This week, the Biden administration’s Department of Labor announced a significant change in a federal labor rule that classifies United States workers as either independent contractors or full employees. The new policy, published Wednesday, January 10, would make an increased number of freelance workers across many industries eligible for full-employee status, potentially obligating their employers to furnish them with higher wages, certain benefits and other worker protections.
This development will certainly not go uncontested by corporations, especially by Fortune 500 companies wholly dependent on freelance “gig” workers, among them Uber, Lyft and DoorDash. These giants, as well as a multitude of businesses large and small, enjoyed a preferential earlier ruling, a product of the Donald Trump-era Department, that had exempted many of their workers from the full-employee categorization. The Biden Labor Department’s overturning of this policy is certain to draw vigorous opposition from the beneficiaries of the former status quo.
The fact that the Labor Department has taken this notable step to secure employee protections bodes well for precarious workers, many of whom have been at the mercy of fluctuating conditions and a lack of protections, compromising the stability of their lives and livelihoods at a corporate whim. However, the most critical phase still lies ahead: The Labor Department has announced the rule, but it remains to be seen the extent to which they will enforce it.
Initial Scope and Possible Impact
The recent history of employee/contractor classification has been something of a tug-of-war between Democratic and Republican presidencies. Upon the changeover in administrations, the Labor Department pivoted from a more worker-friendly rule that was instituted during Barack Obama’s tenure to the Trump-appointed Department’s rule, which reversed its predecessor. As a clear giveaway to corporate power, it was typical of the Trump era’s institutional capture. This 2021 decision was called the “Independent Contractor Status Under the Fair Labor Standards Act” or “IC Rule.” By narrowing the definition of an employee, the IC Rule had ensured that fewer gig workers could be counted as such. Now, the Biden Department has pledged to retract the IC Rule, reinstating a policy closely resembling the longstanding prior condition.
Veena Dubal is a law professor at the University of California, Irvine. Her academic research on gig work and precarity is widely respected, as are her labor advocacy efforts and her writing. Reached by Truthout, Dubal explained more about the mechanisms behind current and former classification schemas.
“The Biden rule harkens back to the Obama rule,” Dubal told Truthout, “which uses a ‘totality-of-the-circumstances’ analysis to judge whether a worker is economically dependent on [their] employer.” The totality-of-the-circumstances test that she mentioned involves weighing at least six factors. This type of metric is traceable to the Fair Labor Standards Act of 1938, which, in addition to minimum-wage rules and other provisions, also used a six-factor assessment. If a worker qualifies as an employee, Dubal said, they are then “likely covered by federal minimum wage and overtime laws,” along with other attendant benefits. Otherwise, of course, the worker may be deemed an independent contractor, and therefore can legally be paid a lot less.
For obvious reasons, business owners have been known to go to considerable lengths to avoid granting workers full-employee status. Such misclassification of workers as “independent contractors” has a significant, and often overlooked, impact on the working class. In 2022, the Economic Policy Institute (EPI) released a report on the practice, analyzing 11 often-misclassified jobs. Per the report, if classified incorrectly, “a typical construction worker, as an independent contractor, would lose out on as much as $16,729 per year in income and job benefits compared with what they would have earned as an employee.” Similarly, the Institute found, “a typical home health aide, as an independent contractor, would lose out on as much as $9,529 per year in income and job benefits.”
Deceptive misclassification is a routine tactic that cuts across industries. Professions most at risk include “landscapers, truck drivers, home health aides, janitors and nail salon workers,” according to the EPI report, in addition to the more publicized examples of gig drivers for companies like Uber, Lyft and DoorDash. Other ambiguities in labor law documented by the EPI also facilitate this form of exploitation.
Thousands of dollars a year is no small figure, especially considering that, as the report points out, workers in these fields already have “relatively low median annual earnings.” That’s to say nothing of the general conditions of precarity and instability — thanks to the absence of protections like minimum wages, overtime, worker’s compensation and others — with which gig workers often contend. Misclassification, then, is not only tantamount to wage theft; it’s also a quiet racket that furnishes unscrupulous employers large and small with a host of opportunities for cutting costs by exploiting their workers in ways that are not easily detected.
Indications of Change
There is reason for workers and advocates to place tentative hopes in the top-down federal policy shift — it is a real, substantive change that could represent a major stride toward alleviating these conditions. The Department of Labor’s rule change also comes on the heels of a National Labor Relations Board (NLRB) decision in June of this year that similarly rescinded a separate Trump-era rule that had been instated by the current NLRB’s own Board predecessors: The 2019 decision in SuperShuttle DFW, Inc.
