Colt & Joe Trucking Challenges the Department of Labor’s 2024 Final Rule Test of Independent Contractor Status in the U. S. District Court for the District of New Mexico

Kathryn Bennett, Law Clerk

In its August 2, 2024 motion for summary judgment, plaintiff Colt & Joe Trucking LLC (“Colt & Joe”) moved for summary judgment in the U.S. District Court for the District of New Mexico to vacate the Department of Labor’s (“DOL”) 2024 Final Rule (the “2024 Rule”) concerning its revised test to distinguish between employees and independent contractors for classification purposes,[1] claiming that the Rule’s economic realities test is vague, arbitrary, and inappropriately expands the coverage of the Fair Labor Standards Act (“FLSA”) to potentially encompass workers who nonetheless maintain control over their own work and retain the opportunity for profit.[2]  

“Independent Contractors” Tests Under the 2021 and 2024 Rules

Prior to the 2024 Rule,  the DOL’s test (the “2021 Rule”) to distinguish employees from independent contractors placed a heavy emphasis on two of the historical factors typically analyzed when determining employee versus independent contractor status: 1) control over the work performed; and 2) the worker’s opportunity for profit or loss.  In issuing the 2024 Rule, the DOL justified overturning the prior test because it did not comport with judicial precedent discussing the multi-part economic realities test for employer classifications—particularly in its emphasis on only two of the multiple relevant factors for determining employment versus independent contractor status. 

Colt & Joe’s Motion for Summary Judgment

In its motion, Colt & Joe challenges the DOL’s reasoning behind the 2024 Rule and argues that prior case law does not suggest the 2021 Rule’s test was an improper framework to guide the decision of whether a worker is an independent contractor or employee.  Colt & Joe likewise argues that the DOL fails to explain how its 2024 Rule provides any clearer standard for employers struggling to make appropriate worker classifications in order to avoid FLSA liability, and ignores the fact that the Rule will result in an overall decrease of opportunities available to those working as independent contractors. 

The main premise for plaintiff’s argument is that the 2021 Rule’s emphasis on control and the opportunity for profit and loss provides employers with a more comprehensible standard than the 2024 Rule’s emphasis on the “totality of the circumstances,” which essentially gives equal weight to the following factors when making worker classifications:

(1) an employee’s opportunity for profit or loss;

(2) the investments made by the employee and employer;

(3) the degree of permanency to the relationship between the worker and potential employer;

(4) the nature and degree of control over the work;

(5) whether the work is an integral part of the employer’s business; and (6) the skill and initiative required of the job.[3]

Colt & Joe contends that, because any of the foregoing factors may be deemed the “most” important in a given situation, employers have no consistent guidance on the distinction between employment and independent contractor status. 

Future Considerations

            Given that Colt & Joe’s challenge is being brought within the Tenth Circuit, the outcome of the District Court’s decision (and, likely, an appeal to the Court of Appeals for the Tenth Circuit) will be of particular importance to Colorado employers struggling with navigating employment classifications—particularly in industries historically dependent on independent contractors.  Small business owners will also likely have a vested interest in the outcome of Colt & Joe’s challenge because the financial impact of employee misclassifications may affect them significantly more. Campbell Litigation, P.C. will continue to monitor legal developments and challenges to the 2024 Rule and remains available to assist employers with employee classification issues and questions.

[1]See https://www.rockymountainemployersblog.com/blog/2024/1/11/department-of-labor-re-adopts-the-economic-reality-test-for-worker-classifications-under-the-fair-labor-standards-act for our previous discussion of the DOL’s Final Rule concerning independent contractor status.

[2] See https://nclalegal.org/wp-content/uploads/2024/08/ECF22_SJ-Motion.pdf for a full copy of the motion for summary judgment.

[3] 89 C.F.R. § 1638-01, 1640 (2024).