Preview
FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020
NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022
"F"
Exhibit
FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020
NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022
GO
622 18 Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022/ Proposed Rules
DEPARTMENT OF LABOR submissions, when a singlesponsoring workweek. The Act also requires
individual or organization submits covered employers to maintain certain
Wage and Hour Division multiple comments on behalf of records regarding employees and
members orother affiliated
third parties. prohibits retaliationagainstemployees
29 CFR Parts 780, 788, and 795 The Wage and Hour Division (WHD) who are discharged or discriminated
posts such comments as a groupunder against for
after, example, inquiring
RIN 1235-AA43
a singledocument ID number on https:// about theirpay orfilinga complaint
Employee or Independent Contractor WWW·regulations.gov. with the U.S. Department of Labor.
Under FairLabor Anyone who submits a comment However, the FLSA's minimum wage
Classification the
(including duplicate comments) should and overtime pay protections do not
Standards Act
understand and expect that the apply to independent contractors.As
AGENCY: Wage and Hour Division, comment willbecome a matterof public explained below, as used inthis
Department of Labor. record and will be posted without proposal, the term "inde endent
contractor"
ACTION: Notice of proposed rulemaking. change to https://www.regulations.gov, refersto wor ers who, as a
including any personal information matter of economic are
reality, not
SUMMARY: The U.S. Department ofLabor provided. Accordingly, theDepartment economically dependent on their
(theDepartment) is proposingto modify requests thatno business proprietary employer forwork and are inbusiness
Wage and Hour Division regulations to information, copyrighted information, forthemselves. Such workers play an
revise itsanalysisfor determining or personally identifiableinformation be important role in theeconomy and are
employee or independent contractor submitted inresponse tothisnotice of commonly referred toby different
classificationunder the Fair Labor proposed (NPRM}. names, including independent
rulemaking
Standards Act (FLSA orAct) to be more Docket:For access to thedocket to contractor, self-employed, and
consistent with judicialprecedent and read background documents or freelancer.Regardless of the name or
the Act'stext and purpose. comments, go to the Federal titleused, thetestfor whether the
DATES: Submit written comments on or Portalat https:// worker is anemployee or independent
eRulemaking
before November 2022. www.regulations.gov. contractor under the FLSA remains the
28,
a his pr rulem king is not
ADDRESSES: You may submit comments, FOR FURTHER INFORMATION CONTACT:
identifiedby Regulation Identifier Amy DeBisschop, Division of
independent contractors who are,as a
Number (RIN) 1235-AA43, by eitherof Regulations, Legislation,and
. .. matter of economic in
reality, business
the following methods: Interpretation,Wage and Hour Division
forthemselves
" Electronic Comments: Submit (WHD), U.S. Department of Labor,Room
Determining whether an employment
comments through the Federal S-3502, 200 Constitution Avenue NW,
relationship existsunder the FLSA
eRulemaking Portalat https:// Washington, DC 20210; telephone: (202) begins with the Act's definitions.
www.regulations.gov. Follow the 693-0406 (thisis nota toll-free FLSA
Although the does not define the
instructions forsubmitting comments. number). Alternativeformats are contractor,"
term "independent it
" Mail:Address written submissions availableupon request 1-
by calling contains expansive definitionsof
to Division of Regulations,Legislation, 866-487-9243. Ifyou are deaf,hard of "employer," "employee,"
and
and Wage
Interpretation, and Hour hearing, or have a speech disability, "employ." "Employer"
isdefined to
Division, U.S. Department ofLabor, please dial7-1-1 toaccess person
"include[) any actingdirectly or
Room S-3502, 200 Constitution Avenue telecommunications relayservices· inthe interestofan employer
indirectly
NW, Washington, DC 20210. Questions ofinterpretation and/or employee,"
in relationto an
Instructions:Please submit only one enforcement of theagency's regulations "employee"
isdefined as "any
copy of yourcomments by only one may be directed tothe nearest WHD employer,"
individual employed by an
method. Of the two methods, the districtoffice.
Locate thenearest office "emplay"
and is definedto "include[)
Department strongly recommends that WHD's toll-free lineat work." 2
by calling help to sufferor permit to
commenters submit their comments (866) 4US--WAGE ((866)487-9243) For more than 7 decades, the
electronically viahttps:// between 8 a.m. and 5 p.m. in your local Department and courts have applied an
www.regulations.gov toensure timely time zone, or logging onto WHD's economic testto determine
reality
receipt priorto the closeof thecomment website for a nationwide listingof WHD whether a worker is an employee oran
period, as theDepartment continues to districtand area officesat https:// independent contractor under theFLSA.
experience delays inthe receiptof mail. www.doLgov/whdlamerica2.htm. The ultimate is whether,as a
inquiry
All comments must be received by 11:59 SUPPLEMENTARY INFORMATION: matter of economic the
reality, worker is
p.m. ET on November 28,2022, for either economically dependent on the
consideration inthis L Executive Summary
rulemaking; employer for work (and is thusan
comments received afterthe comment Congress enacted the FLSA in 1938 to employee) or isin business forthemself
period closeswill notbe considered. eliminate "labor conditions detrimental (and is thus an independent contractor},
Commenters submitting file to themaintenance ofthe minimum To answer this ultimateinquiry of
attachments on https:// standard of livingnecessary for health, economic dependence, thecourts and
wwwngulations.gov areadvised that efficiency,and general well-being of the Department have historically
text-recognized documents- workers."1 To this the FLSA conducted a totality-of-the-
uploading end,
1.e., documents in a nativefileformat or generally requirescovered employers to circumstances analysis,considering
documents which have undergone pay nonexempt employees at leastthe multiple factorstodetermine whether a
optical character recognition (OCR)- Federal minimum wage forall hours worker is anemployee or an
enable staff
at theDepartment tomore worked and at leastone and one-half independent contractorunder theFLSA.
