Last week the United States Department of Labor announced it was changing its rule about who was an independent contractor and who was an employee.
This rule, if implemented, is newsworthy because it defines who the Department of Labor thinks is entitled to protections under laws such as the Fair Labor Standards Act which entitles employees to minimum wage and overtime pay protections. If enacted it may lead to a broader definition of employee less favorable to so-called gig economy companies such as Uber. This could give the Department some leverage of employers if they decide to prosecute wage claims against employers.
But the rule change is a different story for individual claimants.
Let’s put aside the fact that federal courts may not accept the Department’s interpretation. Let’s also put aside the even management-side bloggers like Eric Meyer don’t think the rule change changes the standard all that much.
But even putting aside those issues, the proposed changes will have little to no impact on state laws. As I’ve been pointing out for years, states make their own determinations about who is an employee and who is a contractor and who is protected under their laws regardless of federal law.
For example, Nebraska’s minimum wage is $9.00 per hour and instead of the federal minimum rate of $7.25 per hour. Nebraska also lacks an outside sales exemption like federal law which makes it easier for sales workers to bring wage claims.
States can also apply different sets of standards about who is an employee for the purpose different laws. Under Nebraska Employment Security Act, employees are covered under the more employee-friendly ABC Test for the purposes of unemployment benefits. But in order to get workers’ compensation benefits an employee show they are an employee under a more restrictive ten factor test.
But commentators like Meyer are correct in arguing that the different standards of who is an employee and who is a contractor often overlap. I would also assert that courts will find ways to bypass the ABC test.
Nebraska law is an example of how the tests overlap and how courts ignore ABC. In Larson v. Hometown Communications (1995), the Nebraska Supreme Court applied the ten factor test to hold a 10 year-old newspaper carrier hurt on the job was an employee for the purposes of the Nebraska Workers Compensation Act.
But the court came to a different conclusion on a similar employment arrangement in Dernier v. Omaha-World Herald. (1997) In that case, the Supreme Court bypassed the ABC test under Neb. Rev. Stat. §48-604(5) then applied the ten factor case to hold Dernier was a contractor for the purposes of unemployment benefits.
Please don’t take this post to mean that I think the DOL’s rule change is meaningless. Some state’s may follow what the feds do. Some federal judges may be willing to use the new federal rule is a thumb on the scale in a close case. But from my experience, at least at a state law level, state court judges are going to apply controlling state law with little or no deference given to federal rules that interpret parallel federal laws.