OFCCP Week In Review: January 16, 2024

The DE OFCCP Week in Review (WIR) is a simple, fast and direct summary of relevant happenings in the OFCCP regulatory environment, authored by experts John C. Fox, Candee J. Chambers and Cynthia L. Hackerott. In today’s edition, they discuss:

• US DOL‘s WHD Published Its “Employee or Independent Contractor” Classification Final Rule
• US DOL Adjusted Civil Monetary Penalties Per Inflation Adjustment Act
• In Brief
• Looking Ahead: Upcoming Date Reminders

Wednesday, January 10, 2024: US DOL‘s WHD Published Its “Employee or Independent Contractor” Classification Final Rule

The U.S. Department of Labor’s (“DOL”) Wage and Hour Division (“WHD”) published its much anticipated and highly controversial Final Rule to revise the legal test it uses to analyzes whether a “worker” (neutral term) is an “employee” subject to jurisdiction under the Fair Labor Standards Act (“FLSA”) or an “independent contractor” the FLSA does not cover. This final rule rescinds a Trump Administration Rule published on January 7, 2021. The new Final Rule is slated to take effect on March 11, 2024.

The WHD announced the Final Rule in a press release on Tuesday, the day before its official publication in the Federal Register. Early Tuesday morning, multiple news outlets reported about a Monday evening press call in which the Biden Administration discussed the upcoming Final Rule.

One of the odd legal circumstances surrounding this Rule is that administrative law requires that federal Executive Branch agencies, like the USDOL and its WHD, enforce the statute the Congress passed and write implementing Rules (i.e., “regulations” in street talk) explaining how the agencies will faithfully enforce the Congressional intent embodied in the authorizing statute. Federal Executive agencies may not just make up their own intent and embody that different intent in a Rule allegedly implementing the Congressional intent.

Punchline: The WHD is not “writing on a blank slate.” No federal court ever struck down the Trump Rule as inconsistent with Congress’ intent underlying the FLSA, despite legal challenge. It seems like a far stretch for the WHD to now publish and seek to enforce a different Rule interpreting a central term critical to enforcement of the FLSA (what is an “employee”). Without amendment to the FLSA, the agency interpretation needs to faithfully stay consistent over the life of the statute, until the Congress changes it. For the WHD to now argue that its new Rule is consistent with the Congressional intent (like it did when it published the Trump Rule in 2021) and that the Trump Rule did not properly interpret the FLSA seems at best two-faced, if not also legally challenged. How can a statute mean so many different things without Congressional change?

One is reminded of the famous colloquy in Lewis Carroll’s children’s book “Through the Looking Glass” when Alice wonders how people can twist words around to suit their self-interested and parochial objectives:

“When I use a word,” Humpty Dumpty said in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.” “The question is,” said Alice, “whether you can make words mean so many different things.” “The question is,” said Humpty Dumpty, “which is to be master—that’s all.”

The Department posted a “Fact Sheet” and created a landing page with links to an FAQ and other resources corresponding to the Final Rule. WHD Administrator Jessica Looman also discussed the new Rule in a blog post.

What Are the Revised Criteria?

The Trump Administration Rule used an “economic realities” test that focused on two core factors:

1. the nature and degree of the worker’s control over the work; and 
2. the worker’s opportunity for profit or loss.

If those two factors conflicted, then the DOL would consider three other factors:

1. the amount of skill required for the work; 
2. the degree and permanence of the working relationship between the worker and the potential employer; and
3. Whether the work is an integral part of the hiring company’s business. 

The modified test under the new Biden Administration Final Rule has six factors and it uses a “totality-of-the-circumstances analysis” test in which the six factors do not have a predetermined weight and are considered in light of the economic reality of the whole activity. Those six factors are:

1. Opportunity for profit or loss depending on managerial skill,
2. Investments by the worker and the employer,
3. Permanence of the work relationship,
4. Nature and degree of control,
5. Whether the work performed is integral to the employer’s business, and
6. Skill and initiative.

Additional factors may be considered as well if they are relevant to whether the worker is in business for themself, as opposed to being economically dependent on the hiring entity for work.

Factors Not Considered

According to its “Fact Sheet,” the WHD also now maintains that certain factors are not relevant to whether an employment relationship exists:

• How the hiring entity refers to the worker. A worker may be an employee under the FLSA regardless of the title or label they are given;
• A worker who is paid “off the books” or receives a 1099 is not necessarily an independent contractor,
• Agreeing verbally or in writing to be classified as an independent contractor – including by signing an independent contractor agreement – does not render a worker an independent contractor;
• Other facts, such as the place where work is performed, whether a worker is licensed by state/local government, and the time or mode of pay are not determinative. 

How We Got Here

The WHD published its proposed version of the Rule in the Federal Register on Thursday, October 13, 2022. We discussed that proposal and the previous Trump Administration Rule in detail here. The comment period on the proposal closed on December 13, 2022, with approximately 54,400 comments submitted. The WHD detailed its response to those comments in the preamble to the Final Rule here.

The DOL submitted the Final Rule to the White House Office of Management and Budget (“OMB”) for review on September 28, 2023, and the OMB approved it on January 2, 2024. In the Fall 2023 Regulatory Agenda, the WHD set November 2023 as its target date for publication of the Final Rule. Thus, the WHD published it approximately two months behind schedule.

