The Labor Department expands its regulatory reach over gig companies.
The Labor Department expands its regulatory reach over gig companies.
T he Department of Labor (DOL) announced last week that it was proposing a new rule to prevent “worker misclassification.” This is the latest volley in an ongoing battle by federal regulators and organized labor meant to bring so-called “gig economy” companies to heel, with millions of freelancers caught in the middle.
Marty Walsh, the former union president now running the Biden labor department, wants to enable regulators to classify app-based companies such as Uber, Lyft, and Doordash, among others, as traditional employers. This move may undermine the business model that made the gig economy possible in the first place. But ensuring that these companies are viable, it seems, is not as important to the Biden administration as ensuring that their workers have union cards, whether they want them or not.
The gig economy has been a major sore point for unions because it’s by nature hard to organize. Gig workers are independent contractors, or freelancers. The National Labor Relations Act of 1935, the law that covers most private-sector union-organizing, was written for traditional employer–employee situations. Organizing freelancers is much harder because they don’t have regular employers. Classifying gig-economy workers as regular employees would give unions leverage to force employers to the negotiating table. Never mind that this would encompass all sorts of workers who see themselves as freelancers, as California discovered with its ill-conceived AB5 law.
Unions and their allies argue that companies use contract labor to dodge their responsibilities under federal law. “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,” Walsh said Tuesday. The companies counter that the freedom inherent in gig work is crucial to their economic model, and that it’s the reason why the model has taken off with workers and consumers alike. A contractor can work as much or as little as he wants, and for whomever he wants. How many times have you called a rideshare and noticed that the driver had both Lyft and Uber stickers on his car? No employer would allow an employee to also work for its competitor, but this is common in the gig economy because the workers are independent.
Strange as this may sound, the government has no clear legal definition of “employer” or “employee.” Until recently this wasn’t necessary, as freelancing was relatively rare and limited to particular professions, most commonly the arts. That began to change a decade ago as more and more businesses opted to exclusively use contractors as their workforces.
The battle now being fought is over what defines an employee. Since the late 1940s, DOL has used a six-factor test: (1) the employer’s degree of control over how the work is done; (2) the worker’s opportunity for profit or loss (i.e., how much economic risk he’s shouldering); (3) the worker’s investment in facilities and equipment; (4) the permanency of the relationship between the parties; (5) the skill or expertise required by the worker; and (6) whether the worker is part of a production line. None of these six, or any combination of them, was definitive, however: They were just things that regulators could cite when making decisions.
The Trump administration tried to bring a modicum of clarity to this by winnowing the six factors down to just two: (1) the employer’s degree of control and (2) the worker’s opportunity for profit or loss. For instance, a rideshare driver will spend money on gas in the hope of making more on trip revenue, which might not happen, and which makes him unlike an employee based on the Trump administration’s two criteria. Thus regulators were given clearer guidance to make consistent decisions.
Last week’s announcement was the Biden administration’s officially throwing out the Trump rule and proposing to reinstate a broader version of the old six-factor test. For example, the proposed new rule would make economic dependence on a company an additional factor. However, dependence “does not focus on the amount the worker earns or whether the worker has other sources of income.” So, “economic dependence” will no longer require being economically dependent on one employer. Got that?
The Biden administration, in short, wants to pretend that freelancing doesn’t really exist; that everybody who drives for a rideshare, makes deliveries, or provides any other service that involves working for a few hours a week to round out the bills, in effect, wants to do that full time. Under this rule, that will be freelancers’ only option.