Biden Administration Begins Bid to Create Nationwide Version of California’s AB5

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On the same day that President Joe Biden’s nominee for Labor Secretary, Boston Mayor Marty Walsh, told a Senate committee that he would work to build “an economy that works for every single American worker,” the administration was acting to prevent those workers from being able to do freelance work. The Labor Department announced on Thursday that it was suspending and reviewing a rule originally set to into effect next month that would have helped people to continue to do short-term “gig economy” jobs to earn extra money.

The new administration plans to instead create a nationwide version of California’s AB5 law to severely restrict gig economy work. That law proved so unpopular that Golden State voters threw out most of it, leaving only parts of it intact. AB5’s failure apparently doesn’t matter to the Biden administration, which has promised to, in effect, enact a nationwide version. Democratic lawmakers introduced legislation Thursday that would do just that, among other wish-list items for unions.

The rulemaking in question, a Trump administration effort titled “Independent Contractor Status Under the Fair Labor Standards Act,” would have expanded rules for when a worker could be classified as a contractor—that is, an independent freelance worker—as opposed a traditional employee. The Biden administration wants to roll that back.

This is a big issue because the so-called “gig economy” companies, such ridesharing businesses Uber and Lyft, almost exclusively use contract workers. The companies say contract work allows for flexible scheduling and this is crucial to their business model.

The issue is contentious because federal laws for things like unemployment compensation, overtime and health insurance apply only to employees. The tradeoff for the workers is that employers must have control over their schedule because unemployment and overtime are tied to how many hours they work. Contractors, by contrast, are allowed control over their own schedule and can work as much or as little as they want.

It is also confusing because there is no clear definition for “employee” in federal law. The Labor Department cites six factors that indicate whether a worker is an employee but has not set requirement.   Trump administration rulemaking would have clarified the matter by creating a simple two-factor test:  The individual’s degree of control over the work and his or her ability to profit or loss from it. Most gig economy work have fit this definition.

Critics of gig economy companies, such as unions, say workers are frequently mislabeled as contractors by companies shirking their responsibilities as employers. California lawmakers sided with the unions and enacted AB5 in January 2020 to force companies to designate workers as employees, a move other states have considered. A big part of the reason why unions hate “gig economy” companies is that contract workers are extremely hard to organize. The federal laws covering union rights were written with traditional employees in mind.

AB5 proved quite controversial, not to mention ill-timed. Workers in the rest of the nation where able to use gig work to help ride out the COVID-19 crisis, but Californians couldn’t, and the state’s economy lagged behind the rest of the nation. Uber and Lyft threated to stop operating in the Golden State altogether if AB5 remained. Gig workers were by no means united on the issue, many saying they preferred being contractors. Many traditional freelance workers complained the law inadvertently harmed their ability to make a living too. California lawmakers were forced to amend AB5 to exclude numerous professions Golden State voters approved Proposition 22 last November by a 58- to 42 margin margin, gutting the part of AB5 covering rideshare businesses.

One might think that rejection that lopsided in a state that liberal would settle the issue. The Biden administration and Congressional Democrats apparently don’t think so.