April 12, 2021
Division of Regulations, Legislation, and Interpretation
Wage and Hour Division
U.S. Department of Labor
200 Constitution Avenue NW
Washington, D.C. 20210
RE: Independent Contractor Status Under the Fair Labor Standards Act; Withdrawal (RIN 1235-AA34)
Dear Ms. DeBisschop,
The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI conducts research and analysis on the economic status of working America, proposes public policies that protect and improve the economic conditions of low- and middle-income workers, and assesses policies with respect to how well they further those goals. EPI submits these comments on the Department of Labor’s (DOL) request for comment on the withdrawal of the rule entitled “Independent Contractor Status Under the Fair Labor Standards Act” (Independent Contractor Rule).
The Fair Labor Standards Act (FLSA) is one of our nation’s fundamental worker protection statutes, providing wage and hour protections like the minimum wage and overtime to employees, but not independent contractors. In January 2021, the Department of Labor finalized the Independent Contractor Rule1, which narrowed the broad definition of “employee” in the FLSA by proposing a restrictive interpretation of the long-accepted “economic realities” test. By constricting the FLSA’s broad definition of “employee”, the Independent Contractor Rule would make it easier for employers to classify workers as independent contractors. The Independent Contractor Rule would strip workers of the right to minimum wage, overtime pay, and protections of child labor laws, and cost them billions of dollars each year.
EPI estimates that the Independent Contractor Rule would cost workers more than $3.7 billion annually. This loss to workers is composed of at least $400 million in new annual paperwork costs, and a transfer to employers of at least $3.3 billion in the form of reduced compensation. Further, social insurance funds, such as Social Security, Medicare, Unemployment Insurance, and Workers’ Compensation, would lose at least $750 million annually in the form of reduced employer contributions, meaning the rule also results in a transfer of at least $750 million annually from social insurance funds to employers. However, as noted in EPI’s submitted comments for the proposed rule, these estimates are conservative, and the true impact could be many times these numbers.2
It is worth noting that the Department previously disagreed with EPI’s findings in the final rule, but upon further consideration believes that the analysis may be useful in understanding the impacts the Independent Contractor Rule would have on workers. In addition, the Department notes as a reason for proposing to withdraw the rule the fact that that the final rule did not fully consider the “likely costs, transfers, and benefits” that could result from the Independent Contractor Rule.3
Though EPI’s estimates show the implementation of the Independent Contractor Rule would harm a broad array of workers, it would inflict the most damage on workers of color who predominate in the low-paying jobs where independent contractor misclassification is common. This includes industries such as delivery services, janitorial services, agriculture, transportation, and home care and housekeeping, as well as in app-dispatched work.4
It is no coincidence that corporate misclassification is rampant in low-wage, labor-intensive industries where women and people of color, including Black, Latinx, and AAPI workers, are overrepresented.5 All workers who are misclassified suffer from a lack of workplace protections, but women, people of color, and immigrants face unique barriers to economic security and disproportionately must accept low-wage, unsafe, and insecure working conditions. And in times of high unemployment like today, individual workers have even less market power than usual to demand fair conditions, especially in jobs that historically have been undervalued. Instead of narrowing the definition of employee, we should be broadening it so ensure workers are not wrongly misclassified as independent contractors and receive the protections they deserve.
EPI strongly supports the Department of Labor’s proposal to withdraw the Independent Contractor Rule. We estimate that the rule will cost billions of dollars annually and will cost the social insurance system hundreds of millions of dollars annually. Further, due to occupational segregation by race, discrimination, and other labor market disparities rooted in structural racism, Black and Latinx workers are more likely to work in the occupations affected by this rule. For these reasons, the Independent Contractor Rule should be withdrawn.
Director of Policy and Senior Economist
Economic Policy Institute
Economic Policy Institute
1. Independent Contractor Status Under the Fair Labor Standards Act, 86 Fed. Reg. 1168 (January 7, 2021). On March 2, 2021, the Department announced it was delaying the effective date to May 7, 2021 to further consider the impacts of the Rule.
2. Heidi Shierholz, “EPI Comments on Independent Contractor Status Under the Fair Labor Standards Act,” comments submitted on behalf of Economic Policy Institute to U.S. Department of Labor, February 24, 2021.
3. 86 Fed. Reg. at 14035
4. National Employment Law Project, Independent Contractor Misclassification Imposes Huge Costs on Workers and Federal and State Treasuries, October 2020.
5. Charlotte S. Alexander, “Misclassification and Antidiscrimination: An Empirical Analysis,” Minnesota Law Review 101, no.3 (February 2017): 907-967. https://scholarship.law.umn.edu/mlr/151