STORY

With its bustling music industry, Nashville is home to many freelancers and independent contractors. Many of these individuals choose to be independent contractors because they enjoy the flexibility that freelancing provides and the control that it gives them to shape their careers. Even so, the Biden Administration recently issued a rule that would coerce companies to classify many independent contractors as employees. The Department of Labor (DOL)’s Independent Contractor Rule replaces a straightforward two-factor test with a vague and confusing six-factor test for distinguishing between employees and independent contractors, with the intent of forcing freelancers into employment relationships that they neither want nor need. Beacon opposed the proposed rule through a public comment, and now represents two Nashville-based freelance writers in a federal lawsuit against the Department of Labor. 

Margaret Littman is a freelance journalist, Vanderbilt alumna, and Nashville-resident. For over 30 years, Margaret has written about travel, business, health, and many more topics as a freelance writer. Her favorite topic is writing about overlooked people and places. As she puts it, she wants Tennesseans to know about all the amazing things that are (figuratively) in their backyard.   

Margaret enjoys being an independent contractor. She says freelancing gives her more control over her career and allows her to choose everything from health insurance to retirement to how and when she works. Freelance journalism also gives Margaret more job security. A spate of layoffs has plagued newspapers and magazines over recent months—leaving many traditional journalists out of jobs. By contrast, Margaret works with roughly 25 clients nationwide and can withstand losing one or two of them at any given time. Margaret fears that the DOL’s Independent Contractor Rule would force many publications to classify her as an employee and destroy the freelancing career that she has built for over three decades. 

Jennifer Chesak is a freelance journalist, editor, fact checker, and adjunct professor (Belmont). Her writing, which focuses on science and medicines, has appeared in Washington Post, Healthline, and Runner’s World. Jennifer began to do freelance work in 2010. Jennifer felt that her previous employer didn’t pay her what she was worth and proved it by making twice the money as a freelance writer.

Beyond salary, Jennifer enjoys freelance work because she can control her time, go to medical appointments for her chronic illnesses when she needs to, travel to North Dakota to take care of her aging parents, and avoid harassment, which plagued her previous workplace. Yet the Independent Contractor Rule is already affecting her freelance work. To comply, companies with whom she works have implemented procedures that have forced Jennifer to spend countless (unpaid) hours to meticulously document every task she performs. Companies have also begun instituting a cap on the amount of work Jennifer can perform each year and requiring freelancers to indemnify the company for any liability that may result from an incorrect classification (employer or independent contractor). 

The Problem

The Fair Labor Standards Act (FLSA) requires employers to provide employees with a host of benefits such as minimum wage and overtime pay. The FLSA’s wage and hour provisions do not apply to independent contractors. Unfortunately, the FLSA fails to provide companies with guidance on the distinction between employees and independent contractors. The Act does not even define “independent contractor,” and provides only a vague definition of “employee.” An “employee” is “any individual employed by an employer.” “Employ” is defined as “to suffer or permit to work.”

From the Act’s enactment in 1938 to 2021, companies had to rely on court decisions to determine whether a worker was an employee or an independent contractor. The Department of Labor tried to provide clarity in 2021 by issuing a rule that considered two core factors: (1) the nature and degree of the individual’s control over the work; and (2) the individual’s opportunity for profit or loss. After a change in presidential administrations, the Department of Labor proposed a new rule in 2022. This new rule considers six factors, including (1) the opportunity for profit or loss depending on managerial skill; (2) investments by the worker and the employer; (3) degree of permanence of the work relationship; (4) nature and degree of control; (5) extent to which the work performed is vital to the employer’s business; and (6) skill and initiative. 

That’s not all. The new rule also states, without specification, that “additional factors may be relevant” if they suggest whether or not the worker is in business for themselves. The new rule thus deprives independent contractors of the certainty they currently have and coerces employers to treat independent contractors as employees to be safe. 

Experience in California foreshadows the Final Rule’s devastating results. In 2019, California enacted AB5, which sets forth the test for determining whether a worker is an employee or an independent contractor. AB5 incorporated a three-factor test and exempted around 100 professions—suggesting that it would be less burdensome than DOL’s Independent Contractor Rule here. But California companies were still forced to lay off hundreds of freelance writers, and music festivals that had been running for 40 years were forced to shut down. The Independent Contractor Rule threatens even greater devastation nationwide.   

The Legal Issues

The Independent Contractor Rule violates fundamental separation-of-powers principles.  

First, the Independent Contractor Rule is arbitrary and capricious. The Administrative Procedure Act requires agencies to provide a good reason for reversing course on policy. Yet the Department of Labor failed to provide a sound explanation for its shift to a vague multi-factor test in its 2024 Rule, and the switch threatens to confuse companies and disrupt the freelance industry

Second, the Independent Contractor Rule was promulgated in excess of the DOL’s authority delegated to it by Congress in enacting the FLSA. As originally understood, the Department of Labor had no authority to issue binding rules at all under the FLSA—and that is perhaps why it did not do so for over 80 years. If it were otherwise, the FLSA would raise significant nondelegation concerns. The definition of “employee” has significant consequences for the economy. It’s difficult to imagine that, in enacting the FLSA, Congress sought to have that important question decided on an administration-by-administration basis.

The Legal Team 

Wen Fa is the Director of Legal Affairs at the Beacon Center.

Ben Stormes is an attorney at the Beacon Center.

Local counsel: Daniel Turklay – Turklay Law, PLLC

Case Documents

Complaint

Motion for Preliminary Injunction

Memorandum in Support of Plaintiffs’ Cross-Motion for Summary Judgment