.[26]  Workers of color are also much less likely to have paid leave benefits[27] or be able to work remotely.[28]  The COVID-19 pandemic has brought into sharp relief the acute consequences that inadequate paid sick days, paid leave, and employer-provided health insurance can have on workers in alternative work arrangements.[29]  Those consequences are even greater for Black and brown workers, who disproportionately hold frontline jobs.[30]  DOL’s proposed rule would worsen these troubling trends of workers economic insecurity and racial inequity.  

It is unconscionable that DOL, the agency tasked with enforcing the FLSA, is proposing to exempt millions of workers from the law’s safeguards.  By issuing this proposed rule, particularly during a pandemic when millions of workers have lost their jobs and millions more are lacking critical benefits because they are classified as independent contractors, DOL makes clear that its intent with the rule is not to protect workers but to rubber-stamp corporate profit-maximizing schemes responsible for the hollowing out of the American middle class and growing the racial wealth gap.  We oppose this rule and urge you to rescind it.

Sincerely,

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