Regulation Freeze Means Classifying Workers Still a Challenge for Employers

On January 8 we posted an article summarizing the Department of Labor’s positive step forward in issuing new regulations addressing when workers are properly classified as employees or independent contractors. We believe the new regulations helpfully simplified the very complex legal landscape surrounding the differences between these two types of workers. Among the Executive Orders signed by President Biden immediately after his inauguration was one freezing all passed but not yet effective regulations. As the new independent contractor regulation was not effective until March 8, 2021, that regulation was among those placed on hold by the new administration‘s freeze on regulatory action. Political experts predict that the DOL regulations are probably dead.

We have explained in the past that the distinction between an “employee” and an “independent contractor” is extremely complex and very important. The distinction is important because most state and federal workplace laws apply only to employees and not independent contractors.

The complexity of the issue is demonstrated by the numerous multi-factor tests used by different federal agencies, states and the nation’s courts in attempting to define the difference between employees and contractors. We at Nyemaster have somewhat unique experience in this area because we tried one of the few cases nationwide where a jury actually deliberated on whether the plaintiff was an independent contractor as opposed to an employee. See Ernster vs. Luxco, Inc., 596 F.3d 1000 (8^th Cir. 2010). In Ernster the court instructed the jury using a test that consisted of about a dozen factors. The Department of Labor’s new regulation attempted to provide simplicity and clarity to the analysis by relying upon two “core factors.”

Concern over the employee vs. contractor classification stems from suspicions that unscrupulous businesses may intentionally misclassify workers to avoid payroll taxes, providing employee benefits, including Workers’ Compensation obligations, and potential discrimination claims. The new administration believes pausing non-effective regulatory action will provide time for further study.

While simplicity is valuable, it is important for employers to have a degree of certainty concerning the status of their workforce. Most Iowa employers simply want predictably. Hopefully, any new regulations issued by the Department of Labor will provide just that. Until then, it is important for Iowa employers to exercise caution when classifying workers.