Labor Department Finalizes Independent Contractor Rule, Returning to Six-Factor Test

The U.S. Department of Labor on January 9, 2024, announced a final rule changing how businesses determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. The rule was published in the Federal Register on January 10 and was scheduled to take effect March 11, 2024.

From two core factors to six

The rule rescinded the department's 2021 classification rule, which had given extra weight to two "core factors": the nature and degree of control over the work, and the worker's opportunity for profit or loss. In its place, DOL returned to an economic reality analysis based on the totality of the circumstances, in which no single factor is decisive.

The six factors are:

• the opportunity for profit or loss depending on managerial skill;
• investments by the worker and by the potential employer;
• the degree of permanence of the work relationship;
• the nature and degree of control;
• the extent to which the work is an integral part of the potential employer's business;
• the worker's skill and initiative.

DOL received about 55,400 comments, including campaign comments from truckers, Land Line reported. The department did not adopt the ABC test used in California.

"This rule is not intended to disrupt the businesses of independent contractors who are, as a matter of economic reality, in business for themselves," the department said.

Leases, compliance and control

Several parts of the rule speak directly to trucking. A truck lease from the carrier can still count as an entrepreneurial investment by the driver if the driver could consider independent financing, can meaningfully negotiate the lease terms, is not required to work a minimum period and is not barred from working for others.

On control, the rule says that "actions taken by the potential employer for the sole purpose of complying with a specific, applicable federal, state, tribal, or local law or regulation are not indicative of control." Monitoring systems, however, may indicate supervision.

Reaction from trucking groups

The Owner-Operator Independent Drivers Association voiced frustration with the repeated changes. "Truckers are tired of the endless parade of classification rules that do not listen to their concerns," OOIDA President Todd Spencer said. "This constantly changing landscape has created uncertainty that makes it more difficult for them to operate their businesses."

Spencer added: "With that said, we support the Department's stated intent to follow decades-long practices for classification under the Fair Labor Standards Act, as well as its rejection of the ABC Test as signed into law in California with AB5."

The American Trucking Associations opposed the rule. "I can think of nothing more un-American than for the government to extinguish the freedom of individuals to choose work arrangements that suit their needs and fulfill their ambitions," ATA President Chris Spear said. "More than 350,000 truckers choose to work as independent contractors because of the economic opportunity it creates and the flexibility it provides."

The Intermodal Association of North America warned that the rule could "threaten to force the reclassification of over 80% of intermodal drayage drivers that currently enjoy independent contractor status."

What it means for drivers and fleets

For leased owner-operators, the January 2024 rule put the details of their arrangements under scrutiny: whether lease terms are negotiable, whether they can haul for other carriers, and how much direction they receive beyond what safety rules require. Carriers using independent contractors had until March 11 to review leases and dispatch practices against the six factors. Because no ABC test was adopted, classification would still turn on the overall facts of each relationship.