Two Recent Efforts, from Different Political Directions, to Adapt the FLSA to the 21st Century

Over the past six months, Congress has made two notable attempts to amend the Fair Labor Standards Act of 1938 (the “FLSA”).  In July, U.S. Representative Elise Stefanik (R-NY) introduced The Modern Worker Empowerment Act (“MWEA”) with the stated aim of harmonizing the FLSA’s definition of employee with the common law.  And last month, Senator Brian Schatz (D-HI) introduced the Treating Workers with Dignity Act of 2019 (“TWDA”), which would amend the FLSA to require certain compensated breaks.

Modern Worker Empowerment Act

Subject to certain exclusions, the FLSA defines the term “employee” as “any individual employed by an employer.”  29 U.S.C. § 203(e)(1).  This definition is both circular and sweeping.  The statute then, rather unhelpfully, declares that “‘[e]mploy’ includes to suffer to permit to work.” (29 U.S.C. § 203(g))—providing little to no practical guidance to employers trying distinguish between employees and independent contractors for purposes of FLSA compliance.

Compounding matters is the number of different tests for differentiating employees from independent contractors, which can result in a potential finding that a worker should be classified as an employee pursuant to certain statutes, and a bona fide independent contractor under others.  For example, the IRS uses a three-factor test (with approximately twenty sub-factors) for determining whether a worker is an independent contractor or an employee for tax purposes; the U.S. Department of Labor has historically relied on the so-called “economic realities” test, which weighs six factors; and California recently codified the strict, three-part ABC test in A.B. 5, which presumes employee status.

The MWEA would amend these definitions as follows:

• “Employee”—“Except as provided in paragraphs (2), (3), and (4), the term “employee” means any individual employed by an employer, as determined under the usual common law rules (as applied for purposes of section 3121(d) of the Internal Revenue Code of 1986).”
• “Employ”—“‘Employ’ includes to suffer or permit an employee to work.”

Under Section 3121(d) of the Internal Revenue Code, an individual is an employee “if under the usual common law rules the relationship between him and the person for whom he performs services is the legal relationship of employer and employee.”  More specifically, an individual is an employee if “the person for whom services are performed has the right to control and direct the individual who performs the services … not only as to what shall be done but how it shall be done.”  This definition readily borrows from the economic realities tests used by the U.S. DOL and courts when determining whether a worker is an employee or independent contractor, where, among other non-dispositive factors, control tends to suggest an employer-employee relationship.

Treating Workers with Dignity Act

Unlike certain state law requirements, under current federal law employers are not required to provide workers with meal or rest periods.  The FLSA, pursuant to implementing regulations, requires only that employers who voluntarily offer rest breaks of up to 20 minutes in duration ordinarily must pay employees for such time and include that time as hours worked for purposes of calculating overtime.  In contrast, employers who choose to offer a 30-minute or longer meal period are not required to compensate employees for such time unless the employee is performing work and is not free to use the break time as the employee wishes.  While a number of states, including California, Illinois, Massachusetts, and New York, require mandatory meal and/or rest periods, only a minority of states require paid rest periods, and no states require paid meal breaks.

The TWDA seeks to create uniformity and grant new employee rights by:

• Requiring employers to provide an uninterrupted 30-minute meal break to any employee with a shift of at least six hours;
• Allowing employees to take short, paid breaks to tend to a documented medical condition; and
• Requiring employers to provide a paid restroom break at least once every four hours.

The TWDA exempts employees covered by a collective bargaining agreement that provides for different meal and rest rules, and any state law that provides greater employee protection.  Under the TWDA, the rate of compensation for medical and restroom breaks is the employee’s straight-time rate, whereas the rate of compensation for an employee who works during his or her meal break is not less than one and one-half times the employee’s straight-time rate.

Take-Aways

Whether these bills will pass will likely turn on the outcome of the 2020 Senate and House of Representative elections, as neither bill is likely to garner broad bipartisan support.  The MWEA is a Republican-sponsored bill, whereas the TWDA is a Democrat-sponsored bill.  More specifically, efforts to narrow the FLSA’s definition of “employee” will likely generate strong opposition from worker advocates who will criticize the measure as taking away employee rights to benefit big business.  At the same time, efforts to impose meal and rest break requirements in the roughly half of the states that do not already require them will probably draw significant opposition from the business community as costly and unnecessary measures that will reduce employment opportunities.  This perceived zero-sum dynamic to the FLSA—any changes that help workers are seen as hurting business, and vice versa—is a big part of why significant amendments to this law, originally enacted in 1938, so rarely come to fruition.  We will continue to monitor the progress of these bills and will report on any significant developments.