4A’s Voices Advertising Agency Concerns Over Draft Federal Independent Contractor Rule

On December 13, 2022, the 4A’s submitted written comments to the U.S. Department of Labor (DOL) regarding its proposed rule to revise its analysis for determining employee or independent contractor (IC) classification under the Fair Labor Standards Act (“FLSA”). 4A’s specific written comments supplemented other general written comments filed as part of our membership in a coalition with the U.S. Chamber of Commerce and over two hundred businesses and state and local chambers of commerce. 

This proposed rule would make it harder for businesses of all types, including agencies, to classify their workers as independent contractors under federal wage and hour laws and increases the risk that some of their workers may be misclassified. In the agency ecosystem, independent contractors have always played an important function in executing client campaigns. But with some of the shift from agency of record (AOR) work to more project-based work, independent contractors will play an outsized role in the future, as agencies will need to scale their workforces quickly in response to project lifecycles.

As written, the proposed rule would revert back to the previous interpretation of the “economic reality test” factors (as was developed under the Obama Administration) with a few tweaks. It would rescind the Trump-era 2021 independent contractor rule, which placed greater importance on two of the five (now six) factors—employer right to control over a worker’s work and a worker’s opportunity for profit and loss. Instead, it would reinstate the multifactor totality-of-the-circumstances assessment to the worker classification analysis, with no factor or set of factors having a greater or predetermined weight.

Specific Agency Concerns in the IC Rule Included in the 4A’s Comments

 

Included in the 4A’s written comments advocating against the adoption of the new proposed rule were arguments to:

• Explain how agencies effectively utilize skilled, creative contractors and espouse upon the ongoing flexibility benefits of having them available to scale their workforces to address-changing client project lifecycles. This is especially important during times of economic uncertainty, where advertising clients tend to want more wiggle room in the pay agreements they’re making with agencies.
• Debunk the popular misconception that freelancing just equates to lower skilled ‘gig work’. The growing skill-bias of freelancing and steadily rising education level of freelancers should imply a reasonable understanding of the costs, benefits, and risks of workers operating as a skilled independent contractor.  
• Provide clear rationale for why in advertising, the best creative freelancers often have a preference to operate as independent contractors; flexibility and personal autonomy to establish their own freelance brand are critical components of the skilled creative contractor mentality.
• Urge the DOL not to return to a past DOL interpretation of the “integral” factor criteria (which considers whether the work is integral to the employer’s business rather than whether it is exclusively part of an integrated unit of production); the proposed rule’s interpretation is particularly adverse to IC classification for agencies.
• Express a desire for more DOL clarification regarding the “skill and initiative” factor and solicit information on level of due diligence required by businesses to ensure their contracted workers are performing work for others (or hope to) and demonstrating initiative toward that end; the proposed rule does not provide clarity for the pervasive scenario in which workers who desire to be independent contractors choose themselves to be “economically dependent” on work made available to them by one company.
• Address DOL’s unnecessary partiality in weighing the “permanence” factor in favor of employee status if a working relationship is “exclusive” or “continuous. We feel such a decision is out of touch with the modern realities of today’s business operations and unfairly penalizes independent contractors who have worked hard and garnered client trust. Agency employers derive significant, ongoing value from working with the same, preferred creative freelancers over long-term, client-agency projects or relationships.

Also included in the comments were general appeals asking DOL to issue significant guidance materials and FAQ documents that elucidate upon what small businesses need to do differently in practice in order to to align with new analyses for determining employee versus contractor status. The 4A’s asked DOL to specifically solicit complex hypotheticals and examples (including those which have scenarios with ICs from the skilled creative industry) from business stakeholders to add to these guidance materials and/or to be included in the final rule.

Since the proposed IC rulemaking’s comment period has closed, DOL will now review all stakeholder feedback and then issue a final rule. Exact timing on when a final rule will be issued and when it will take effect remains unclear; however a best guess is still sometime within 2023. 

Additional information on the proposed rule for federal independent contractor classification can be found here.

Have questions about state or federal IC classification issues or about the comments filed to the proposed federal IC rule? Contact Amanda Anderson.