The issue of who is an employee versus an independent contractor never grows old, it seems. The basic federal guidelines for what constitutes an employment relationship were first enunciated by the Supreme Court in a pair of decisions growing out of President Roosevelt’s New Deal legislation—the Fair Labor Standards Act of 1938 (FLSA) and the Social Security Act of 1935 (SSA). In Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947), the Court held that under the FLSA “…the determination of the relationship does not depend on …. isolated factors but rather upon the circumstances of the whole activity.” It found that a designated independent contractor was dependent on the parent business, and followed the usual path of an employee. In a companion case, United States v. Silk, 331 U.S. 704 (1947), the Court found that the term “‘employees’ included workers who were such as a matter of economic reality.” This phrase, “economic reality,” recurs constantly in the case law, the regulations, and the literature addressing the employment relationship.
Prior Treatment Under Obama and Trump
Law and lawyers being what they are, there were and are many different understandings of exactly what “economic reality” might be, and what following the usual path of an employee might look like. Under President Obama, the U.S. Dept. of Labor, Wage and Hour Division (“Wage Hour”) expanded its understanding of what constitutes an employment relationship. The Wage Hour Administrator, Dr. David Weil, issued an Administrator’s Interpretation (“AI”), which substantially broadened the agency’s traditional employment relationship guidelines. At the same time, he also issued an AI regarding joint employment under the FLSA. In the AI, Dr. Weil published a view that joint employment “should be defined expansively.” His goal was inter alia, to make franchisors and upper-tier companies liable for employment-law violations by franchisees and lower-tier contractors.
Other federal agencies, notably the National Labor Relations Board (“NLRB”), were instructed to follow suit.
When the Trump administration took charge, it quickly reversed Dr. Weil’s interpretations. It even issued a formal regulation taking a very narrow view of who is an employee, and amended the existing regulation on joint employment to limit the circumstances under which higher-level employers would be responsible for the violations of lower-level employers. At the NLRB, similar efforts were under way. For instance, the Board’s General Counsel, Peter Robb, overruled an attempt to make McDonald’s corporate office responsible for franchisee issues.
The Biden Administration’s Stance
When the Biden administration took over, it immediately sent a clear signal of what it intended to do. On his first day in office, President Biden asked Peter Robb to resign, and when he refused, President Biden fired him. The Labor Department suspended implementation of the regulations on employment relationship and joint employment, and in March 2021, announced its intention to reverse both.
And now we have yet another indication of how seriously the Biden Labor Department views the employment relationship. In an April 28, 2021 article, Bloomberg announced that the new Wage Hour Administrator is likely to be none other than David Weil. While he was out of office, Dr. Weil testified in hearings about the so-called “gig economy,” and wrote an op-ed in the L.A. Times that the status of Lyft and Uber drivers as employees was “quite clear.” He’s on record as saying he will not even ride in an Uber because the drivers don’t get minimum wage and other protections available to employees.
Bottom line: if the new sheriff in town turns out to be the old sheriff returning, the gig economy better look out.