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Labor Department Proposes Rule To Grant Gig Workers Employee Status

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On Tuesday, the Labor Department revealed a new proposal that would make it harder for companies to classify workers as independent contractors rather than employees. This rule would impact the on-demand economy, which includes companies like Uber and Lyft.

Workers granted employee status qualify for benefits and protections like paid leave, minimum wage and overtime pay. Employers would also have to contribute to a portion of worker Social Security taxes and unemployment insurance.

Labor Secretary Marty Walsh spoke about the significance of the proposed rule in a prepared statement.

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers. Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Labor Unions have long urged the Biden administration to scrutinize industries that rely on contractors, including app-based ride services, food delivery services or freelance task platforms like Handy, which connects customers with house cleaners and other home-improvement specialists.

Fair labor advocates stress that gig economy workers face more barriers to unionizing and cannot take advantage of essential benefits afforded to workers classified as employees.

The Labor Department said this misclassification is rampant in several industries, including home care, janitorial services, delivery, trucking and construction services. The misclassification also makes it difficult for businesses to compete with those that misclassify workers as contractors by promoting wage theft.

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The proposed rule is a test that determines whether a worker who is economically dependent on a company should have contractor or employee status. It takes into account factors such as the level of control workers have over how they do their jobs or how many new opportunities they have to increase their earnings by offering new services. Workers who have limited control over either are deemed employees. The rule also requires employers to consider if an employee’s work is an integral part of their business.

It is important to note that the rule is interpretive and does not have the legal force of a congressionally approved regulation. It also only applies to laws the Department of Labor enforces, such as the federal minimum wage. State agencies and other federal agencies like the IRS would still be able to use their own criteria for employment status.

However, employers and regulators will likely consider the proposed rule as guidance for deciding on how to classify workers. Judges will also likely look to the test as a guide.

Patricia Campos-Medina, executive director of the Worker Institute at Cornell University’s School of Industrial and Labor Relations, considers this new move from the Biden administration a big step.

“This is a long-awaited determination that will empower essential workers to assert their basic wage and hour, health and safety and compensation rights. All workers are entitled to these rights, but employers easily avoid them by making arbitrary decisions on independent contractor rules.”

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The Biden administration’s rule would replace the Trump administration’s guidance on worker classification. The previous administration’s guidance made it easier for companies to misclassify workers as contractors. The new proposal will likely face opposition from businesses and organizations that supported the previous rule.

According to The Hill, Uber and Lyft stocks fell around 14% after the announcement. The new proposal could also increase labor costs for gig-based companies by about 30%.

CR Wooters, head of federal affairs at Uber, claimed this does not imply an inevitable negative outcome for the company.

“Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.”

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California Votes To Exempt Uber And Lyft From Gig-Work Law 

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To the dismay of contract drivers throughout California, a ballot measure was passed that exempts ride-sharing companies, like Uber and Lyft, from treating their drivers as actual employees. For tech companies, this vote is a major win in terms of protecting their business models, but for gig-workers, it means being paid the bare minimum without any of the benefits. 

The ballot measure was referred to as Prop 22 and was authored by Uber, Lyft, Doordash, and Instacart. The measure claimed that the companies would be exempt from AB5, a landmark California labor law that appeared years of constant complaints from driver-organizations who wanted to be treated as actual employees. 

Under Prop 22, the drivers for these companies will continue to be classified as contractors, or gig-workers, which removes them from having access to rights like minimum wage, unemployment benefits, health insurance, collective bargaining, union work, etc. Essentially, it means that the gig companies have full control over its employees earnings and rights.

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The fact that America is in the middle of one of the worst economic crisis’ in history as a result of one of the most deadliest pandemics the world has ever seen, has a ton of workers throughout the nation fighting for their right to live, and not work in the middle of a global health crisis. Especially considering how much money companies like Uber earn in a given year, billions, gig workers are fighting for a chance to be given even the most basic of worker rights. 

The companies made their argument by claiming that enforcing AB5 would cause “irreparable harm to their business model.” The “harm” that the companies are referring to would be actually paying their employees a regular salary and providing riders with more low-cost rides, which would thus increase business as well. 

The corporations involved in Prop 22 spent over $800 million on the campaign, leading to a slew of online commentary regarding the irony of multi-billion dollar companies not wanting to pay their employees minimum wage so badly that they spend hundreds of millions on a campaign against it. This spending, however, is what led to their win, according to Steve Smith, a spokesman for the California Labor Federation. 