Changes from the Proposed Rule

The Final Rule largely adopted the proposed version with some modifications. In the preamble to the Final Rule, the WHD discussed at length the changes in the Final Rule compared to its NPRM. More succinctly, in its FAQ the DOL stated that it, after considering the public comments, “made several adjustments to the analysis that was proposed in the NPRM, including revisions regarding the control factor and the investment factor. For example, the final rule states that actions taken by the potential employer for the sole purpose of complying with specific, applicable federal, state, tribal, or local law or regulation would not indicate ‘control.’ The final rule also advises that costs to a worker which are unilaterally imposed by a potential employer are not ‘investments’ indicative of independent contractor status.”

In addition, the FAQ details the similarities and differences between the Biden Administration Final Rule and the now-rescinded Trump Administration Rule.

Thursday, January 11, 2024: US DOL Adjusted Civil Monetary Penalties Per Inflation Adjustment Act

The U.S. Department of Labor (DOL) published its annual Final Rule to adjust for inflation the civil monetary penalties under certain federal statutes (but not all) which certain subagencies within the Department assess or enforce. The Federal Civil Penalties Inflation Adjustment Act of 1990, as amended by the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act), requires an annual adjustment of affected penalties by January 15th.

The 13-page Final Rule took effect on January 15, 2024. It applies to all penalties (a) the affected enforcement agency assesses after January 15, 2023, and (b) whose associated violations occurred after the applicable dates listed in the Final Rule.

The Inflation Adjustment Act requires certain agencies (not including OFCCP which has no penalty structure) to adjust some of the civil monetary penalties (and provides a cost-of-living formula) depending on the statute in question and notwithstanding the requirement in Section 553 of the Administrative Procedure Act otherwise requiring Rulemaking (public notice and the solicitation of comments from the public). The Department explained how it calculated the penalty adjustments here.

Applicable Agencies

The affected DOL Agencies that issue civil money penalties include:

• Employment and Training Administration;
• Office of Workers’ Compensation Programs;
• Office of the Secretary;
• Wage and Hour Division;
• Occupational Safety and Health Administration; and
• Mine Safety and Health Administration.

Rate Increases

Appendix 1 consists of a table that compares the new rates to last year’s adjustments by agency and statute. Our random sampling comparing some of the rate increases indicated an approximate 3.24 percent increase for most, but not all, rates.

See also, our story on last year’s adjustment.

Tuesday, January 9, 2024: President’s Nomination of Rodriguez to Head US DOL ETA Continued to Flounder on Senate Floor

Senate Majority Leader Schumer (D-NY) withdrew his latest motion to advance the nomination of Jose Javier Rodriguez to head the U.S. Department of Labor’s Employment and Training Administration. Politico reported that Senator Schumer did so “likely due to attendance issues” (meaning that an insufficient number of Democrats agreed to show up in the Senate for a Floor Vote to confirm Mr. Rodriquez’ nomination).

We last reported on the status of this nomination in our December 4, 2023 edition, where we reported that the Senate voted 44-51 against advancing the nomination. All Republicans taking part voted against it as did Democratic Senators Joe Manchin (WV) and Bob Menendez (NJ). One Republican and four Democrats did not vote on that motion. In a procedural move, Senator Schumer then switched his vote to “No” to allow for another vote at a later date. Just before the holiday break, on December 18, Schumer successfully then filed a second (cloture) motion to end Senate debate and advance the nomination to an up or down Senate Floor Vote. It then looked like another vote attempt would happen when the Senate reconvened this month after the holiday recess. However, on Tuesday, Senator Schumer withdrew his motion to advance the nomination.

President Biden sent this nomination to the Senate on January 23, 2023. On March 28, the Senate Committee on Health, Education, Labor, and Pensions Committee voted along party lines (11-10) to advance the nomination to the full Senate. As of our WIR deadline, the Senate had not yet sent this nomination back to the President.

Wednesday, January 10, 2024: US EEOC Announced the Official Close of 2022 EEO-1 Component 1 Data Collection

After a brief extension, the U.S. Equal Employment Opportunity Commission (“EEOC”) announced the closure of its 2022 EEO-1 Component 1 Data Collection. Last month, we reported that the day after the original December 5, 2023 reporting deadline, the EEOC granted employers an extension allowing them to file through January 9, 2024.

While the EEOC will not accept any additional 2022 EEO-1 Component 1 reports, filers may continue to log in to the EEO-1 Component 1 Online Filing System (OFS) to access historical report(s), the announcement noted.

Thursday, January 11, 2024: OMB Approved FAR Council Proposed Rule on “Pay Equity and Transparency in Federal Contracting”

Clearing the way for publication, the White House Office of Management and Budget (“OMB”) approved the FAR Council’s Proposed Rule on “Pay Equity and Transparency in Federal Contracting.” Readers likely recall that, in an exclusive last week, we reported the FAR Council submitted the proposal for OMB approval on December 4, 2023. John Fox and Candee Chambers also discussed this pending proposal in last week’s edition of DE Under 3.

In our previous story, we explained that the Proposed Rule would implement President Biden’s Executive Order (“EO”) 14069, which he issued on March 15, 2022 (See the third paragraph of our story here for details on that EO). According to the description on RegInfo.gov, the proposal, if finalized, would “limit or prohibit contractors and subcontractors from seeking and considering information about job applicants’ existing or past compensation when making employment decisions for certain positions.” It would also “require contractors and subcontractors to disclose the compensation or range thereof to be offered to the hired applicant in job announcements for certain positions.”

The Fall 2023 Regulatory Agenda set February 2024 as the target date for publication of this proposal. As of our WIR deadline, the FAR Council had not revealed a specific date for publication.

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.