The Department of Labor (DOL) announced Thursday, March 11 that it was rescinding a rule issued by the previous administration on when workers are freelancers, without giving any clear reason what was wrong with it. The Biden administration said the “Independent Contractor Final Rule” would have undermined worker protections but, tellingly, could not explain how it would have done this.
“Rescinding these rules would strengthen protections for workers, including the essential front-line workers who have done so much during these challenging times,” said Wage and Hour Division Principal Deputy Administrator Jessica Looman.
But how did the prior administration’s rule not protect workers? She didn’t say. The actual problem the administration had with the prior administration’s rule is that it shifted authority away from federal regulators to the workers themselves.
The question of when a worker is an independent contractor—a worker usually called a “freelancer”—is a hot-button issue. Contractors are generally not covered by workplace laws like the National Labor Relations Act (NLRA) or the Fair Labor Standards Act (FLSA), and therefore exempt from things like overtime, health coverage, or minimum wage regulations. Legally speaking, they’re considered to be separate businesses.
Most so-called gig-economy companies, such as rideshare companies Uber and Lyft, use contractors exclusively because they can work irregular hours and with little scheduling. The companies claim the flexibility is crucial and many workers seem to agree. Only about a quarter of Uber’s California drivers do it full-time.
The arrangement also happens to be frustrating for unions, since contractors are hard to organize. The NLRA was written with traditional employees in mind and most of its provisions apply to them. Unions and their allies argue the contractor business model exploits workers. Unions argue that companies should classify workers as employees instead. California had a huge political battle over the matter last year.
The Labor Department currently has no clear rule for when a worker is an employee. Instead, it uses six factors that indicate if a worker is an employee, but none of those indicators are definitive. So, there is confusion on the subject and bureaucrats and courts are often forced to decide on a case-by-case basis.
The Trump administration narrowed the list from six factors to two “core factors”: The individual’s degree or control over the work and his or her ability to make a profit or loss from it. If the workers determined when they worked and when they stopped and controlled how much money they made from working, then they were a contractor.
The Biden administration Labor Department didn’t like it, claiming, “The rule would narrow or minimize other factors considered by courts traditionally; making the economic test less likely to establish that a worker is an employee under the FLSA.”
DOL’s Looman warned, “While legitimate independent contractors are an important part of our economy, the misclassification of employees as independent contractors denies workers access to critical benefits and protections the law provides.”
Note the use of the word “legitimate.” The problem the Biden administration had with the rule was that it limited the department’s ability to define what is and isn’t legitimate.