Friction is bound to emerge when modern, 21st century business arrangements meet Great Depression-era definitions for determining when labor standards apply.
The primary federal wage and hour law — the
Fair Labor Standards Act 
— is nearly 85 years old. Enacted in 1938, it has to be applied to new business models and job structures that have cropped up over the decades and may not fit the conventional mold of employment.
App-based food delivery services are among the newer business models that have emerged in the 21st century. These delivery workers are often considered independent contractors rather than employees. (AP Photo/Mark Lennihan, File)
Whether an individual is an employee or something else, like an independent contractor, makes a big difference. Worker protection laws only cover employees, meaning that contractors aren't entitled to the FLSA's wage and overtime guarantees or job protections mandated by other federal or
state laws that use the FLSA's definition of employment.
Richard Reibstein, a
Locke Lord LLP partner who counsels companies on worker classification, said businesses that open up in a legal space where definitions are not crystal clear should take care up front with how they structure their workforce.
"Key is, while unconventional, there are laws impacting non-employment business models that have to be followed," he said. "If not, employment laws may govern and companies should be well aware of these laws and how to comply before they get too far along with their new businesses."
Developing a new business should include paying attention to how the model will or won't be covered by workplace laws, he said. Proactive compliance can help avoid legal headaches later, he added.
"Otherwise, they have to reevaluate the structure, documentation, and implementation of these businesses," he said. "While that can happen after the fact, it is best to do before a plaintiffs' class action law firm or a government regulatory agency knocks on their door and serves a summons or investigatory notice."
New Apps Follow Old Model, Worker-Side Atty Says
Shannon Liss-Riordan, a worker-side attorney, said that although companies brag about their industry-disrupting innovations, there haven't been a lot of changes in their approaches to how they manage their workforce.
She specializes in suits alleging businesses should comply with employee protection laws because the statutes define employment broadly.
"A lot of these work arrangements look pretty similar from industry to industry," she said. "Employers try to dress them up with different labels and different descriptions to make them look like they're not traditional work arrangements."
Liss-Riordan, who is running for Massachusetts attorney general, pointed to ride-hailing and food delivery companies as an example.
"They try to say that they're something new and different because the work that they have is distributed by an app, and people have flexibility about the hours that they work," she said. "It's really no different from traditional business models other than the fact that there's more flexibility than you usually see."
Gig companies frequently argue that their independent contractor model gives workers flexibility to decide when and for how long they want to be on the clock, and to work for multiple companies simultaneously.
Liss-Riordan disputed the idea that employee status, and the worker protections it brings, is incompatible with flexibility.
"You can see flexibility in employment situations," she said. "That does not make those workers different."
Biden Administration Sees Broad Definition of Employment
Under President Joe Biden, the
U.S. Department of Labor has said that the definition of employment is supposed to be broad so that many workers benefit from the protections it brings.
The department applied that maxim when it pulled back two FLSA rules issued under former President Donald Trump that, according to the prior administration, would have established clear standards for determining when a relationship between a worker and a company is employment.
The
independent contractor rule, which the DOL finalized in January 2021, would have established a multifactor test for evaluating whether a work arrangement is employment and therefore covered by wage and hour protections. The
joint employer rule approached the employment question from a different angle, and would have erected a framework for evaluating whether a company exercises so much control over an affiliated business that it may be liable for the second firm's illegal pay practices. Critics said the rules' definitions were excessively narrow and would deprive many workers of employee protections.
Shortly after the White House flipped from Trump to Biden in January 2021, the new administration stopped the independent contractor rule from going into effect. The joint employer rule was already on hold because a New York federal judge in September 2020 found that it improperly narrowed the definition of employment further than Congress intended for the FLSA.
The Biden administration
moved to permanently revoke both rules in March 2021. For each one, it said that broadly defining employment to maximize the FLSA's coverage is a cornerstone of the worker protection law. The rules' narrow interpretation did not meet that goal, it said.
The
National Federation of Independent Business, an association of small operators, said the Biden administration pulled back helpful guidance on classifying work arrangements. In response to a Law360 for comment on worker classification, an NFIB representative declined to speak on the record other than to refer to the comments the group submitted when the Trump and Biden administrations issued and revoked the rules.
As the Biden administration quashed the rules, NFIB said returning to prior employee status tests without laying down replacement guidance would make it more challenging for small businesses.
"Those interpretations created a mess for the businesses, which the Department of Labor designed the two rules to solve,"
it said in a March 2021 comment on the Biden administration's move. "The Biden administration should not return to the murky and burdensome overregulation of the past by revoking [them]."
--Editing by Haylee Pearl.
For a reprint of this article, please contact reprints@law360.com.