The Biden administration proposed to rescind the rule Thursday. If it had gone into effect, the rule would have created a shorter, simpler test for determining when a worker is an independent contractor who isn’t entitled to minimum wage and overtime protections that the Fair Labor Standards Act affords to employees.
As the new administration shapes how the federal government will address an issue that has plagued the gig companies in courtrooms and legislatures around the country, businesses are pushing for measures that would give drivers some job and health benefits, without establishing employee status.
“Uber and Lyft have demonstrated that they will go to the mat and pay millions of dollars to ensure their workers are classified as independent contractors,” said Caroline Bruckner, a tax policy professor at American University, who has studied the gig economy.
The question of worker classification has broad implications for gig companies, whose business costs have been estimated to rise by as much as 40% if they’re forced to treat their drivers as employees. The ridehailing companies are expected to continue to mount a fierce lobbying battle in Congress, state governments, and the Labor Department to defend their models that rely on contractors.
“The vast majority of earners choose app-based work and support remaining independent precisely because it is so different from traditional employment,” an Uber spokesperson said in a statement to Bloomberg Law. “Uber looks forward to working with the Biden Administration and the Department of Labor on this rulemaking to ensure independent workers have access to new benefits and protections they deserve.”
Lyft didn’t respond to a request for comment on the DOL rule.
Uber and Lyft assembled a lobbying team of Democrats to convince Congress and regulators to not classify their workers as employees. They’ve also lobbied in states around the country, including funding a $200 million ballot initiative that carved out rideshare drivers from a California law that makes it hard for them to label their workers as contractors.
The companies also fiercely opposed the Protecting the Right to Organize Act, or the PRO Act, which nevertheless passed the House this week. It would potentially give gig workers, under a stricter worker status test, the right to form unions and sue companies for retaliation for labor activities.
Regardless, if the Trump rule is ultimately rescinded, the DOL under Biden’s labor secretary nominee
“The DOL will withdraw the rule. That’s a safe bet,” said Allan Bloom, a partner at Proskauer Rose, who leads the firm’s wage and hour practice group. “Then, what happens next?”
The agency could issue a new rule or more guidance on independent contractor status under the FLSA. During the Obama administration, the agency issued guidance that analyzed the FLSA’s multifactor “economic realities” test for determining worker status, and leaned toward a finding that “most workers” should be employees under the wage law.
The bolder solutions, such as adopting California’s rigid “ABC test” for worker classification, may be something that’s proposed to Congress. President
Chris Wilkinson, senior counsel with Perkins Coie and former associate solicitor for civil rights and labor management at the DOL, said the agency could implement guidance that will likely go in the direction of the ABC test, given Biden’s platform.
Bloom said Uber and Lyft will take the opportunity to push Congress and the DOL to adopt something similar to California’s Proposition 22, the voter-approved ballot measure that exempted rideshare drivers from the ABC test but also provided them with benefits, such as a minimum wage.
But Congress giving gig workers unemployment benefits in Covid-19 stimulus relief packages could change the landscape. Wilkinson said there is growing interest in proposals for a third classification of workers that receive “portable benefits” that they can take from job to job without being classified as an employee.
“This could pave the way toward incremental changes that allow workers to still be classified as independent contractors and retain benefits,” Wilkinson said. “It’s different than the Obama years when the government dug in to classify as many workers as they could as employees. There is now some precedent for some middle ground.”
When the Trump DOL was formulating its contractor rule, Uber previously argued to the agency that “control over work” should be emphasized when determining worker status. It said background checks, for example, shouldn’t be interpreted as constituting control over workers under the FLSA.
Uber also recommended the DOL to clarify that in cases where an individual is responsible for determining the extent of the working relationship, that factor should weigh in favor of classification as an independent contractor. Uber also reiterated its long-held position that the current employment system is “outdated,” and creates a dynamic where workers can’t have independence and benefits.
Beyond the proposals to the DOL, Uber has a slate of proposed measures that it’s pushing at the federal and state levels, as well as promising to do for its workers. They include providing benefits and expenses, and extending some state anti-discrimination protections to its drivers, without guaranteeing the full employment relationship.
Uber and Lyft have, however, largely avoided FLSA lawsuits by sending those claims to private arbitration, according to a Bloomberg Law review of federal court opinions.
The FLSA’s “economic realities” standard considers multiple factors, but courts appear to focus on how much control the employer has over the worker.
At least one case, Razak v. Uber Techs. Inc., has given courts the opportunity to apply the FLSA standard to rideshare drivers. Uber initially won in a federal court in Pennsylvania, which ruled Ali Razak and other UberBLACK drivers weren’t employees under the FLSA because the company didn’t exercise enough control over them.
But the U.S. Court of Appeals for the Third Circuit, in the first circuit ruling to address UberBLACK drivers’ classification under the FLSA standard, revived the lawsuit in March 2020. The Third Circuit said there was sufficient evidence for a trial about how much control Uber had over the drivers’ work and profit opportunities, and sent the case back to the lower court for further proceedings.
Another case with FLSA claims, Nicholas v. Uber, is still pending before a California federal court that could eventually analyze the federal worker classification standard. But so far the gig company and the drivers have focused their arguments on the case’s California wage and business claims rather than the federal ones.
Courts also don’t necessarily have to defer to rules or guidance from the Labor Department.
“The problem with the so-called gig companies is that they are pushing the limits and crossing the line for who is properly classified as an independent contractor,” said Catherine Ruckelshaus, general counsel and legal director at the National Employment Law Project. “There haven’t been enough public adjudications on where the appropriate lines are in those jobs.”
—Kathleen Dailey contributed to this report