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Workers Divide on Contractor Status, Complicating Biden Approach

July 14, 2022, 9:30 AM

Workers across various industries are divided on what approach the government should take when it comes to determining who should be an independent contractor or an employee under federal labor law, a gap that complicates the Biden administration’s efforts to combat worker misclassification.

Democrats, labor unions, and other worker-focused groups argue that large tech companies, as well as employers in other industries like health care and janitorial services, are misclassifying their workers as independent contractors to avoid the minimum wage, overtime pay, and tax liabilities that come with full employee status.

But some workers—namely translators, freelance journalists, truckers, among others—say they’re concerned the White House will narrow the definition of independent contractor to a degree that they won’t be able maintain their current livelihoods, and feel they are being left out of a discussion that’s largely focused on the gig economy.

The two factions present a tricky dichotomy for the Biden administration: how do you maintain independent contractor relationships for workers who enjoy that freedom, while also ensuring workers aren’t being exploited under that model?

The most recent data available from the Bureau of Labor Statistics found that independent contractors made up 6.9% of employment in 2017. A quarter of independent contractors in the US worked in “professional and business services” according to the BLS survey. Another 19% worked in construction, and nearly 10% worked in education and health services.

State and federal labor agencies “are trying to protect exploited workers, and they lump everybody into one pot,” said Debbie Abrams Kaplan, a freelance journalist and member of Fight for Freelancers, which opposes broad employee classification tests like the one embraced by California and Massachusetts.

Uber drivers and construction workers are in a different situation than “the writers and the graphic designers and other professions who are very happy with having their own businesses,” she added. “They’re using this big sledgehammer approach instead of trying to use a scalpel to really define the problem and understand the problem and take care of the problem in a much more surgical way.”

But worker advocates disagree.

“This is far bigger than just the app based gig economy,” said Laura Padin, senior staff attorney with the National Employment Law Project. She noted cases of misclassification in janitorial work, trucking, home health care and cleaning, and other industries.

“When workers in those jobs are misclassified as independent contractors, those already low wage jobs get worse,” Padin said. “There’s a huge swath of people who could see the quality of their work improve dramatically if they were employees.”

Regulatory Approach

The long-standing debate over how workers should be classified under federal labor law is heating up again now that the Biden administration has advanced a new proposed regulation to outline its approach to the issue.

Last year, the administration attempted to rescind a Trump-era regulation, backed by large tech companies and industry groups like the American Trucking Association, that allowed most employers to continue classifying their workers as independent contractors under the Fair Labor Standards Act.

The Trump administration test weighs multiple factors when considering whether a worker is an employee or independent contractor, but places greater weight on the person’s control over the work and the person’s opportunity for profit or loss.

But a Texas court decided earlier this year that the Biden administration failed to properly seek public input when it canceled the rule, putting the Trump standard back on the books.

The Biden DOL subsequently announced it would then start another rulemaking process to address independent contractor status in June, adding that it was “committed to ensuring that employees are recognized correctly when they are, in fact, employees so that they receive the protections the FLSA provides.”

California’s ABC Test

Some groups like the Freelancers, as well as TechNet and the Owner-Operator Independent Drivers Association, have expressed concerns about the Biden administration taking the approach of California’s broad “ABC” test, which makes it harder to classify workers as contractors.

“We can only assume based on what President Biden said in his election materials, that he wanted to use the ABC test in all aspects of law,” Kaplan said.

The DOL, however, indicated it wouldn’t be able to implement the ABC test at the federal level, and doesn’t plan to.

The agency’s top lawyer, Solicitor Seema Nanda, suggested during a stakeholder meeting on the forthcoming contractor rule that adopting the ABC test wouldn’t be possible via rulemaking, and could only be accomplished by Congress, according to multiple people who attended.

While the DOL’s Wage and Hour Division hosted two public stakeholder meetings on the new proposal in June, the agency also scheduled “invite only” forums with labor groups and businesses stakeholders that weren’t open to the public or press.

Fight for Freelancers says the Biden administration has been ignoring their concerns about the ABC test because the group wasn’t invited to the private meetings, and some of its members weren’t given time to speak at the public sessions.

But one former DOL official argued that enforcing the FLSA as written shouldn’t harm the current arrangements legally classified contractors have, because the DOL only has the authority to interpret the law as written and can’t broadly change the legal test through a rulemaking.

“There were certain professions that have been kind of gray areas and you know, they look sometimes like independent contractors and sometimes employees,” which “is why we have laws and judges,” said Obama administration Wage and Hour Division chief David Weil.

“But there are people who have been historically independent contractors because under the law, they are legitimate independent contractors, and there’s no reason to believe they wouldn’t continue to be as long as the FLSA is the FLSA,” said Weil, who was nominated to serve at the wage division again under Biden, but was blocked from confirmation in the Senate.

Weil added that the agency could take a stricter approach via enforcement, but not through rulemaking. He isn’t currently advising the administration on this policy issue.

Control

One central factor in the continued discussions on worker classification is the notion of control.

Members of Fight for Freelancers say they are rightfully independent contractors, in part because they are able to choose their own work assignments and negotiate their rate of pay, an essential piece of the varying legal tests to determine how workers should be classified.

But app-deployed workers likely don’t enjoy that same control over their work, despite being classified as independent contractors, groups representing app-based drivers contend.

“I’m a misclassified part time app worker, I have a boss. My boss is an algorithm,” said Nicole Moore, a rideshare driver and member of Rideshare Drivers United. “My schedule is set by algorithms through bonuses and surges. I do not set my own pay.”

Drivers in San Francisco recently made that same argument in an antitrust suit filed against Uber Technologies Inc. and Lyft Inc., asserting that if they are truly independent contractors under the law, then the model the companies have used to set prices for rides amounts to an illegal price-fixing scheme.

Because rates for rides are set by the app, and drivers are given incentives to drive during certain peak hours, they don’t have full control over their working conditions as a true independent contractor should, the lawsuit contends.

“Technology obviously has made this easier to do,” NELP’s Padin said of worker misclassification in the labor market. “Technology and app-based work have made it easier for companies to hire workers on an app, and control and surveil them through the app, while disclaiming responsibility as an employer.”

To contact the reporter on this story: Rebecca Rainey in Washington at rrainey@bloombergindustry.com

To contact the editors responsible for this story: Genevieve Douglas at gdouglas@bloomberglaw.com; Laura D. Francis at lfrancis@bloomberglaw.com