The Biden administration last week continued its effort to help its union allies by officially withdrawing a Trump-era Labor Department guidance letter to businesses that hampered unions’ ability to organize so-called gig economy companies like rideshare businesses Uber and Lyft. The letter’s withdrawal is part of a broader effort by the Biden White House to create a nationwide version of California’s AB5 law to bring so-called “gig economy” companies to heel.
The action wasn’t surprising. The Biden White House had already suspended a Labor Department rulemaking on the same issue. Now they’re removing the legal underpinnings for the rulemaking.
This all revolves around the question of whether drivers for Uber and Lyft are traditional employees or contract workers—basically, freelancers. Employees have numerous rights and protections under federal law, such as overtime and unemployment compensation.
Contractors, by contrast, are treated under the law as separate businesses. They don’t get the right the rights and protections of employees, but they don’t have the responsibilities, either. Contractors don’t have to clock in or out and can work as much or as little as they want. Rideshare companies claim that using contractors is key to their business model because they need that flexibility. Most drivers seem to agree as the available data show that only a minority drive full-time.
Critics like unions claim that is bogus and that the companies are just trying to wiggle out of their responsibilities. 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.
The complicating factor here is that there is no clear definition of “employee” under federal law. The Labor Department instead has traditionally used a six-factor test for determining when a person for an employee, but none of the factors are determinative. To rectify this, the Labor Department’s Wage and Hour Division issued the guidance letter in 2019, giving specific examples of what established an employer/employee relationship. The letter gave latitude to businesses to apply contractor status more frequently by highlighting circumstances that identify a worker as one, such as if they’re doing work for a competitor business. The department followed up with a formal rulemaking creating a simple two-factor test: If an individual has control over his or her work and the ability to profit or lose money from it, then that person is probably a contractor. Most gig economy work would fit this definition.
The Biden administration has rejected that and is aping what California lawmakers did when they enacted AB5 in January 2020, forcing companies to designate all workers as employees. AB5 backfired badly when it disrupted the ability of thousands to make additional money during the COVID-19 crisis and caused havoc for traditional freelancers like photographers and musicians. Voters eventually approved Proposition 22, which repealed the main parts of the law.