Key Takeaways
• Legal Challenges: Freelancers are appealing a federal judge’s dismissal of their lawsuit against new independent contractor regulations by the U.S. Department of Labor.
• Classification Impact: The regulations make it harder to classify workers as independent contractors, potentially affecting livelihoods in various industries, including the promo products space.
• Ruling Precedent: The judge’s decision may hinder future legal challenges against the Labor Department’s rules, particularly from freelancers.
• Broader Implications: Additional lawsuits are underway, which may have stronger claims of harm under the new regulations.
Despite a courtroom setback, four freelance writers aren’t giving up their legal fight against new federal rules implemented this year regarding when to classify a worker as an independent contractor (IC) versus an employee.
The development could have implications for industries across the United States that rely on ICs, including the promotional products market.
Earlier this month, Georgia-based Federal Judge Richard W. Story dismissed a lawsuit by freelance writers Karon Warren, Deborah Kaplan, Kimberly Kavin and Jennifer Singer, saying they didn’t have standing to bring the case.
Story reasoned the writers couldn’t definitively prove they’d be harmed by the new regulations from the U.S. Department of Labor, which establish how to determine if a worker is an employee or an IC under the Fair Labor Standards Act (FLSA), in part because the rules are “inherently unpredictable” as they pertain to the freelancers.
“By definition, the 2024 Rule’s fact-specific approach cannot pose a realistic danger to plaintiffs’ ability to operate as independent contractors because the ultimate classification may change from case to case,” Story opined in his order dismissing the case. “Plaintiffs may qualify as independent contractors in one instance and employees in another, but that conjectural possibility is not enough to establish standing.”
The rules, which in effect make it harder to classify a worker as an IC, have drawn a firestorm of criticism (but also some praise) in the promo industry, which relies heavily on ICs.
Story’s Oct. 7 ruling was a blow not just to the writers but also to those in promo and other industries who would like to see the Labor Department’s IC rules overturned. The judge’s decision potentially sets a precedent that will make it more difficult to legally challenge the regulations and have them tossed or modified, at least in cases brought by freelancers/ICs themselves, legal experts have noted.
‘This Cannot Be the Law’
Still, attorneys for the writers called Story’s dismissal logic “twisted,” and the freelancers aren’t taking the ruling lying down.
They filed an appeal in the 11th Circuit Court of Appeals on Wednesday, Oct. 23. They aim to press their claim that the Labor Department exceeded its statutory authority in establishing what they described as “arbitrary and capricious” IC regulations that violate the U.S. Constitution through their vagueness.
The writers say the rules could erase their livelihoods and/or force them to work as employees when they’d rather have what they’ve described as the freedom and higher monetary returns that come with being independent.
Additional Legal Challenges
Others agree.
Four additional federal lawsuits are currently in play challenging the Labor Department’s rules, including cases in Texas, New Mexico, Louisiana and Tennessee.
Some legal analysts believe cases brought by businesses, such as those from trucking companies Colt & Joe Trucking in New Mexico and Frisard’s Trucking in Louisiana, have a better chance of getting standing and advancing.
Bloomberg Law reported that the businesses – as well as a coalition of business groups in another suit – “could point to concrete evidence of harm, such as increased unemployment and other taxes they would have to pay for a new employee” under the IC rules.
Those perhaps more predictable results for employers, as opposed to freelancers themselves who it could be argued may benefit from the IC rules, may lead to legal standing, some attorneys think.
Indeed, employers “could take the position that [they] know concrete under this new test, [their] independent contractors would need to be reclassified as employees, and that’s going to cause a problem for [them],” Michael Elkins, founder and partner at MLE Law, told Bloomberg Law.
Employees are typically more expensive for a business to maintain than ICs, and more regulations and mandates come into play in the employer/employee relationship than the employer/IC one.
A Louisiana judge had denied Frisard’s motion for a restraining order and preliminary injunction on the Labor Department’s rules, but that’s under appeal and the case far from settled.
“The new rule takes any certainty away and holds an executioner’s axe over every independent contracting business in the nation. This cannot be the law.”
Pacific Legal Foundation
Background on the Rule
In January, the Labor Department adopted the new rule after receiving public comment (that included opposition from promo) and a finalization period that played out for more than a year. It replaces a regulation adopted in 2021, which designated two “core factors” – control over work and opportunity for profit or loss – with a six-factor test to assess whether a worker is an employee or an IC.
Most broadly, the rule says a worker is not an IC if they’re economically dependent on an employer for work. From there, the rule establishes six nonexclusive factors that must be analyzed to determine if a worker is an employee or IC under FLSA.
The factors are the degree to which the worker has the opportunity for profit or loss depending on managerial skill, the financial stake and nature of any resources a worker has invested in the work, the degree of permanence in the work relationship, how much control the employer has over the work, the skill and initiative required of the worker, and the extent to which work performed is an integral part of the employer’s business.
IC status is to be determined based on the “totality of the circumstances” found in an examination of the stated factors – and potentially others. “No factor or set of factors among this list of six has a predetermined weight, and additional factors may be relevant,” the Labor Department has said.
In promo, critics have said the regulations could ruin the livelihoods of IC salespeople, as firms that use ICs may over time decide to cut ties with contractors because they don’t want the expense of taking them on as employees. Relatedly, the regulations could drive up labor costs for those who do reclassify ICs as employees, hurting competitiveness.
Nonetheless, the regulations have their proponents in promo and beyond. They argue the rules will help reduce exploitation of workers, especially in the so-called “gig economy.”
