Experts say a federal rule defining worker status may change the world of deliveries

The employment status of workers who deliver takeout, groceries, and even packages has been a topic of intense debate in recent years, with everyone from the National Labor Relations Board to the Federal Trade Commission weighing in.

In January 2021, the Department of Labor under the Trump administration issued a rule that simplified the test used to determine whether a worker is an employee under the Fair Labor Standards Act, making it easier for companies to classify workers as independent contractors.

Now the agency, under the Biden administration, is poised to propose new guidance, which experts say is likely to make it more challenging to classify delivery workers and others as independent contractors.

• When President Biden took office, his administration sought to rescind the Trump-era rule, but a federal court in Texas reinstated it.
• The DOL’s new proposal cleared the White House budget committee in September, but hasn’t yet been published.

Ed Egee, vice president of government relations and workforce development at the National Retail Federation, said a large number of NRF members rely on independent contractors for delivery, and that the DOL’s timing—given inflation, supply-chain challenges, and other issues—is less than ideal.

“I think a lot of what’s driving the rule that’s about to come out from the Labor Department is a misunderstanding of the position of these independent contractors,” Egee told Retail Brew. “Many of them like the flexibility and ability to work when and how they want.”

Breaking it down

Under the federal Fair Labor Standards Act, employees are entitled to benefits including minimum wage and overtime pay. Independent contractors aren’t guaranteed those benefits, and usually have the ability to set their own working hours and to take on work for more than one company.

But the process of determining which workers are employees looks different around the country. For example, California uses a stricter worker status test than most of the country (from which app-based delivery drivers were exempted by Proposition 22, a ballot initiative bankrolled by Uber, Lyft, DoorDash, and Instacart).

“The complexity of wage and hour law is that it’s a patchwork of both federal and state laws,” Michael Palmer, managing partner of Sanford Heisler Sharp’s New York office, told Retail Brew.

“What you will see now is that there is a great difference in the way that a delivery worker might be treated in one state versus another state,” he added.

• Palmer—who represents workers “who allege they were misclassified as exempt from overtime compensation,” according to his LinkedIn profile—said it’s important for there to be a nationwide baseline for determining worker status.

The business perspective: Forcing companies to classify their independent contractors as employees will have wide-reaching negative implications, Glenn Spencer, SVP of the employment policy division at the US Chamber of Commerce, said.

“What [companies] worry about is losing the flexibility of the business models that they’ve used for, in some cases, decades or longer,” Spencer told Retail Brew. And it’s not just food and grocery delivery workers, he added. “There are a number of people…who provide that last-mile delivery service…and work as independent contractors.”

• Egee, at the NRF, said he expects the new rule will ultimately lead to higher costs for consumers, not to mention a slew of lawsuits and uncertainty for businesses.

Coming down the pipeline: Despite the intense focus on the new rule, it may be a while before its impacts are felt by delivery workers and the broader retail industry. When the DOL proposal is released, there will be a public comment period, and it could be another year before the rule takes effect.

• Defense-side attorney Charlotte Carne, who is senior counsel at Dykema, said she expects that many of her clients will want to comment when the proposal is released, and that the agency will be pushing to categorize more delivery workers as employees.
• “Legal departments in-house are definitely trying to get ahead of it in terms of preparing budgets to perhaps change if the new regulation indicates that gig workers are more likely to be categorized as employees,” Carne told Retail Brew.

But Palmer says the ultimate impact of the rule is likely to be modest, and that the bigger changes will continue to happen at the state level. In the past, the DOL has provided guidance about who should be considered an employee under the FLSA, he explained. And he expects the latest rule to return to prior guidance in place before 2021.

“I don’t think that is going to wildly change the landscape because this is where things stood for many years, and honestly, it’s at the state level that there is much more of a narrowing of who is an independent contractor.”—MA

Update 10/31/22: The Department of Labor issued proposed guidance on gig-worker classification on October 13, which would require workers who are “economically dependent” on a company to be considered employees. The proposal calls for a “totality of the circumstances” analysis for determining economic dependance, differing from a Trump-era rule which assigned weights to various factors. A public comment period on the proposal will end November 28.