Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
UPDATE: On January 26, 2021, the U.S. Department of Labor (DOL) announced that it is withdrawing opinion letter FLSA2021-9. According to the DOL, this letter was issued “prematurely” because it was “based on rules that have not gone into effect.” Thus, as of January 26, 2021, the letter may not be relied upon as a statement of agency policy.
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On January 19, 2021, the U.S. Department of Labor issued four new opinion letters. The final Wage and Hour opinion letter issued by the DOL under the Trump administration, FLSA2021-9, addressed two issues related to the trucking industry: 1) whether requiring compliance with specific legal obligations or health and safety standards is a factor in determining employee status under the Fair Labor Standards Act (FLSA) for an owner-operator driver; and 2) whether certain owner-operators are employees under the FLSA given the circumstances at issue.
Based on the factual scenarios provided in the opinion letter, the DOL determined that the imposition of certain legal, health, and safety measures by the hiring company is not a factor in determining whether a driver is an employee or an independent contractor under the FLSA and does not affect the analysis of the control factor. Additionally, the DOL indicated that the owner-operators described in the second request posed are likely independent contractors.
Pursuant to the DOL’s January 6, 2021 independent contractor Final Rule designed to simplify, clarify, and harmonize the factors for determining when a worker is an independent contractor versus an employee under the FLSA, the DOL’s Wage and Hour Division considers five factors of “economic dependence” when determining independent contractor versus employee status:
- The nature and degree of control over the work;
- The worker’s opportunity for profit or loss based on initiative or investment;
- The amount of skill required for the work;
- The degree of permanence of the worker’s relationship with the potential employer; and
- Whether the work is part of an integrated unit of production.
Control and opportunity for profit or loss, however, are the two “core factors” that are “most probative” when determining a worker’s status. Only in “unusual circumstances” will the other three factors affect the outcome of the analysis when the two core factors point to the same determination of worker status. For an in-depth discussion and analysis of the DOL’s independent contractor Final Rule, please see Littler’s January 7, 2021 Insight.
Requiring compliance with specific legal obligations or health and safety standards is not a factor in determining the employee status under the FLSA for an owner-operator driver.
In addressing the first request, the DOL considered four different scenarios in which a motor carrier required certain safety measures (to comply with Federal Motor Carrier Safety Regulations and Federal Truth-in-Leasing Regulations) for owner-operators:
Scenario 1: The carrier requires drivers to install and use a video-based onboard safety monitoring system, which captures video for a brief period of time when it detects an unsafe event. The carrier can review the video, and such review may result in mandatory coaching or training. The carrier pays for the equipment and service fees.
Scenario 2: The carrier requires drivers to install an onboard safety monitoring system that monitors sensor and engine data to identify risky driving behaviors, which can be reviewed by the carrier in real time. Unsafe behavior can result in mandatory coaching. The carrier pays for this feature.
Scenario 3: The carrier requires the driver to install and use a GPS-based speed limiter, which sets a maximum speed that the truck cannot exceed. The driver pays for this feature.
Scenario 4: The carrier has mandatory monthly safety meetings, quarterly reviews, and requires successful completion of a quarterly online safe-driving course. The carrier pays for these trainings.
The DOL determined that the safety measures identified in these four scenarios do not affect the analysis of the control factor, as insisting on adherence to certain rules to which the worker is already legally bound says nothing about the status of the worker. Each of the scenarios described are the types of legal, health, and safety standards that do not suggest control indicative of employee status.
The owner-operators working for a transportation and logistics provider described in the second request are likely independent contractors.
In outlining the second request, the DOL specified that the letter concerned a transportation and logistics provider that employs drivers and also contracts with owner-operators as independent contractors. The DOL described several differences in the working conditions of the two groups of drivers, including:
- Employee drivers are provided all required equipment and reimbursed for expenses such as fuel. Owner-operators are required to furnish their own tractor and are not reimbursed for expenses or costs related to the tractor.
- Employee drivers’ schedules are determined by the provider, but the owner-operators select their own jobs and schedules through an online portal and may choose to work for other companies, including competitors.
- Employee drivers must follow the provider’s specifications regarding freight and route. Owner-operators may use the online portal to select the freight shipped and routes taken in order to maximize profit, but the provider does not guarantee freight for the owner-operator to haul.
- Employee drivers drive tractors with the provider’s logo, must comply with the provider’s dress code, and are required to attend orientation and on-going trainings. Owner-operators are not subject to these requirements.
- Owner-operators sign a one-year contract that does not automatically renew and “typical” contracts may be terminated by either party with 15 days’ written notice without cause, or immediately for cause.
- The provider ensures that all drivers, whether employees or owner-operators, comply with safety regulations.
Based on the facts furnished by the provider, the DOL concluded that the owner-operators described are likely independent contractors under the FLSA. The two core factors, exercise of control over key aspects of their work and the opportunity for profit or loss based on their personal initiative and investment, were satisfied, favoring independent contractor status. More specifically, with respect to the “control” factor, the DOL placed significant emphasis on the fact that the owner-operators had “full control of one’s schedule” and were non-exclusive, including the ability to work for potential competitor of the carrier.
With respect to the “opportunity for profit or loss” factor, the DOL relied on the owner-operator’s ability to strategically select freights, the impact of managerial skill on an owner-operator’s income, and the significant investment by owner-operators in vehicle(s) and other operating expenses to find that this factor too supports independent contractor status. Finally, the DOL noted that unusual circumstances necessary to overcome the unified conclusion of the core factors were not present based on the facts presented in this opinion letter. Nevertheless, the DOL briefly analyzed each of the three remaining factors and concluded that two of those factors (skill and permanence) also support independent contractor status. The DOL was unable to determine the status to which the last factor, integration, points, but indicated that such determination was unnecessary based on the outcome of the analysis of the four other factors.
Based on this opinion letter, carriers that utilize owner-operators (exclusively or in conjunction with their employed workforce) should evaluate (1) how they comply with required safety measures and regulations with the understanding that a more directed approach to the owner-operators may be acceptable to the DOL; (2) precisely how the circumstances between the carrier’s employees and its contracted owner-operators differ for carriers that utilize both types of workers; and (3) how owner-operators are free from carrier control and have a genuine opportunity for profit or loss in the management of their independent business.