easily search and retrievespecific times the employee's regularrateof pay There issignificantand widespread
content included in your comment for forevery hour worked over 40 ina uniformity among the circuitcourtsin
consideration. This recommendation
applies tomass comment 129 U.S.C. 202(a). 2 29 U.S.C. 2o3{d), (a)[1). [g).
particularly
FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020
NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022
Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022 / Proposed Rules 62219
the application of theeconomic reality to whether the work is part
of an realitytestas a totality-of-the-
test,although there is slight
variation as integratedunit of production 8 Finally, circumstances test.Because the 2021 IC
to thenumber offactorsconsidered or the 2021 IC Rule provided that the Rule departed from legalprecedent, itis
how the factorsare framed. These actual practiceofthe parties involved is not clearwhether courts willadopt its
factorsgenerally include the more relevantthan what may be analysis-a question that could take
opportunity forprofitor loss, contractually ortheoreticallypossible years ofappellate litigationindifferent
investment, permanency, the degree of and provided examples
illustrative Federal circuitsto sortout and will
control by the employer overthe demonstrating how theanalysis would resultin more uncertainty as to the
worker, whether the work is anintegral apply in particularfactual applicable test.The Department also
part ofthe employer's business, and circumstances.a believes that from the
departing
skilland initiative. The effectivedateof the 2021 IC Rule longstanding testapplied by thecourts
In January 2021, the Department was March 8, 2021. On March 4, 2021, may resultin greaterconfusion among
published a ruletitled"Independent the Department published a rule employers in applying the new analysis,
Contractor Status Under the FairLabor delaying the effectivedate of the2021 which could in some situationsplace
Act"
Standards (2021 IC Rule), IC Rule (Delay Rule) and on May 6, workers risk
at greater of
providing guidance on the classification 2021, itpublished a rule misclassificationas independent
withdrawing
of independent contractors under the the 2021 IC Rule (Withdrawal Rule}. On contractors due to thenew analysis
FLSA applicable to workers and March 14, 2022, ina lawsuit being applied improperly, and thus may
industry.3 challenging
businesses in any The 2021 the Department's and withdrawal negatively affectboth the workers and
delay
IC Rule identified fiveeconomic reality of the2021 IC Rule,a Federal district competing businesses that correctly
factorsto guide the inquiry intoa court inthe Eastern Districtof Texas classifytheiremployees.
worker's status as an employee or issued a decision the and Therefore, the Department believes it
contractor.4 vacating Delay
independent Two of the Withdrawal Rules 10 The district
court is appropriate torescind the 2021 IC
five identifiedfactors---the
nature and concluded that the2021 ICRule became Rule and set forth
an analysis for
degree of control overthe work and the effectiveon the originaleffectivedate of determining employee or independent
worker's opportunity forprofitor loss- March 8, 2021. contractor statusunder theAct that is
factors"
were designated as "core that After further the more consistent with existingjudicial
consideration,
are the most probative and carry greater Department believes thatthe 2021 IC precedent and the Department's
weight inthe analysis.The 2021 IC Rule Rule does not comport with the longstanding guidance prior tothe 2021
fully
stated thatifthese two core factorspoint FLSA's textand purpose as interpreted IC Rule. While prior tothe 2021 IC Rule
towards the same classification,thereis courts and departs from decades of theDepartment primarily issued
by
a substantiallikelihood that itis the case law the economic subregulatory guidance in thisarea
applying reality
worker's accurateclassification? The test.The 2021 IC Rule included under theFLSA, itbelieves thatits
2021 IC Rule alsoidentified threeless provisions that arein tension with this Proposal to both rescind the 2021 IC
probative non-core factors:
the amount case law-such as designating two Rule and replace itwith detailed
of skillrequired forthe work, the degree factorsas most probative and regulations addressing the multifactor
of Permanence ofthe workin8 that greater economic realitytest-in a way that
predetermining theycarry
relationship between the worker and the weight inthe more fullyreflectsthe case law and
analysis,considering
employer, and whether the work is part investment and initiative inthe provides the flexibilityneeded for
only economy-
of an integratedunit of production3 The BPPlication to theentire
opportunity forprofitor lossfactor,and
2021 IC Rule statedthat itis would be helpful forboth workers and
"highly excluding consideration ofwhether the
unlikely" employers. And as the2021 IC Rule
thatthese threenon-core work performed iscentral orimportant
factors can outweigh the combined employer's explained, workers and employers
to the business. These
probative value of the two core factors.7 should benefitfrom affirmative
provisions narrow the economic reality
The 2021 IC Rule also limited regulatory guidance from the
testby limiting thefacts thatmay be
consideration ofinvestment and Department furtherdeveloping the
considered as partofthe test,facts
initiativeto the forprofitor concept ofeconomic dependence.
opportunity which the Department believes are
loss factorin a way that narrows in at Accordingly, the Department is now
relevant in determining whether a
least some circumstances the extentto proposing, inaddition to rescinding the
worker is economically dependent on
which investment and initiativeare 2021 IC Rule,to again add part 795.
