The U.S. Department of Labor (DOL) is once again changing the criteria for what determines a person’s employee status (versus that of an independent contractor) under the Fair Labor Standards Act (FLSA). This, obviously, could have a huge impact on travel agencies and their advisors.
Background on the Ruling
Prior to 2021, the DOL and courts used the “matter of economic reality” test, which relied on six different factors—none weighing more than the others—to determine if someone was an employee. This “totality-of-the-circumstances analysis” was altered in 2021 updated its ruling to redetermine someone’s employment status. The 2021 IC Rule, according to the DOL, “marked a departure from the consistent, longstanding adoption and application of the economic reality test by courts and the Department of how to determine whether a worker is an employee or an independent contractor under the FLSA.”
These guidelines identified five economic reality factors to guide the inquiry—two of which (the nature and degree of control over the work and the worker's opportunity for profit or loss)—were designated as “core factors” that were the most probative and carried greater weight in the analysis. If they pointed to the same classification, that most often determined one’s worker status. The other three, non-core factors, included the amount of skill required for the work, the degree of permanence of the working relationship between the worker and the potential employer, and whether the work is part of an integrated unit of production.
Now, the DOL is rescinding the 2021 IC Rule and creating replacement regulation. Beyond reverting to the “totality-of-the-circumstance analysis," the final rule provides information on how scheduling, remote supervision, price setting and the ability to work for others should be considered under the control factor and allows for the consideration of reserved rights (while removing the provision in the 2021 IC Rule that minimized the relevance of retained rights). Further, the final rule discusses exclusivity in the context of the permanency factor, and initiative in the context of the skill factor.
The six factors now used to determine whether a person is an employee or IC are: Opportunity for profit or loss depending on managerial skill; investments by the worker and the potential employer; degree of permanence of the work relationship; nature and degree of control; extent to which the work performed is an integral part of the potential employer’s business; and skill and initiative.
Impact on Travel Agencies
Travel Agent reached out to the American Society of Travel Advisors (ASTA) to see in what ways this could affect their business. As of 2022, ASTA estimated that there were 65,000 travel advisors engaged as independent contractors, roughly 40 percent of the total labor force.
“Insofar as it can be fairly characterized as a return to the Obama Administration's interpretation of the economic realities test, it is a modest step backwards, in my view, as it de-emphasizes the ‘degree of control’ factor of the analysis,” said Peter N. Lobasso, senior vice president and general counsel, ASTA. “Moving back to an unweighted totality-of-the-circumstances approach means less certainty for businesses that their worker classifications will be upheld if challenged in the courts. It also increases the likelihood of conflicting determinations at the federal level, given that the interpretation embodied in the final rule moves the Department of Labor’s test further away from the longstanding test used by the Internal Revenue Service. I raised these points in ASTA’s comments to the rulemaking and cited them as reasons why DOL should have left the Trump-era interpretation in place.”
For those reasons, ASTA was opposed to the proposed rule and the final rule just announced.
The good news, however, is that Lobasso adds: “All that being said, because, historically, travel agencies have not been the target of aggressive enforcement efforts at the federal level, I do not anticipate this being all that impactful to our industry.”
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