Independent contractor rules: How did trucking get here?

Earlier this year, the Department of Labor issued a final rule that outlines how it differentiates between employees and independent contractors under the Fair Labor Standards Act.

The rule is important because it determines who receives FLSA benefits; employees are guaranteed overtime pay and a minimum wage, while independent contractors are not.

But, of course, there’s more to it. Independent contractor classification has implications that stretch further than FLSA itself, and the designation has specific effects on the transportation industry.

The rule is most groundbreaking, though, because it is the first interpretive guide for FLSA classification.

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How we got here: a history of FLSA classification

Before May 2024, FLSA classification had no interpretive guide to follow. Courts used case law to navigate nuanced classifications.

Arguably, the most important case in the history of the FLSA classification is the Supreme Court’s decision in United States v. Silk in 1947, which gave way to the economic realities test.

In that decision, the Supreme Court decided that employees are “those who as a matter of economic reality are dependent upon the business to which they render service.” The Court laid out five factors (sometimes called the Silk factors) that are particularly important in distinguishing employees from independent contractors.

However, the Court also cautioned in Rutherford Food Corp. v. McComb (on the same day as United States v. Silk) that no isolated factor should determine classification, but instead “the circumstances of the whole activity.”

In 2006 under Schultz v. Cap. Int’l Sec., Inc., the Fourth Circuit Court of Appeals would expand the five Silk factors to a list of six key factors, as Tim Coffield writes:

1. The degree of control that the putative employer has over the manner in which the work is performed
2. The worker’s opportunities for profit or loss dependent on his managerial skill
3. The worker’s investment in equipment or material, or his employment of other workers
4. The degree of skill required for the work
5. The permanence of the working relationship
6. The degree to which the services rendered are an integral part of the putative employer’s business.

Using the economic realities test, courts determined worker dependence on six factors, with none bearing greater weight than the others. This test defined FLSA classification until the Department of Labor stepped in.

The Trump-era rule

The DOL first began to publish its interpretive rule in September 2020, when it released a notice of proposed rulemaking under the Trump administration. The rule aimed to add more clarity around worker classification and make the classification process more efficient.

DOL released the final rule, “Independent Contractor Status Under the Fair Labor Standards Act,” in January 2021.

“The 2021 rule was the first time that the Labor Department had put into the Code of Federal Regulations its interpretation of employee status, under the Fair Labor Standards Act, compared with independent contractor status,” Nathan Mehrens, VP of workforce policy for ATA, told FleetOwner. “Previous to the 2021 rule, there wasn’t anything in the Code of Federal Regulations that delineated the department’s view on this.”

Mehrens was at the DOL at the time of the first rule. He served the department from 2017 through 2021. Mehrens acted as Deputy Secretary when the final rule was promulgated. Mehrens said he did not draft the rule but was around discussions of its development.

“What the department was doing in 2021 was attempting to distill decades of case law and put that into a framework that is easily understood,” Mehrens explained.

The rule departed from case law by using a five-part test and making the first two core factors the most important in determining worker classification:

1. The nature and degree of the worker’s control over the work
2. The worker’s opportunity for profit or loss
3. The amount of skill required for the work
4. The degree of permanence of the working relationship between the individual and the potential employer
5. Whether the work is part of an integrated unit of production

“In my view, you had a fairly straightforward test; it was easier to understand for most people if you just look at those two factors in the 2021 rule,” Mehrens said.

Factors three through five were only relevant to the DOL if the first two factors led to different conclusions.

“It was really the first two elements that were considered determinative under the Trump administration rule,” Rick Schweitzer, legal counsel for the National Private Truck Council, told FleetOwner.

The Trump-era DOL rule also included an important decision for trucking, definitely stating that speed limiters would not constitute "control" under the first core factor.

However, one day before it would take effect, the Biden administration’s DOL withdrew the final rule on May 5, 2021.

The Biden administration's DOL stated that the rescinded rule "was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent."

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The Biden-era rule

The DOL introduced a notice of proposed rulemaking for another independent contractor final rule in October 2022.

“If you look through the list of factors that the Biden administration has and compare it with the ones from the 2021 rule, they’re not super different,” Bryce Mongeon, director of legislative affairs for the Owner-Operator Independent Drivers Association, told FleetOwner. “There are some important differences, but it’s the same kind of stuff.”

The final rule, published in January 2024 as “Employee or Independent Contractor Classification Under the Fair Labor Standards Act,” returned to a six-factor test with no predetermined weight:

1. Opportunity for profit or loss depending on managerial skill
2. Investments by the worker and the potential employer
3. The degree of permanence of the work relationship
4. The nature and degree of control
5. The extent to which the work performed is an integral part of the employer’s business
6. Skill and initiative

The rule took effect on March 11, where the issue stands today. Trucking trade groups, such as ATA, are critical of the new rule.

“From a regulatory compliance standpoint, it’s much less certain,” Mehrens said. “I think it injects a fair amount of uncertainty and requires significantly more analysis to get to an ultimate conclusion.”

It is not yet clear how the new rule will shape the industry, Mehrens said, particularly after the Supreme Court overturned Chevron deference—weakening administrations’ interpretive authority.

“We’re in some uncharted world in terms of how exactly the courts are going to deal with this,” Mehrens said.