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Federal Register / Vol. 86, No. 4 / Thursday, January 7, 2021 / Rules and Regulations Department updated its dataset, using a sample that included 500 cases closed in 2019. Of those cases, the Department identified 47 cases within this sample that related to independent contractor status. This ratio was applied to the 7,238 FLSA cases closed in 2019 to estimate 680 cases related to independent contractor status. The Department assumes that the increased clarity of the rule would reduce the number of Federal FLSA cases involving independent contractor classification disputes by 10 percent as stakeholders would better understand and be better able to agree on classification determinations without having to litigate.212 Multiplying these variables results in an estimated 68 cases related to independent contractor disputes avoided annually. This estimate of the reduction in the number of independent contractor disputes filed does not take into account any reduction in the number of FLSA cases related to independent contractor disputes heard in state courts e.g., where the state has adopted the FLSA standards for classifying workers, nor does it take into account any reduction in filings resolved before litigation or by alternative dispute resolution, neither of which are captured in PACER data.

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Average Litigation Cost per Case The Department applied a previous estimate of litigation costs of $654,182
per case. To obtain this estimate, the Department conducted a search for FLSA cases concluded between 2012
and 2015 in the Westlaw Case Evaluator tool and on PACER and identified 56
cases that contained sufficient litigation cost information to estimate the average costs of litigation.213 214 The Department 6876768 reduced litigation estimate for the final rule updating the FLSAs regular rate regulations at 29 CFR part 778.
212 This aligns with the methodology the Department has applied in a number of rulemakings See e.g., Regular Rate Under the Fair Labor Standards Act, and in the NPRM for this rule. In each rulemaking with this assumption, the Department requested comments and data on this point, which yielded no substantive data or critiques on its merit. Therefore, the Department believes this is an appropriate assumption in this analysis.
213 Litigation costs are not tracked in a systematic way by any publicly available source. Individual case records are available through various sources e.g. PACER and Westlaw, but litigation costs are often not reported because of undisclosed settlement agreements or because attorney fees are not included in verdict judgements. However, because the FLSA entitles prevailing plaintiffs to litigation cost awards, the Department was able to ascertain costs for 56 relevant cases.
214 The 56 cases used for this analysis were retrieved from Westlaws Case Evaluator database using a keyword search for case summaries between 2012 and 2015 mentioning the terms FLSA and fees. This was not limited to cases associated
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looked at records of court filings in the Westlaw Case Evaluator tool and on PACER to ascertain how much plaintiffs in these cases were paid for attorney fees, administrative fees, and/or other costs, apart from any monetary damages attributable to the alleged FLSA
violations. After determining the plaintiffs total litigation costs for each case, the Department then doubled the figures to account for litigation costs that the defendant employers incurred.
According to this analysis, the average litigation cost for FLSA cases concluded between 2012 and 2015 was $654,182.
Adjusting for inflation, using the GDP
deflator, results in a value of $715,637
in 2019 dollars.215
Applying these figures to the estimated 68 cases that could be prevented each year due to this rulemaking, the Department estimates that avoided litigation costs resulting from the rule total $48.7 million per year 2019 dollars.216 217
3. Improved Labor Market Conditions The Department anticipates the final rule will produce benefits by reducing uncertainty and improving labor market conditions. Removing uncertainty improves labor market efficiency by reducing deadweight loss. As discussed in the need for rulemaking, the Department believes emerging and innovative economic arrangements that benefit both workers and business with independent contracting. Although the initial search yielded 64 responsive cases, the Department excluded one duplicate case, one case resolving litigation costs through a confidential settlement agreement, and six cases where the defendant employers ultimately prevailed. Because the FLSA
only entitles prevailing plaintiffs to litigation cost awards, information about litigation costs was only available for the remaining 56 FLSA cases that ended in settlement agreements or court verdicts favoring the plaintiff employees.
215 This average litigation cost per case may underestimate total average costs because some attorneys representing FLSA plaintiffs may take a contingency fee atop their statutorily awarded fees and costs.
216 Using the median litigation cost, rather than the mean, results in a value of $122,341 2019
dollars per case, which for the estimated 68 annual cases produces a total annual litigation cost savings of $8.3 million. However, the median values do not adequately capture the magnitude of the impact resulting from the large-scale litigation cases that are expected to benefit from the clarity provided in this final rule. Therefore, the mean average is used for this analysis.
217 The Departments approach to estimating litigation cost savings takes into account the impact of the rule on the number of relevant cases filed.
The approach does not take into account the impact of the rule on promoting settlements in the future among cases that are filed. Clarifying a rule may increase the settlement rate among cases filed, reducing litigation costs further see Gelbach, J., The Reduced Form of Litigation Models and the Plaintiffs Win Rate, J. Law & Economics 611, 2018, https www.journals.uchicago.edu/doi/
10.1086/699151.

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require reasonable certainty regarding the workers classification as an independent contractor. The current legal uncertainty may deter businesses from offering these arrangements or developing them in the first place.218 If so, the result would be economic deadweight loss: Legal uncertainty prevents mutually beneficial independent contractor arrangements.
This final rule may produce cost savings by reducing deadweight loss.
Nonetheless, due to the abundance of variables at play, the Department has not attempted to quantify the precise amount of that reduction.
The CGO concurred in its public comment, emphasizing that an important benefit of this rule will likely be increased labor market flexibility.
They note that most labor models suggest flexibility is crucial in allowing labor markets to efficiently match workers with jobs, spur entrepreneurship, and act as an important source of countercyclical income during a recession. They cite a study showing that a 10 percent increase in the freelance workforce is correlated with a 1 percent increase in entrepreneurial activity.219 Similarly, CWI submitted their report that finds independent workers can be an important part of improving business performance, such as by increasing speed to market, increasing organizational agility, improving overall financial performance, and allowing firms to compete in a digital world where increasingly relevant, highlyskilled talent is in short-supply. 220 By decreasing uncertainty and thus potentially opening new opportunities for firms, this final rule may encourage companies to hire independent contractors whom they otherwise would not have hired. Eisenach 2010 outlines the potential costs of curtailing independent contracting.221 If 218 See Griffin Toronjo Pivateau, The Prism of Entrepreneurship: Creating A New Lens for Worker Classification, 70 Baylor L. Rev. 595, 628 2018
The continued demand for innovative work solutions requires a new classification test. Without clarification, parties will be unwilling to engage in new or innovative work arrangements.; see also R.
Hollrah and P. Hollrah, The Time Has Come for Congress to Finish Its Work on Harmonizing the Definition of Employee, J. L. & Poly 262, p. 439
2018, https brooklynworks.brooklaw.edu/jlp/
vol26/iss2/1/.
219 A. Burke, I. Zawwar, and S. Hussels. Do Freelance Independent Contractors Promote Entrepreneurship? Small Business Economics 552, 41527 2019, https doi.org/10.1007/
s11187-019-00242-w.
220 J. Langenfeld and C. Ring. Analysis of Literature on Technology and Alternative Workforce Arrangements. Ankura October 2020.
221 J. Eisenach, The Role of Independent Contractors in The U.S. Economy, Navigant
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