the employer forwork or inbusiness for
considered. The factsto be considered Specifically,the Department pro oses to
themself
under other factors(such as control) modify the textof part795 as pu lished
While the Department considered
were also and the factorthat on January 7,2021, at 86 FR 1246
narrowed, waiting for a longerperiod of time in
whether the work isintegral through 1248, addressing whether
considers order to monitor the effectsofthe 2021
was limited workers are employees orindependent
to the employer's business IC Rule, aftercarefulconsideration, it
. . . contractors under theFLSA. As
has decided itisappropriate to move
3 86 FR 1168.The Office of the Federal Register discussed be 1ow,t h e Departmentisnot
forward with thisproposed regulation.
did not amend the Code of Federal Regulations ProPosing the use of core factors but
The De P artmentbelieves thatretainin8
(CFR) to melude the regulations from the 2021 IC mstead proposes toreturn to a totality-
the
Rule because, as explained elsewhere in this 2021 IC Rule would have a
of-the-circumstances analysisof the
section, the Department first delayed and then
confusing and disruptive effecton
economic realitytestinwhich the
withdrewthe 2021 IC Rule before it became workers and businesses alike due to its
effective. A district court decision later vacated the factorsdo not have a predetermined
departure from case law describing and
Department's rules to delay and withdraw
the 2021 weight and are considered in view of
IC Rule,and the Departrnent has (since thatapplying themultifactor economic
theeconomic reality of thewhole
decision) conducted enforcement in accordance activity.
The Department isfurther
withthat decision. ald. at 1246-47 (§795.105(d)(1) and (d](2)(iii]).
Id. at 124647
(§795.105[d))· proposing to returnthe consideration of
9Id. at 1247-4B (§§795.110, 795.115). .
sId. at 1246 [§795.105(c)). investment to a standalone factor,
mSee Coalition for Workfome Innovation v.
aId. at 1247 (§795.105(d)(2]). provide
wafsh, No. 1:21-CV-130, 2022 WL 1073346 (E.D. additional analysisof the
7Id. at 1246 (§795.105(c)). Tex. Mar. 14, 2022). controlfactor (includingdetailed
FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020
NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022
62220 Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022/Proposed Rules
discussions of how scheduling, the interestofan employer in relation protections ofthe FLSA, and
employee." 15
supervision, price-setting,and the to an Finally,section 3(g) independent contractors,who do not.
"'[e]mploy' does not theterm
abilityto work for othersshould be provides that theterm The FLSA define
work." so contractor."
considered), and return to the includes to sufferor permit to "independent While itis
longstanding interpretationofthe Interpreting theseprovisions, the U.S. clearthat section "suffer
3(g)'s or
Court has permit"
integralfactor,which considers whether Supreme statedthat "[a] language contemplates a
the work is integral
to theemployer's broader or more comprehensive broader coverage of workers compared
business. coverage of employees within the stated to what existsunder thecommon law,
frame,"
The Department recognizes that this categorieswould be difficultto "there is inthe [FLSA] no definition
'employee'
return toa totality-of-the-circumstances and that "the term had been thatsolves problems as tothe limitsof
analysis in which the economic reality given 'thebroadest definition thathas the employer-employee relationship
act.'
" 17 Act." 23 Therefore,
factorsare not assigned a predetermined ever been included inany one under the in
weight and each factoris given full In particular,theCourt has noted the articulatingthe distinctionbetween
breadth"
consideration represents a change from "striking ofsection 3(g)'s FLSA-covered employees and
permit"
the 2021 IC Rule. As discussed below, "suffer or language, observing independent contractors,courts rely on
approach reality"
however, itbelieves thatthis that it"stretchesthe meaning of a broad, multifactor"economic
'employee'
is theoption that would be most to cover some partieswho analysis derived from judicial
beneficial forstakeholders because this might not as such under a strict precedent.24 Unlike the control-focused
qualify
proposal provides guidance that is application oftraditional agency law analysis forindependent contractors
aligned with the Department's decades- principles."18 Thus, the Court has applied under thecommon law,25the
long approach (priorto the 2021 IC repeatedly observed thatthe FLSA's economic realitytestfocuses more
Rule) as well case
as circuit law. The scope of employment is broaderthan broadly on a worker's economic
Department believes that thisproposal, the common law standard oftenapplied dependence on an employer,
iffinalized,will provide more to determine employment status under considering the totalityofthe
consistent guidance toemployers as other Federal laws.19 circumstances.
they determine whether workers are At the same time,the Supreme Court .
B. fudicN1 Development ofthe
economically dependent on the has recognized that the Act was "not
Economic Reality Test
employer for work or arein business for intended tostamp allpersons as
employees." 20
themselves, as wellas usefulguidance Among other categories 1. Supreme Court Development ofthe
to workers on whether they are correctly of workers excluded from FLSA Economic Reality Test
classifiedas employees or independent coverage, the Court has recognized that
contractors" In a seriesofcases from 1944 to1947,
contractors. Accordingly, the "independent falloutside
the U.S. Supreme Court considered
Department believes thisproposal will the Act'sbroad understanding of
employee or independent contractor
protect workers from employment 21 the FLSA
help Accordingly, statusunder three differentFederal
misclassification while at thesame time does not require covered employers to were
statutesthat enacted during the
recognizing that independent pay an independent contractorthe Deal
1930s New Era-the FLSA, the
contractors serve an important role in minimum wage or overtime pay under National Labor Relations Act (NLRA),
our economy and providing a consistent sections 6(a)and 7(a}ofthe Act, or to Act
and the Social Security (SSA)----and
approach for thosebusinesses that keep recordsregarding an independent economic
applied an realitytestunder
engage (orwish to engage) independent contractor'swork under section11(c)' allthree laws.
