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Labor Department Trying to Rewrite Definition of “Employer”

In the credit where credit is due department, the Trump administration deserves a cheer for attempting to save an emerging part of the economy: gig companies like Uber, Lyft, DoorDash, and others that offer short-term work when people need it. The Department of Labor (DOL) proposed a new rule this week to adjust the legal definition of “employer” and clarify when people that work for one are traditional employees or contractors. It may help keep gig economy companies from being regulated out of existence. DOL is working fast, too, trying to get the rule done this year in case a new administration takes office next year.

As the department put it in its notice of proposed rulemaking, changes in technology have changed the nature of work. Workers can now sell their time and skill to multiple companies thanks to app technology. “Multi-apping creates significant economic value by letting workers find the best paying opportunities, providing app companies with access to a larger workforce, and helping consumers benefit from competition. This innovative practice depends on being able to confidently classify workers as independent contractors,” the department said.

In other words, a worker who’d rather not be a full-time cab driver and drive the hours a cab company would require can simply get an app for Lyft or Uber and drive for a few hours a week as a contractor when and if she wants to. This is just a modern update of freelance work, but technology has made it vastly more vastly more common and easy to do.

That has frustrated some in the traditional economy, particularly traditional companies that compete with gig economy companies. Labor unions don’t like the gig economy either, since only employees can be unionized but most gig economy companies use contractors, who are legally considered separate businesses.

This has prompted a push by unions and their allies on the left to force gig economy companies to treat all workers as if they were employees. California’s new AB5 law seeks to do precisely that. It has proven to be the major problem for the state. In order to limit gig companies’ use of contractors, the state put strict limits on contract work in general. That caused problem for a lot of traditional freelance occupations, like journalists, photographers, musicians, and translators. California lawmakers have since carved out exceptions for several professions due to public outcry, but leaders like Governor Gavin Newsom have stuck by the law. AB5 is considered a model for other states by labor activists and their allies.

The Labor Department Under Secretary Eugene Scalia is trying to head this off by creating a new interpretation of the definition of employee. Sort of: There is no actual clear definition under current federal law for what an employee is as opposed to a contractor. According to the Fair Labor Standards Act, an employer is an entity that will “suffer or permit” having people work for it. The law uses multiple factors that determine whether the worker might be an employee. Click enough boxes and somebody is considered an employee, though there’s no number required so the determination is ultimately subjective. The proposed rule seeks to update those factors in several small ways.

One of the current factors in determining whether somebody is an employee is whether the company she works for is her primary means of income. The proposed rule tweaks this to whether “the individual is economically dependent on the potential employer for work.” It is a subtle but important distinction. A person doing work through an app might get most of her work from one company, which under the existing rules that would indicate she is an employee. The proposed rule says if the same worker can simply use an app to sell that work to another company, then she is likely a contractor because she is not dependent on any one company for work.

The DOL rule changes another aspect of the existing clues for when a worker is an employee: the degree of skill required in the job. Traditionally, if a job requires a particular skill that generally indicates its worker is an employee. The proposed rule change says that the company must provide skill training in to clearly be an employer. If it hires workers who already have the skills, that doesn’t count.

The department also proposes make the “degree of permanence in the work” a factor, which would also protect the contract work model since most work is for short, agreed-upon periods of time.

There are other even more in-the-weeds changes the Labor Department is proposing. Rather than simply rewrite the standards from the bottom up, it is only adjusting the existing ones. The department wants to stick within the legal limits of what it can do to ensure the rule gets done on time and withstands legal and political pushback. The Obama administration took a less careful approach, broadly rewriting federal rules to circumvent Congress. A lot of that ended up stalled in courts or unraveled by the current administration. A lot of folks inside the bureaucracy are trying not to let history repeat itself.

This is, mind you, just the federal government’s basic rules. States can set their own rules that exceed the federal standards, so even if finalized, the department’s proposed rule would not override laws like California’s AB5. Still, the new federal rule would signal to the states that adopting their own version of AB5 would be unnecessary. So, the Trump administration is clearly doing its level best not to kill an emerging part of the economy. For that, they deserve some kudos.