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Gagging on the Gig Economy: Labor Dept. Fast-Tracks Rule Widening Independent-Contractor Status

September 24, 2020

By Steve Wishnia

WASHINGTON—The Labor Department has proposed a rule intended to make it easier for employers to classify workers as independent contractors—and is fast-tracking it so it could be finalized before the next President takes office.

“This is yet another example of the Trump Administration’s relentless push to stack the deck against workers at every turn.”– NELP Executive Director Rebecca Dixon.

The proposed rule, announced Sept. 22, would widen when workers can be considered an independent contractor instead of an employee. Independent contractors don’t have to be paid minimum wage or overtime and are not eligible for unemployment benefits (except temporarily through the Pandemic Unemployment Assistance program, scheduled to expire in December) or workers’ compensation.

“The rule generally reads like it was written by an attorney for Uber or one of the app-based companies,” Catherine Ruckelshaus, legal director for the National Employment Law Project, told LaborPress.

The rule would rely on two “core factors” to determine whether a worker is “economically dependent on someone else’s business or is in business for himself or herself”: How much control they have over their work, and whether they have an “opportunity for profit or loss based on initiative and/or investment,” the Labor Department said. If those two factors aren’t conclusive, it would consider three “guideposts”: the amount of skill required for the work; how permanent the relationship between the worker and the employer is; and whether the work is part of an “integrated unit of production.”

“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” Secretary of Labor Eugene Scalia said in a statement. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.” 

The National Employment Law Project said the proposal would “make it easier for corporations to cheat their workers and avoid minimum wage and overtime protections.”

“This is yet another example of the Trump Administration’s relentless push to stack the deck against workers at every turn,” NELP executive director Rebecca Dixon said in a statement. “This proposed rule ignores the clear language of the Fair Labor Standards Act and decades of court rulings, including by the U.S. Supreme Court. Companies that require their workers who are not running their own businesses to operate as ‘independent contractors’ in order to get a job should not get a free pass on illegally misclassifying workers, but the DOL has just offered them one.”

The Labor Department’s “core factors” standard contrasts with the “ABC test” used by California’s Assembly Bill 5, enacted last September, and similar laws in Massachusetts, New Jersey, and Connecticut. The Protecting the Right to Organize Act, passed by the House in February, would set a similar standard nationally, but has gone nowhere in the Senate.

Under the ABC test, independent contractors have to be working without being controlled by the hiring entity, doing work “outside the usual course of the hiring entity’s business,” and be “customarily engaged in an independently established trade, occupation, or business” doing that kind of work. 

That would likely define app-based drivers as employees, because supplying taxi service is a core part of Uber and Lyft’s business. (Uber disputes that, claiming that it is merely a technology platform for digital marketplaces, and has refused to go along with the California law. It, Lyft, and the gig-economy employers Postmates, Instacart, and DoorDash are backing Proposition 22, an initiative on the state ballot that would define their workers as independent contractors.)

Under the Labor Department rule, however, those drivers would likely be deemed independent contractors. They would clearly meet one of the two core factors, as they have an investment in their car and can lose money, and while the app company can terminate them and dictates fares and routes, drivers can choose which hours to work. They would also qualify as independent under the three secondary factors, as driving is generally considered a low-skill job; their working relationship is not permanent; and the work is not part of an “integrated unit of production,” assuming that that involves one central workplace. 

But the rule wouldn’t just affect workers for app-based companies, says Ruckelshaus. Construction, home-care, domestic, farm, and janitorial workers are also commonly misclassified, and “all of those workers are at risk.” 

For example, she explains, some cleaning companies hire janitors as independent contractors, paying them by the job rather than by the hour and requiring them to purchase their own cleaning supplies. These “companies prey on immigrant workers who don’t have other options. They give them a couple floors of a building or an Applebee’s and say ‘you’re running a business.’”

Misclassification also hurts small businesses, Ruckelshaus adds, “because they can’t underbid companies that don’t have any payroll costs.”

The Labor Department did not respond to phone and email messages from LaborPress asking for more details on those issues.

The Trump administration is clearly fast-tracking the rule: The 30-day public-comment period is much shorter than the usual 60 to 90 days for proposed federal regulations. 

The National Labor Relations Board’s February rule narrowing when companies who rely on workers hired by third parties can be held responsible as a “joint employer” had a 67-day comment period after it was published in the Federal Register. Its 2019 rule reducing the number of salaried workers eligible for overtime also got 60 days.

NELP has requested that the period be extended. “It is very short, especially for a rule of this magnitude,” says Ruckelshaus. “They’re not really interested in public comment, it seems.” The only proposed rule she remembers that got only 30 days was an employer-friendly but narrow one involving when workers with fluctuating weekly hours have to be paid overtime.

September 24, 2020

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