contractors. However, merely "putting on an In the first
of these NLRB v.
contractor' cases,
'independent label does not Hearst PuMications, Inc.,322 U.S. 111
IL Background
take [a]worker from the protectionof (1944), theCourt considered the
[FLSA]." 22 Courts "employee"
A. Relevant FLSA Definitions the have thus of under the
meaning
Enacted in 1938,the FLSA recognized a need todelineate between NLRA, which defined the term to
generally
requires thatcovered employers employees, who fallunder the
pay
nonexempt employees atleast the aid. at 728.
m 29 U.S.c. 203(d). = courts invoke the concept of "economic
Federal minimum wage (presently $7.25 mality"
worked,11 ° 29 U-s.c. 203(gh in RSA employment contexts beyond
per hour) forevery hour and
mdependent contractor status. However, asin prior
United Statesv. Rosenwasser,323 U.S. 360,
at leastone and one-half times the rulemakings, this NPRM refers to the ''economic
3e2, 363 n.3 (1945) (quoting 81 Cong. Rec. 7657
reality"
employee's regular rateofpay for all (statementof SenatorHugo Black)). analysis or test for independent contractors
hours worked beyond 40 in a asa shorthand reference to the independent
16Nationwide Mut. Ins. v. Dorden, 503 U.S. 318,
workweek.12 326 (1992). contractor analysis used by courts for FLSA
The FLSA also requires
" P"'P""""'
covered employers to"make, keep, and Id. at326; sea also,e-s., Wdling
v. Portland .
In distmguishing between employees and
Terminal Co., 330 U.S. 148. 150-51 (1947) ("{I]n
preserve certam records regarding , independent contractors under the common law,
employees.13 courts evaluate "the hiring party's right to control
common law employee categoriesor employer-
The FLSA's wage and hour the manner and means by which the product is
employee classifications under other statutes are
accomplished."
protections to employees. In not of controlling significance. This Act contains its Community for Creative Non-
apply 90
relevant section of theAct own definitions, comprehensive enough to require
part, 3(e) Uantto t
s iry are the sk
"employee" ""aPplication to many persons and working
defines the term as "any required; the source of the instrumentalities and
relationships, which prior to this Act. were not
tools; the location of the work; the duration of the
in d ivi ·dual
emp 1oy ed b y an deemedto fall within
an employer-employee
employer. Section defines the category. ) (citatmn onutted). relationship between the parties; whether the hiring
3(d)
"employer" ²° Portland Terminal, 330 U.S. at 152. party has the right to assignadditional projects to
term to"includ[e] any the hired party; the extent of the hired party's
21See,e.g.,Rutherford Food Corp. v. McComb,
person acting directlyor indirectlyin discretion over when and how long to work; the
331 U.S. 722, 729 (1947) (noting that "[t]here may
method of payment; the hired party's role in hiring
be independent contractors who take part in
and paying assistants; whether the work is part of
1129 U.S.C. 206(a)· production or distribution
who would alone be the regular business of the hiring party; whether the
1229 U.S.C. 207(a). responsible for the wagesand hours of their own
3 29 U.S.C. 211(c). hiring party is in business; the provision of
employees"). employee benefits; and the tax treatment of the
4 29 U.S.G.203[e)(1). 22Id. hired party." Id. (footnotes omitted).
FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020
NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022
Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022/ Proposed Rules 62221
"include employee."2a Inrelevant Accordingly, the Court rejected an year, Congress
any following similarly
factors"
part,the Hearst Court rejected approach based on "isolated amended the SSA to exclude from
application of thecommon law and again considered "the employment "any individual who,
standard,27 that"the broad circumstances ofthe whole activity."36 under the usual common-law rules
noting
language ofthe [NLRA's] definitions The Court considered several ofthe applicable in the employer-
determining
. . . leavesno doubt that its factorsthat it listed
inSilk as they employee relationship,has the statusof
contractor."44 The
applicabilityis to bedetermined relatedto meat boners on a an independent
broadly, in doubtful situations,by slaughterhouse's production line, Supreme Court interpretedthe
underlying economic factsrather than ultimately determining thatthe boners amendments to the NLRA as having the
and were employees.37 The Court noted, same effectas theexplicitdefinition
technically exclusively by
previously established legal among other things,that theboners did included inthe SSA, which was to
classifications."
2a on
a specialtyjob the production line, ensure that employment statuswould be
On June 16, 1947,the Supreme Court had no business organization that could determined by common law agency
decided United States v.Silk,331 U.S. shifttoa differentslaughter-house, and principles,rather than an economic
704 (1947), the distinction were best characterized as "partof the test."
addressing reality
between employees and independent integrated unitof production under Despite itsamendments tothe NLRA
contractors under the SSA. In that case, such circumstances that theworkers and SSA in response to Hearst and Silk,
the Court favorably summarized Hearst performing thetask were employees of Congress didnot similarly amend the
reality," establishment."38
as settingforth"economic as the FLSA following the Rutherford
concepts"
opposed to "technical of the On June 23,1947, one week afterthe decision. Thus, when the Supreme
common law standard alone, as the Silk and Rutherford decisions, theCourt Court revisited independent contractor
framework workers' decided Bartels v. 332 U.S.
