A Trump-era rule that would have made it harder for officials to change gig workers’ classification from independent contractors or W-2 employees has been blocked from ever going into effect by the Biden administration. The Labor Department announced that it would pull the rule before it was scheduled to go into effect last week.
Labor advocates have argued that gig workers‘ classification as contractors rather than employees means they are denied protections routinely granted to W-2 workers, such as overtime pay, minimum wage and an easier ability to organize into labor unions.
“We are going back to the decade’s old analysis, and we really feel that this is the space where we can best protect workers,” said Jessica Looman, principal deputy administrator for the department’s Wage and Hour Division. “When it comes to digital workers … we want to make sure that we continue to look at their needs, how they are interacting with their individual employers and whether or not they have the protections of the Fair Labor Standards Act.”
The move doesn’t come as much of a surprise. The rule change that would have made it harder for a gig worker like an Uber driver or DoorDasher to seek employee status was signed into law in late January, to go into effect after then-President Trump had left office — and early on was marked by the Biden administration as a rule that would likely be repealed before going into effect. In fact, Biden spokeswoman Jen Psaki specifically called out the gig worker rule change as a specific example of “the type of last-minute regulation” that Mr. Biden would seek to halt or delay.
The big gig companies have yet to offer comment on Wednesday’s announced decision by the Biden administration — one can safely assume they aren’t happy with this result, given the strong positive support voiced for the original Trump department rule in January.
“Forcing a binary choice upon workers — to either be an employee with more benefits but with less flexibility, or an independent contractor with limited protections — is outdated,” an Uber spokeswoman noted of the Trump administration rule in January. She went on to note that Uber has offered additional benefits to drivers, and that “we appreciate the efforts made to modernize our nation’s laws.”
The reversal of the Trump rule does not allow gig workers any new status or protection under the law, nor does it make the kind of dramatic changes wrought by California’s AB5, which were later largely rolled back by Proposition 22.
Uber and Lyft had contended that the cost burden of compliance with AB5, as it was originally written, would have forced them to put drivers on a fixed schedule, make drastic cuts to their driver rosters and, perhaps, leave the state of California altogether. Uber CEO Dana Khosrowshahi estimated that in complying with reclassifying drivers as full-time workers, the company may have had to raise its prices by about 25 percent to as much as 100 percent.
Safe from the vicissitudes of AB5, according to a New York Times report, Uber and other gig firms have since gotten more proactive in seeking federal legislation that would exempt them from similar worker classification laws extant in other states. The Trump admin’s rule change regarding the status of gig workers was considered a big win for the on-demand economy in that regard — a win that is now in the process of being vacated.
The dropping of the new rule will largely reset the status quo that left gig economy workers free to log driver as contractors and not workers — but still at risk from legislative pushes like AB5 that would force them to make a switch by statute. Gig firms like Uber and Lyft have maintained that they are all for building additional benefits and support into the gig worker labor package — vacation days, retirement savings, healthcare coverage — but that doing so under the banner of W-2 employment is like jamming a square peg into a round hole, in a way that will ultimately destroy both the industry and those working in it.
“Instead of eliminating the opportunity for nearly a million people, we should endeavor to improve the benefits and protections for gig workers. Their success, supported by a stronger safety net, would help bolster our nation’s economy,” according to a blog post by Khosrowshahi.
To date, the Labor Department isn’t planning to offer new regulations for independent contractors in the near future, said Looman.
But the change still leaves ambiguity about how a Depression-era Fair Labor Standards Act, the labor law currently ruling the dispute, is best applied to a smartphone economy. According to Looman, the department is looking for opportunities to enforce existing laws, especially as they apply to lower-wage workers, and that this latest change will make very little material difference to how the department regulates app-based services. She also noted that the conversation between the department and the companies in the gig economy is ongoing.
“The fact that we are moving and are embracing a pro-worker position doesn’t mean that we’re anti-employer,” Ms. Looman said.
Labor Secretary Marty Walsh, in an April interview with The Wall Street Journal, further noted that legitimate independent contractors are an important part of our economy, but the Trump-era rule made it too easy to deny workers employee status when it was warranted. “We’ve seen employers are increasingly misclassifying their workers as independent contractors in order to reduce labor costs and take a lot of protections away from workers, including minimum wage and overtime.”
It seems the Biden administration has rejected the Trump-era answer to the complicated issue. What the solution will be, beyond relying on a roughly nearly 85-year-old law, seems to be very much a work in progress.
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