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“Despite all our efforts, at the end of the day our messaging was drowned out by the campaign’s massive spending. They have extraordinary resources that they’ve indicated that they’re willing to utilize in other states outside of California, which is a huge concern.”

Labor advocates throughout the nation are worried that California is setting a dangerous precedent for gig workers across the nation. Especially considering we’re in the middle of a pandemic where many individuals are picking up gig work to help their households financially, the fact that these corporations are trying to drain even more money from their lower class employees is dumbfounding. 

New York Governor Andrew Cuomo recently spoke on this issue, stating that he wanted to introduce legislation that would make sure all workers in the state have necessary protections and benefits. “Many of the gig economy workers are excluded from the progress New York has enacted because the law has not caught up with changes in the economy. Corporations avoid fair pay and benefits, increasing their profits at the expense of the employee and the taxpayer.” 

Beyond that, current president-elect Joe Biden and vice-president-elect Kamala Harris both publicly opposed Prop 22 during their campaigning, and promised to create a federal version of California’s AB5 law that would aim to protect gig workers everywhere so they’re given the same opportunities and benefits as any other employee in America. 

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New California Legislation Forces Gig Economy Companies to Treat Workers as Employees

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The explosion in popularity of services such as Lyft, Uber, and DoorDash has given rise to a new type of occupation, where workers make their own hours and can use their personal vehicles as part of their job, but are beholden to the operation of a smartphone app instead of working for a traditional employer. These workers, in the so-called “gig economy,” are currently legally classified as contractors, not employees, meaning they lack the protections and rights granted in more traditional jobs. In California, however, that is due to change, as new legislation which is expected to go into effect on January 1st reclassifies these workers as employees, fundamentally changing how these businesses must be run in the state. This pioneering legislation, known as Assembly Bill 5, has the potential to bring about change in other states as well, as employee rights advocacy groups lobby for similar laws to be passed in states like New York, Washington State, and Oregon.

Although the app-based companies that would be affected attempted to negotiate an exemption from the bill, this attempt failed, and the bill in question passed 29 to 11 in the California State Senate. After the bill goes through the State Assembly, California’s governor, Gavin Newsom, is expected to sign the bill into law, as he endorsed the bill this month. According to the New York Times, the law would designate workers “as employees instead of contractors if a company exerts control over how they perform their tasks or if their work is part of a company’s regular business.” Classifying workers as employees rather than as contractors means they would be granted protections such as a right to a minimum wage and unemployment insurance, among other benefits. Because of the broad phrasing of the bill, several industries, including custodial services, nail salons, and construction could be affected.

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Companies that have built their business on the cheap labor afforded by contract work have fiercely opposed the bill, spending $90 million in a failed attempt to defeat it. These companies have argued that contract work gives people more flexibility and independent, and have claimed that this legislation has the potential to destroy their businesses. Although these “gig companies” have provided a tremendous amount of innovation by making it quicker and easier for smartphone users to request goods and services, they have done so by taking advantage of the loose restrictions placed on hiring contractors, many of whom complain about being underpaid, unfairly let go, or burdened by the costs of upkeep and maintenance the job imposes. Contractors for these companies, most notably ride-hailing drivers, are unsurprisingly supportive of the bill’s passage.

The passage of Assembly Bill 5 represents a major victory for contract workers for Uber, Lyft, and Doordash, who have fought for years to be classified as employees. A number of lawsuits have been brought against these companies from drivers arguing that they have the legal right to the same rights as employees, and the companies have responded by settling these lawsuits out of court. The companies have also worked to secure exemptions to rules threatening the contractors’ freelancer status in a number of states.

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While the specifics of how gig economy companies will react to the new law is unclear, it is estimated that treating workers as employees could raise costs by 20 to 30 percent, and Uber and Lyft claim that the law would require them to schedule drivers in advance, prohibiting their freedom to choose when and where to work. Experts, however, disagree, and claim that the companies are free to leave their system of scheduling workers the way that it is. Not all drivers are in favor of the bill, as they fear the law will limit their flexibility, and Uber and Lyft urged drivers to call their legislators to oppose the bill.

Reaction to the concept of reclassifying contractors as employees nationwide generally varies along the political spectrum, with people on the left praising the bill for the benefits it grants workers and people on the right complaining that the bill represents excessive government interference in the affairs of private businesses. In any case, the passage of the bill in California is sure to provide a valuable test case for how similar legislation in other states would impact workers, businesses, and consumers.