fordetermining Birmingham, statusunder the FLSA severalyears
classification.29
But italso 126 (1947), another case laterin y. Whitaker House Co-
involving Goldberg
acknowledged that not"all who render employee or independent contractor op.,Inc.,366 U.S. 28 (1961),theCourt
" 30 reality'
service toan industry are employees status under the SSA. Here again, the affirmed that "'economic rather
Although the Court found ittobe "quite Court rejected application ofthe concepts'"
than '
Preview
FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020 NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022 "F" Exhibit FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020 NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022 GO 622 18 Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022/ Proposed Rules DEPARTMENT OF LABOR submissions, when a singlesponsoring workweek. The Act also requires individual or organization submits covered employers to maintain certain Wage and Hour Division multiple comments on behalf of records regarding employees and members orother affiliated third parties. prohibits retaliationagainstemployees 29 CFR Parts 780, 788, and 795 The Wage and Hour Division (WHD) who are discharged or discriminated posts such comments as a groupunder against for after, example, inquiring RIN 1235-AA43 a singledocument ID number on https:// about theirpay orfilinga complaint Employee or Independent Contractor WWW·regulations.gov. with the U.S. Department of Labor. Under FairLabor Anyone who submits a comment However, the FLSA's minimum wage Classification the (including duplicate comments) should and overtime pay protections do not Standards Act understand and expect that the apply to independent contractors.As AGENCY: Wage and Hour Division, comment willbecome a matterof public explained below, as used inthis Department of Labor. record and will be posted without proposal, the term "inde endent contractor" ACTION: Notice of proposed rulemaking. change to https://www.regulations.gov, refersto wor ers who, as a including any personal information matter of economic are reality, not SUMMARY: The U.S. Department ofLabor provided. Accordingly, theDepartment economically dependent on their (theDepartment) is proposingto modify requests thatno business proprietary employer forwork and are inbusiness Wage and Hour Division regulations to information, copyrighted information, forthemselves. Such workers play an revise itsanalysisfor determining or personally identifiableinformation be important role in theeconomy and are employee or independent contractor submitted inresponse tothisnotice of commonly referred toby different classificationunder the Fair Labor proposed (NPRM}. names, including independent rulemaking Standards Act (FLSA orAct) to be more Docket:For access to thedocket to contractor, self-employed, and consistent with judicialprecedent and read background documents or freelancer.Regardless of the name or the Act'stext and purpose. comments, go to the Federal titleused, thetestfor whether the DATES: Submit written comments on or Portalat https:// worker is anemployee or independent eRulemaking before November 2022. www.regulations.gov. contractor under the FLSA remains the 28, a his pr rulem king is not ADDRESSES: You may submit comments, FOR FURTHER INFORMATION CONTACT: identifiedby Regulation Identifier Amy DeBisschop, Division of independent contractors who are,as a Number (RIN) 1235-AA43, by eitherof Regulations, Legislation,and . .. matter of economic in reality, business the following methods: Interpretation,Wage and Hour Division forthemselves " Electronic Comments: Submit (WHD), U.S. Department of Labor,Room Determining whether an employment comments through the Federal S-3502, 200 Constitution Avenue NW, relationship existsunder the FLSA eRulemaking Portalat https:// Washington, DC 20210; telephone: (202) begins with the Act's definitions. www.regulations.gov. Follow the 693-0406 (thisis nota toll-free FLSA Although the does not define the instructions forsubmitting comments. number). Alternativeformats are contractor," term "independent it " Mail:Address written submissions availableupon request 1- by calling contains expansive definitionsof to Division of Regulations,Legislation, 866-487-9243. Ifyou are deaf,hard of "employer," "employee," and and Wage Interpretation, and Hour hearing, or have a speech disability, "employ." "Employer" isdefined to Division, U.S. Department ofLabor, please dial7-1-1 toaccess person "include[) any actingdirectly or Room S-3502, 200 Constitution Avenue telecommunications relayservices· inthe interestofan employer indirectly NW, Washington, DC 20210. Questions ofinterpretation and/or employee," in relationto an Instructions:Please submit only one enforcement of theagency's regulations "employee" isdefined as "any copy of yourcomments by only one may be directed tothe nearest WHD employer," individual employed by an method. Of the two methods, the districtoffice. Locate thenearest office "emplay" and is definedto "include[) Department strongly recommends that WHD's toll-free lineat work." 2 by calling help to sufferor permit to commenters submit their comments (866) 4US--WAGE ((866)487-9243) For more than 7 decades, the electronically viahttps:// between 8 a.m. and 5 p.m. in your local Department and courts have applied an www.regulations.gov toensure timely time zone, or logging onto WHD's economic testto determine reality receipt priorto the closeof thecomment website for a nationwide listingof WHD whether a worker is an employee oran period, as theDepartment continues to districtand area officesat https:// independent contractor under theFLSA. experience delays inthe receiptof mail. www.doLgov/whdlamerica2.htm. The ultimate is whether,as a inquiry All comments must be received by 11:59 SUPPLEMENTARY INFORMATION: matter of economic the reality, worker is p.m. ET on November 28,2022, for either economically dependent on the consideration inthis L Executive Summary rulemaking; employer for work (and is thusan comments received afterthe comment Congress enacted the FLSA in 1938 to employee) or isin business forthemself period closeswill notbe considered. eliminate "labor conditions detrimental (and is thus an independent contractor}, Commenters submitting file to themaintenance ofthe minimum To answer this ultimateinquiry of attachments on https:// standard of