A long-awaited proposal from the Biden administration may make it simpler for millions of truckers, Uber drivers, independent contractors, writers, home care providers, and janitors to be classified as employees rather than independent contractors, giving them access to a range of federal labour protections.
The Fair Labor Standards Act, a 1938 law that establishes eligibility for protections like minimum wage, overtime, Social Security, and unemployment insurance, would be modified by the Biden administration’s 184-page proposed rule. This rule would alter how the federal agency determines who qualifies as an employee or an independent contractor under this law.
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It’s the latest development in a legal back-and-forth between presidential administrations that extends back more than a decade. If the rule is adopted in its final form, it will almost probably face legal challenges.
The so-called gig economy may be affected by the rule. Uber, Lyft, and Instacart, among other businesses, have argued that classifying their drivers as employees rather than independent contractors would utterly destroy their business models. Other self-employed individuals defend their independent contractor status and say they enjoy the freedom and liberty they’re granted as they seek to balance other responsibilities in their lives.
If the Biden administration’s proposed rule goes into effect — a big if — it may have substantial ramifications for employees and corporations alike.
A step in the right direction by @USDOL to tackle employee misclassification affecting janitors, drivers, and others—but more needs to be done.
Here in CA, we’ll keep fighting to ensure workers can access the rights they’re entitled to under the law.https://t.co/yXGViDNuiA
— Rob Bonta (@AGRobBonta) October 12, 2022
And how big a chance does a worker have to make money or lose money based on their own initiative or investment? One principle of independent contracting is that the relationship should have “entrepreneurial opportunity.”
Organized labour has long believed that this form of employee classification test is too narrow and that a broader “multi-factorial” test should be employed to assure greater working conditions for as many individuals as feasible. According to union activists, a better test would give roughly equal weight to at least seven factors, such as the worker’s importance to the employer’s operations and length of employment.
The Biden administration agrees. In its current proposal, it stated that it saw returning to this more inclusive standard as being “more consistent with [previous] judicial precedent and the Department’s longtime guidance prior to” the 2021 Trump rule.
ICYMI: We will publish a Notice of Proposed Rulemaking on Oct. 13 to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. https://t.co/bBrXmGnwUH
— U.S. Department of Labor (@USDOL) October 11, 2022
All of the rights that other employees enjoy, including the freedom to organise, should also apply to gig workers. This law can also assist protect workers all throughout the country when gig businesses try to spread their exploitative model to the rest of the economy.”
Federal Courts Have Rejected Worker-friendly Independent Contracting Regulation Changes
In the era of remote labour, the distinctions between employment and contracting have become hazier, but generally speaking, it comes down to how much control an employer has over a person doing work for them and what legal rights that person is entitled to as a result.
Employees have a number of important legal rights, including the ability to unionise. The right to receive at least the minimum salary and for employers to contribute a portion of Social Security tax is another. While there are no such guarantees for contractors, some value flexibility and claim they would give up job safeguards for independence from a superior.
It is not easy for the federal government to decide on this dispute. Congress specifically excluded independent contractors from the definition of “employee” in the National Labor Relations Act in 1947.
In its United Insurance decision from 1968, the Supreme Court stated that Congress’ “obvious purpose” in exempting independent contractors from the law was to require the NLRB and courts to “apply the common-law agency test” when determining the difference between an employee and an independent contractor.
Since then, a 10-factor test has been employed by the board and courts to decide the issue. Whether any of those 10 factors—particularly entrepreneurial opportunity—should weigh more highly than others has dominated legal discussion for most of the past 15 years.
In 2006, FedEx Home Delivery drivers in Massachusetts wanted to unionise with the Teamsters, but after they won their union election, FedEx refused to deal with the drivers, arguing they were independent contractors.
The National Labor Relations Board supported the drivers in 2007, but the US Court of Appeals for the DC Circuit reversed the NLRB’s decision two years later, citing the drivers’ “entrepreneurial potential” as a key consideration. In their ruling, the appeal justices stated that the NLRB “had no authority whatsoever over independent contractors.”
The Supreme Court is the only US court whose decisions the NLRB regards to be binding, yet the NLRB decided not to appeal this. So, when a case very much like it came up again half a decade later, the NLRB again agreed with the FedEx drivers. (In this instance, there were unionised drivers from Hartford, Connecticut.)
The NLRB’s decision was again overturned by the DC Circuit in 2017 after three years, citing its 2009 decision and stating that “the question before this court was already raised and answered.”
In the midst of this, companies like Uber, which heavily rely on independent contracting, kept growing and started to consider currying favour with favourable lawmakers who could aid in codifying their legally precarious business models.
