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Companies like Uber and Lyft could get a boost from a proposed rule change that would make it easier for them to justify classifying their drivers as independent contractors.
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Less than a week before voters decide whether Donald Trump receives a second term as president, his administration stands ready to establish a new federal rule on who counts as an employee in the U.S.
The employee-vs.-independent contractor question is at the heart of long-running battles between gig-economy companies like Uber Technologies Inc. UBER, -1.49%, Lyft Inc. LYFT, -3.09%, regulators and legislators. In California, gig companies have placed an initiative on the November ballot to try to absolve themselves of state labor law.
The U.S. Department of Labor says it’s trying to simplify the standard for who should be considered an independent contractor and an employee, but attorneys general from nearly half the states in the nation say the change would instead complicate the issue further and encourage more companies to misclassify workers.
In a letter sent this week to Labor Secretary Eugene Scalia and Amy DeBisschop, director of Regulations, Legislation, and Interpretation at the Department of Labor’s Wage and Hour Division, 24 state attorneys general and officials from New York City, Chicago, Pittsburgh and Philadelphia asked the agency to withdraw the proposed rule, saying it would “harm the people the DOL is meant to protect.”
“Unreasonably broadening independent contractor status will leave millions of workers vulnerable to violations of the [Federal Labor Standards Act], corresponding state laws, and other state and federal labor and employment laws,” they wrote.
California Attorney General Xavier Becerra, who recently won an injunction ordering Uber and Lyft to classify their drivers as employees under state law, signed the letter.
See: Uber and Lyft must make drivers employees because California law has ‘overwhelming’ edge, judge says
“We shouldn’t be gutting worker rights at a time when Americans across the country are already reeling from an unprecedented economic and public health crisis,” Becerra said in a statement Tuesday. “This pandemic has shown the critical importance of basic protections like unemployment insurance and paid sick leave.”
Because most of them are considered independent contractors, ride-hailing drivers who lost work during the beginning of shelter-in-place orders would not have qualified for unemployment payments if it hadn’t been for federal pandemic unemployment insurance under the CARES Act, which expires at the end of the year. Companies that use independent contractors do not have to provide paid sick leave, nor do they pay into unemployment insurance funds.
Voters in Becerra’s state are considering a ballot measure that would exempt app-based ride-hailing and delivery platforms such as Uber, Lyft, DoorDash, Instacart and Postmates from classifying their workers as employees. Proposition 22 would offer those workers wage guarantees and some benefits, but would fall short of considering them employees and offering the protections that would entail. Uber, Lyft and other companies have piled nearly $200 million into the initiative, making it the most expensive proposition campaign in California history.
See: How Uber and Lyft’s business model could be changed on Election Day
The proposed rule would establish a new test for determining when a worker can be considered an independent contractor under the FLSA, giving more weight to two of five factors, which critics say give an edge to gig companies: “the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on initiative and/or investment.” The other factors are the amount of skill required, the degree of permanence of the working relationship and whether the work is part of an integrated unit of production.
“[The changes] make it less likely for drivers to be able to assert that they’re employees,” said William Gould, law professor emeritus at Stanford and a former chairman of the National Labor Relations Board.
The Labor Department proposed the rule last month and shortened the public comment period from 60 days to 30 days, amid an apparent rush by the Trump administration to further its agenda in different areas before a possible changing of the guard. The comment period expired Monday.
With the comment period completed, the department could make the rule change any day now, although a Labor Department spokesman said “each comment submitted for proposed rules is reviewed.” He would not comment on a possible timeline.
“It’s a growing phenomenon in various sectors to hire people for a limited time,” said Jane Oates, a former Department of Labor official during Barack Obama’s first presidential term. “What protections are workers entitled to? We need to have a real national conversation about this. I think it takes more than 30 days.”
Oates added: “This is not an issue where there are only two sides. It could affect a lot of different sectors. This is a multi-sided issue.”
The proposed rule sparked more than 1,700 public comments, including from the Women’s Law Project, which wrote, “Workers have been succeeding in misclassification claims and the proposed rules will have a negative impact on that progress.” Others who commented include individuals who said they were Uber drivers or independent contractors who did not want to be considered employees.
“These are not easy issues,” Oates said. “You don’t want to deny ability for people to make money from a side hustle. You go too far in the other direction and you treat people like second-class citizens.”
Several senators wrote to Scalia in early October, expressing concern about the shortened public-comment period and the Department of Labor’s indication that it wanted to change the rule by the end of President Trump’s first term. “The Deputy Secretary of Labor made comments suggesting politics was a motivating factor for the minimal comment period,” wrote Sens. Patty Murray, Chris Van Hollen, Mazie Hirono and 14 other senators.
Even if Trump loses the election and former Vice President Joe Biden becomes president, it would take time to undo a rule change, Gould said.
The rule would give Uber, Lyft and other app-based platform companies more “breathing space for their own profits and well-being at the expense of their workers. It’s going to clearly be more difficult to characterize workers as employees,” he said.
But Gould added that states could still set stronger worker protections. “States have always been free to devise more expansive wage and hour laws,” he said. “But there’ll be a lot of confusion.”