livingnecessary for health, economic dependence, thecourts and wwwngulations.gov areadvised that efficiency,and general well-being of the Department have historically text-recognized documents- workers."1 To this the FLSA conducted a totality-of-the- uploading end, 1.e., documents in a nativefileformat or generally requirescovered employers to circumstances analysis,considering documents which have undergone pay nonexempt employees at leastthe multiple factorstodetermine whether a optical character recognition (OCR)- Federal minimum wage forall hours worker is anemployee or an enable staff at theDepartment tomore worked and at leastone and one-half independent contractorunder theFLSA. easily search and retrievespecific times the employee's regularrateof pay There issignificantand widespread content included in your comment for forevery hour worked over 40 ina uniformity among the circuitcourtsin consideration. This recommendation applies tomass comment 129 U.S.C. 202(a). 2 29 U.S.C. 2o3{d), (a)[1). [g). particularly FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020 NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022 Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022 / Proposed Rules 62219 the application of theeconomic reality to whether the work is part of an realitytestas a totality-of-the- test,although there is slight variation as integratedunit of production 8 Finally, circumstances test.Because the 2021 IC to thenumber offactorsconsidered or the 2021 IC Rule provided that the Rule departed from legalprecedent, itis how the factorsare framed. These actual practiceofthe parties involved is not clearwhether courts willadopt its factorsgenerally include the more relevantthan what may be analysis-a question that could take opportunity forprofitor loss, contractually ortheoreticallypossible years ofappellate litigationindifferent investment, permanency, the degree of and provided examples illustrative Federal circuitsto sortout and will control by the employer overthe demonstrating how theanalysis would resultin more uncertainty as to the worker, whether the work is anintegral apply in particularfactual applicable test.The Department also part ofthe employer's business, and circumstances.a believes that from the departing skilland initiative. The effectivedateof the 2021 IC Rule longstanding testapplied by thecourts In January 2021, the Department was March 8, 2021. On March 4, 2021, may resultin greaterconfusion among published a ruletitled"Independent the Department published a rule employers in applying the new analysis, Contractor Status Under the FairLabor delaying the effectivedate of the2021 which could in some situationsplace Act" Standards (2021 IC Rule), IC Rule (Delay Rule) and on May 6, workers risk at greater of providing guidance on the classification 2021, itpublished a rule misclassificationas independent withdrawing of independent contractors under the the 2021 IC Rule (Withdrawal Rule}. On contractors due to thenew analysis FLSA applicable to workers and March 14, 2022, ina lawsuit being applied improperly, and thus may industry.3 challenging businesses in any The 2021 the Department's and withdrawal negatively affectboth the workers and delay IC Rule identified fiveeconomic reality of the2021 IC Rule,a Federal district competing businesses that correctly factorsto guide the inquiry intoa court inthe Eastern Districtof Texas classifytheiremployees. worker's status as an employee or issued a decision the and Therefore, the Department believes it contractor.4 vacating Delay independent Two of the Withdrawal Rules 10 The district court is appropriate torescind the 2021 IC five identifiedfactors---the nature and concluded that the2021 ICRule became Rule and set forth an analysis for degree of control overthe work and the effectiveon the originaleffectivedate of determining employee or independent worker's opportunity forprofitor loss- March 8, 2021. contractor statusunder theAct that is factors" were designated as "core that After further the more consistent with existingjudicial consideration, are the most probative and carry greater Department believes thatthe 2021 IC precedent and the Department's weight inthe analysis.The 2021 IC Rule Rule does not comport with the longstanding guidance prior tothe 2021 fully stated thatifthese two core factorspoint FLSA's textand purpose as interpreted IC Rule. While prior tothe 2021 IC Rule towards the same classification,thereis courts and departs from decades of theDepartment primarily issued by a substantiallikelihood that itis the case law the economic subregulatory guidance in thisarea applying reality worker's accurateclassification? The test.The 2021 IC Rule included under theFLSA, itbelieves thatits 2021 IC Rule alsoidentified threeless provisions that arein tension with this Proposal to both rescind the 2021 IC probative non-core factors: the amount case law-such as designating two Rule and replace itwith detailed of skillrequired forthe work, the degree factorsas most probative and regulations addressing the multifactor of Permanence ofthe workin8 that greater economic realitytest-in a way that predetermining theycarry relationship between the worker and the weight inthe more fullyreflectsthe case law and analysis,considering employer, and whether the work is part investment and initiative inthe provides the flexibilityneeded for only economy- of an integratedunit of production3 The BPPlication to theentire opportunity forprofitor lossfactor,and 2021 IC Rule statedthat itis would be helpful forboth workers and "highly excluding consideration ofwhether the unlikely" employers. And as the2021 IC Rule thatthese threenon-core work performed iscentral orimportant factors can outweigh the combined employer's explained, workers and employers to the business. These probative value of the two core factors.7 should benefitfrom affirmative provisions narrow the economic reality The 2021 IC Rule also limited regulatory guidance from the testby limiting thefacts thatmay be consideration ofinvestment and Department furtherdeveloping the considered as partofthe test,facts initiativeto the forprofitor concept ofeconomic dependence. opportunity which the Department believes are loss factorin a way that narrows in at Accordingly, the Department is now relevant in determining whether a least some circumstances the extentto proposing, inaddition to rescinding