Corporate leaders kept a close eye on the court cases playing out in Washington, DC, but few felt any significant compulsion to alter their procedures in the face of the unpredictability.
In a case where a regional NLRB office had determined that shuttle drivers who owned and operated franchises of SuperShuttle DFW were independent contractors, the NLRB officially overturned its 2014 FedEx decision in January 2019.
At this point, the five-member panel of the NLRB had been predominately made up of Republican appointees. This 2019 SuperShuttle ruling effectively returned society to the previous independent contractor standard that was supportive of the gig economy.
Biden’s Staff Has Signalled That the Misclassification Problem Will Be Revisited
The Biden administration has spent years preparing for action. Biden’s campaign emphasised siding with labour unions, and he drove out two Trump-appointed NLRB counsels the week of his inauguration, the first time in more than 70 years that a president did so. His government opposed the Trump independent contractor rule and chose Democrat Lauren McFerran as NLRB head.
Jennifer Abruzzo, a CWA lawyer, was nominated as NLRB general counsel. By August 2021, Abruzzo had released a 10-page statement outlining her goals and urged the agency’s regional offices to prioritise 2019 SuperShuttle cases. Late in December, the NLRB indicated it would take briefs on whether it should revise its criterion for defining independent contractor status.
In late December, the NLRB raised two primary questions. Should the board keep to its 2019 SuperShuttle independent contractor standard? Should the NLRB return to the union-friendly FedEx Home Delivery standard from 2014?
More than 30 amicus briefs were submitted by public interest, government, and industry groups. While many arguments were repeated from the FedEx and SuperShuttle cases, briefs also highlighted fresh issues, such as labour misclassification as an antitrust concern. The antitrust division of the DOJ stated that “vague or underinclusive” employee standards could hurt workers, companies, and competition.
The Labor Department rule is independent of the NLRB’s document request, but it raises comparable legal questions. Before Tuesday, the Labor Department said it examined feedback from July 2022 forums. “Standards and terminology under both acts are different, but it’s obviously the same fruit salad,” said Michael Lotito, a management-side labour attorney at Littler Mendelson.
AFL-CIO President Liz Shuler praised the draught rule for “restoring sensible principles to define who is an employee” In filings to the NLRB, the organisation advised against reverting to a court-unsafe standard. Democratic attorneys general from 15 states and DC stated in an NLRB brief that SuperShuttle’s “entrepreneurial opportunity” threshold is “susceptible to evasion” by employers.
They suggested weighing the three elements used by many states to determine employee status, a measure that makes it difficult to identify someone as a contractor. A worker is called a contractor if they have relative independence from the business paying their salaries, if their work is independent of the type of work the firm generally does, and if they typically do the type of work the business hired them to do.
Under the ABC test, “entrepreneurial opportunity” is insufficient. Some groups pushed the NLRB to find a compromise. Buckle, a digital financial services business that provides insurance and credit to gig drivers, said the NLRB “should not be hesitant to set a precedent enabling both employees and independent contractors.”
80 to 90% of gig drivers work fewer than 20 hours a week, they said. For the 10 to 20% who drive 20 hours or more each week and “are largely relied upon” by firms to maintain service levels, there should be clearer channels to separate them from temporary workers.
Other groups urged Biden to maintain the status quo. The Democratic-backed Protecting Right to Organize Act, which would make it tougher to designate workers as independent contractors, failed in the Senate. “Many Members believe the existing strategy is best suited to a 21st-century economy,” GOP officials stated.
The US Chamber of Commerce warned about government overreach. The NLRB has no cause to vary from its SuperShuttle standard, the Chamber stated, and doing so “exceeds its legitimate regulatory grasp.”
Freelancers and small businesses fearful they’d lose their independence asked the NLRB not to change its contractual criteria. They cited government polls, such as a 2015 GAO report that found 85 per cent of independent contractors were happy. In 2018, 79% of independent contractors favoured contracting over a typical job. The Small Business and Entrepreneurship Council called the Labor Department’s rule “outdated”
Given the opposition, a legal challenge is likely. Lotito told Vox he thinks the Biden administration’s new rule will fail in court, citing his firm’s successful lawsuit against the withdrawal of Trump’s worker categorization rule.
“My overall opinion is that they didn’t pay attention to the [Texas] District Court’s decision; there’s no explanation I’ve read so far that explains how the Trump rule has interfered with their mission,” he added. “Administrative Procedure Act-wise, this is a flop.” Until the rule is finalised, no legal challenge may be made. The Labor Department is seeking public opinion on its proposal, and the final rule won’t be issued for a few months.
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