Health Care and Trucking Industries Likely to Feel Repercussions from Independent Contractor Rule

Health care and trucking are among the industries that could be particularly impacted by the U.S. Department of Labor’s (DOL) new rule for determining whether a worker is an employee or an independent contractor. The new standard, set to take effect on March 11, may disrupt the labor supply and escalate labor costs in those two industries, which tend to rely heavily on independent contractors, experts said.

Background

The new rule restores an earlier standard that required companies to weigh a variety of economic factors together to determine whether a worker is a W-2 employee or an independent contractor using a 1099 form. The DOL rescinded a 2021 rule in which two factors—control over the work and opportunity for profit or loss—carried greater weight. Now employers must use a totality-of-the-circumstances analysis, which incorporates the amount of skill and initiative required for the work, the degree of permanence of the working relationship, the worker’s investment in equipment or materials for work, and the extent to which the service rendered is an integral part of the employer’s business.

“There is no single factor that’s weighted heavier than all of the other factors,” said Linda Bond Edwards, an attorney with RumbergerKirk in Tallahassee, Fla. “Looking at the totality of the circumstances is always challenging for employers. [The new rule] may favor employees [claiming they were misclassified as independent contractors] to some degree because it increases the ability for the facts to force their case to a jury and not to a judge.”

Health Care Industry

Many nurses and home health aides work part time for more than one staffing agency. In the nurse staffing industry, independent contractor status “has been a simmering issue for a while,” said Ted Hollis, an attorney with Quarles & Brady in Indianapolis. It’s likely that the staffing agencies and health care facilities will re-evaluate their use of the 1099 model going forward, he said.

Employers will “need to step back and look at ‘what is the economic reality? Is this worker dependent on us?’ ” Hollis said. “Some health care facilities will want to take on less risk,” while others may wait and see the results of future enforcement actions by the DOL.

Previously, staffing agencies argued that nurses were independent contractors because they could accept short-term jobs or not, and the staffing company didn’t control the details of their work, said Gary McLaughlin, an attorney with Mitchell Silberberg & Knupp in Los Angeles[AC1] . But now companies are “going to need to be concerned about all the factors” in the totality-of-the-circumstances standard, he said.

There’s a shortage of nurses and home health aides right now, partially due to early retirements during the COVID-19 pandemic and the increasing medical needs of Baby Boomers, most of whom are over age 60, according to the American Association of Colleges of Nursing.

Health care companies “are going to have to be more competitive to retain and get the workers they need,” Hollis said. “It may make it harder for a company that’s using the 1099 model to be as competitive.”

Trucking Industry

Likewise, the new rule “is going to be a very big deal for the trucking industry, which is very concerned about the impact this rule may have,” Hollis said.

Trucking companies would “have to restructure their whole business model if these [workers] were employees,” McLaughlin said. “I don’t suspect the trucking industry as a whole will be changing their [business] models” because of the DOL’s rule. A lot of companies may keep classifying truckers as contractors until a court tells them they can’t, he added.

Many drivers rent a truck from the company they deliver goods for, which could mean they’d have to be classified as an employee under the new rule, Hollis said. To be considered an independent contractor, they’d have to be free to negotiate the terms of the lease of the truck, and they couldn’t be prohibited from using the truck to make deliveries for other companies, he added.

If the trucker owns the vehicle, that “could be a considered an investment that weighs in favor of contractor status,” especially because a big-rig truck is only used for work and not for personal errands, McLaughlin said.

The dollar value and reason for the investment should be considered separately from the worker’s opportunity for profit or loss, the DOL noted in the rule. “For a worker’s investment to indicate independent contractor status, the investment must be capital or entrepreneurial in nature,” the rule states. “The worker’s investment should generally support an independent business or serve a business-like function, such as increasing the worker’s ability to do different types of or more work, reducing costs, or extending market reach, to indicate independent contractor status.”

Due to the logistical demands of delivering goods across the country, many truckers work much longer than a 9-to-5 workday. Under the federal Fair Labor Standards Act, nonexempt employees are entitled to overtime pay, but independent contractors are not.

Because truckers often work long hours, “overtime becomes a really big deal,” said Joshua Zuckerberg, an attorney with Pryor Cashman in New York City.

If truckers are classified as employees, Hollis said, “it’s going to raise the labor costs for the companies, which undoubtedly will turn around and pass it on to the consumer.”