the worker is economically dependent on which investment and initiativeare 2021 IC Rule,to again add part 795. the employer forwork or inbusiness for considered. The factsto be considered Specifically,the Department pro oses to themself under other factors(such as control) modify the textof part795 as pu lished While the Department considered were also and the factorthat on January 7,2021, at 86 FR 1246 narrowed, waiting for a longerperiod of time in whether the work isintegral through 1248, addressing whether considers order to monitor the effectsofthe 2021 was limited workers are employees orindependent to the employer's business IC Rule, aftercarefulconsideration, it . . . contractors under theFLSA. As has decided itisappropriate to move 3 86 FR 1168.The Office of the Federal Register discussed be 1ow,t h e Departmentisnot forward with thisproposed regulation. did not amend the Code of Federal Regulations ProPosing the use of core factors but The De P artmentbelieves thatretainin8 (CFR) to melude the regulations from the 2021 IC mstead proposes toreturn to a totality- the Rule because, as explained elsewhere in this 2021 IC Rule would have a of-the-circumstances analysisof the section, the Department first delayed and then confusing and disruptive effecton economic realitytestinwhich the withdrewthe 2021 IC Rule before it became workers and businesses alike due to its effective. A district court decision later vacated the factorsdo not have a predetermined departure from case law describing and Department's rules to delay and withdraw the 2021 weight and are considered in view of IC Rule,and the Departrnent has (since thatapplying themultifactor economic theeconomic reality of thewhole decision) conducted enforcement in accordance activity. The Department isfurther withthat decision. ald. at 1246-47 (§795.105(d)(1) and (d](2)(iii]). Id. at 124647 (§795.105[d))· proposing to returnthe consideration of 9Id. at 1247-4B (§§795.110, 795.115). . sId. at 1246 [§795.105(c)). investment to a standalone factor, mSee Coalition for Workfome Innovation v. aId. at 1247 (§795.105(d)(2]). provide wafsh, No. 1:21-CV-130, 2022 WL 1073346 (E.D. additional analysisof the 7Id. at 1246 (§795.105(c)). Tex. Mar. 14, 2022). controlfactor (includingdetailed FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020 NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022 62220 Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022/Proposed Rules discussions of how scheduling, the interestofan employer in relation protections ofthe FLSA, and employee." 15 supervision, price-setting,and the to an Finally,section 3(g) independent contractors,who do not. "'[e]mploy' does not theterm abilityto work for othersshould be provides that theterm The FLSA define work." so contractor." considered), and return to the includes to sufferor permit to "independent While itis longstanding interpretationofthe Interpreting theseprovisions, the U.S. clearthat section "suffer 3(g)'s or Court has permit" integralfactor,which considers whether Supreme statedthat "[a] language contemplates a the work is integral to theemployer's broader or more comprehensive broader coverage of workers compared business. coverage of employees within the stated to what existsunder thecommon law, frame," The Department recognizes that this categorieswould be difficultto "there is inthe [FLSA] no definition 'employee' return toa totality-of-the-circumstances and that "the term had been thatsolves problems as tothe limitsof analysis in which the economic reality given 'thebroadest definition thathas the employer-employee relationship act.' " 17 Act." 23 Therefore, factorsare not assigned a predetermined ever been included inany one under the in weight and each factoris given full In particular,theCourt has noted the articulatingthe distinctionbetween breadth" consideration represents a change from "striking ofsection 3(g)'s FLSA-covered employees and permit" the 2021 IC Rule. As discussed below, "suffer or language, observing independent contractors,courts rely on approach reality" however, itbelieves thatthis that it"stretchesthe meaning of a broad, multifactor"economic 'employee' is theoption that would be most to cover some partieswho analysis derived from judicial beneficial forstakeholders because this might not as such under a strict precedent.24 Unlike the control-focused qualify proposal provides guidance that is application oftraditional agency law analysis forindependent contractors aligned with the Department's decades- principles."18 Thus, the Court has applied under thecommon law,25the long approach (priorto the 2021 IC repeatedly observed thatthe FLSA's economic realitytestfocuses more Rule) as well case as circuit law. The scope of employment is broaderthan broadly on a worker's economic Department believes that thisproposal, the common law standard oftenapplied dependence on an employer, iffinalized,will provide more to determine employment status under considering the totalityofthe consistent guidance toemployers as other Federal laws.19 circumstances. they determine whether workers are At the same time,the Supreme Court . B. fudicN1 Development ofthe economically dependent on the has recognized that the Act was "not Economic Reality Test employer for work or arein business for intended tostamp allpersons as employees." 20 themselves, as wellas usefulguidance Among other categories 1. Supreme Court Development ofthe to workers on whether they are correctly of workers excluded from FLSA Economic Reality Test classifiedas employees or independent coverage, the Court has recognized that contractors" In a seriesofcases from 1944 to1947, contractors. Accordingly, the "independent falloutside the U.S. Supreme Court considered Department believes thisproposal will the Act'sbroad understanding of employee or independent contractor protect workers from employment 21 the FLSA help Accordingly, statusunder three differentFederal misclassification while at thesame time does not require covered employers to were statutesthat enacted during the recognizing that independent pay an independent contractorthe Deal 1930s New Era-the FLSA, the contractors serve an important role in minimum wage or overtime pay under National Labor Relations Act (NLRA), our economy and providing a consistent sections 6(a)and 7(a}ofthe Act, or to Act and the Social Security (SSA)----and approach for thosebusinesses that keep recordsregarding an independent economic applied an realitytestunder engage (orwish to engage) independent contractor'swork under section11(c)' allthree laws. contractors. However, merely "putting on an In the first of these NLRB v. contractor' cases, 'independent label does not Hearst PuMications, Inc.,322 U.S. 111 IL Background take [a]worker from the protectionof (1944), theCourt considered the [FLSA]." 22 Courts "employee" A. Relevant FLSA Definitions the have thus of under the meaning Enacted in 1938,the FLSA recognized a need todelineate between NLRA, which defined the term to generally requires thatcovered employers employees, who fallunder the pay nonexempt employees atleast the aid. at 728. m 29 U.S.c. 203(d). = courts invoke the concept of "economic Federal minimum wage (presently $7.25 mality" worked,11 ° 29 U-s.c. 203(gh in RSA employment contexts beyond per hour) forevery hour and mdependent contractor status. However, asin prior United Statesv. Rosenwasser,323 U.S. 360, at leastone and one-half times the rulemakings, this NPRM refers to the ''economic 3e2, 363 n.3 (1945) (quoting 81 Cong. Rec. 7657 reality" employee's regular rateofpay for all (statementof SenatorHugo Black)). analysis or test for independent contractors hours worked beyond 40 in a asa shorthand reference to the independent 16Nationwide Mut. Ins. v. Dorden, 503 U.S. 318, workweek.12 326 (1992). contractor analysis used by courts for FLSA The FLSA also requires " P"'P""""' covered employers to"make, keep, and Id. at326; sea also,e-s., Wdling v. Portland . In distmguishing between employees and Terminal Co., 330 U.S. 148. 150-51 (1947) ("{I]n preserve certam records regarding , independent contractors under the common law, employees.13 courts evaluate "the hiring party's right to control common law employee categoriesor employer- The FLSA's wage and hour the manner and means by which the product is employee classifications under other statutes are accomplished." protections to employees. In not of controlling significance. This Act contains its Community for Creative Non- apply 90 relevant section of theAct own definitions, comprehensive enough to require part, 3(e) Uantto t s iry are the sk "employee" ""aPplication to many persons and working defines the term as "any required; the source of the instrumentalities and relationships, which prior to this Act. were not tools; the location of the work; the duration of the in d ivi ·dual emp 1oy ed b y an deemedto fall within an employer-employee employer. Section defines the category. ) (citatmn onutted). relationship between the parties; whether the hiring 3(d) "employer" ²° Portland Terminal, 330 U.S. at 152. party has the right to assignadditional projects to term to"includ[e] any the hired party; the extent of the hired party's 21See,e.g.,Rutherford Food Corp. v. McComb, person acting directlyor indirectlyin discretion over when and how long to work; the 331 U.S. 722, 729 (1947) (noting that "[t]here may method of payment; the hired party's role in hiring be independent contractors who take part in and paying assistants; whether the work is part of 1129 U.S.C. 206(a)· production or distribution who would alone be the regular business of the hiring party; whether the 1229 U.S.C. 207(a). responsible for the wagesand hours of their own 3 29 U.S.C. 211(c). hiring party is in business; the provision of employees"). employee benefits; and the tax treatment of the 4 29 U.S.G.203[e)(1). 22Id. hired party." Id. (footnotes omitted). FILED: RICHMOND COUNTY CLERK 10/24/2022 04:46 PM INDEX NO. 152400/2020 NYSCEF DOC. NO. 121 RECEIVED NYSCEF: 10/24/2022 Federal Register / Vol. 87, No. 197 / Thursday, October 13, 2022/ Proposed Rules 62221 "include employee."2a Inrelevant Accordingly, the Court rejected an year, Congress any following similarly factors" part,the Hearst Court rejected approach based on "isolated amended the SSA to exclude from application of thecommon law and again considered "the employment "any individual who, standard,27 that"the broad circumstances ofthe whole activity."36 under the usual common-law rules noting language ofthe [NLRA's] definitions The Court considered several ofthe applicable in the employer- determining . . . leavesno doubt that its factorsthat it listed inSilk as they employee relationship,has the statusof contractor."44 The applicabilityis to bedetermined relatedto meat boners on a an independent broadly, in doubtful situations,by slaughterhouse's production line, Supreme Court interpretedthe underlying economic factsrather than ultimately determining thatthe boners amendments to the NLRA as having the and were employees.37 The Court noted, same effectas theexplicitdefinition technically exclusively by previously established legal among other things,that theboners did included inthe SSA, which was to classifications." 2a on a specialtyjob the production line, ensure that employment statuswould be On June 16, 1947,the Supreme Court had no business organization that could determined by common law agency decided United States v.Silk,331 U.S. shifttoa differentslaughter-house, and principles,rather than an economic 704 (1947), the distinction were best characterized as "partof the test." addressing reality between employees and independent integrated unitof production under Despite itsamendments tothe NLRA contractors under the SSA. In that case, such circumstances that theworkers and SSA in response to Hearst and Silk, the Court favorably summarized Hearst performing thetask were employees of Congress didnot similarly amend the reality," establishment."38 as settingforth"economic as the FLSA following the Rutherford concepts" opposed to "technical of the On June 23,1947, one week afterthe decision. Thus, when the Supreme common law standard alone, as the Silk and Rutherford decisions, theCourt Court revisited independent contractor framework workers' decided Bartels v. 332 U.S. fordetermining Birmingham, statusunder the FLSA severalyears classification.29 But italso 126 (1947), another case laterin y. Whitaker House Co- involving Goldberg acknowledged that not"all who render employee or independent contractor op.,Inc.,366 U.S. 28 (1961),theCourt " 30 reality' service toan industry are employees status under the SSA. Here again, the affirmed that "'economic rather Although the Court found ittobe "quite Court rejected application ofthe concepts'" than '