That decision reversed an Obama-era NLRB policy de-emphasizing the role of “entrepreneurial opportunity” as a factor in the employee-determination test. Trump’s NLRB had increased that factor’s importance, in a move friendly to gig companies. Now, in 2023, Biden’s NLRB has reversed the Trump NLRB’s reversal, again de-emphasizing entrepreneurial opportunity in a June 13 ruling regarding backstage workers of the Atlanta Opera. (Makeup artists, hairstylists and others had sought to file a union petition and organize; the NLRB found them to be employees, and therefore eligible to do so.) The so-called “entrepreneurial opportunity” of a given job was found to be only one among many probative factors that should determine full-employee status, rather than the “animating principle,” as the previous Board decision had described it.
The NLRB is an independent agency, but the tempo and nature of these shifts has a parallel in developments at the Department of Labor. The determining factor has been, of course, the ruling party in office. In both the NLRB and the Department, Trump flacks constrained the definition of an employee, overvaluing one factor to the exclusion of others. Now, under Biden, the NLRB and the Department of Labor have undone those ruptures in longstanding labor law.
The federal policy shift has been anticipated for more than a year now, since the Department of Labor published a proposal for the rule in October 2022. At the time, there was an immediate and marked impact on the share values of Uber and Lyft: The corporations’ stock prices suffered respective hits of 10 and 12 percent.
Yet after the rule’s official publication on Wednesday, neither company’s share price was perceptibly affected. That sort of apparent investor nonchalance would seem to reflect a belief that the top gig-work titans are at no risk from the Department’s new mandate. If the companies themselves feel differently, they’re certainly not saying so publicly. Lyft put out a statement to assure the public the company felt there would be, as quoted in The Washington Post, “no immediate impact.” An Uber representative made a statement to the same effect. But again, the rule is not operative until March 11. Until the Department tips its hand as to how tenaciously it might pursue violators, the real potential for clashes or upheavals remains unclear.
Uber and Lyft are, of course, veterans of similar battles over employee classification. Both are based in California, where the existing Assembly Bill 5 stipulates increased worker protections and widens the category that comprises employees. According to The San Francisco Chronicle, AB5 was the example that partly “inspired” the federal rule. That would be unsurprising, as the current acting labor secretary is former California Labor Commissioner Julie Su — whom the Biden administration is in the process of nominating, over industry protest.
Professor Dubal of University of California, Irvine, was herself a passionate backer of AB5. A vocal advocate in the media at the time, she was also one of a number of academics who wrote to the California legislature in support. (As a result, she faced retaliation from Uber goons. A common accusation was that she had secretly drafted the legislation herself, a rather flattering charge.) Before AB5, misclassification was, to use the Chronicle’s term, “rampant.” The bill would have fully remedied the misclassified status of Uber and Lyft drivers — but for the fact that California later ended up with Proposition 22 on the books.
At the time of AB5’s passage, Uber, Lyft and DoorDash had threatened to pitch in as much as a cumulative $90 million to float a ballot measure that would again render their gig workers exempt. They made good on that threat, in the form of 2020’s Proposition 22 — an industry-coddling, astroturfed measure that, while mandating some benefits, did indeed re-exempt many ride-share and delivery workers from AB5. It’s not clear exactly just how much the gig-behemoths saved by dodging an increase in labor costs. But it seems telling of the true scale of the averted expenditures that, to get it passed, the three corporations would ultimately prove willing to spend more than $200 million.
It’s illustrative to recall the case of Proposition 22 when considering what capital’s backlash to Wednesday’s new classification rules might look like. If the current federal rule change has a meaningful impact, historical precedent would seem to hint that it would not be surprising to see equally drastic, and lavishly funded, means of business interference. In fact, a tone of revenue revanchism is already in the corporate air.
Mark Freedman, vice president of workplace policy in the U.S. Chamber of Commerce, indicated in comments to the Associated Press that the business coalition (which, despite its evocative name, is an independent special interest lobbying group, not a governmental institution) was willing to combat the rule’s implementation with legal challenges. According to Freedman, the AP summarized, the decision to launch a Chamber-sponsored court battle “will depend on how aggressively the Labor Department decides to implement the rule, but the structure is biased toward classifying workers as employees.” It’s not impossible that these kinds of court challenges could stall its rollout before the rule even sees daylight in March.
However eagerly the Department does eventually chase down violators, Professor Dubal told Truthout that the rule change, however welcome, still ultimately undershot initial hopes and promises. “Biden campaigned on changing the test, not to the Obama-era rule — which is itself malleable — but to the ‘ABC’ test,” a stringent three-factor test that tends toward protecting employee status. “It was disappointing,” she added, “for many labor advocates to see the Biden administration backtrack on this.”
Looking forward, as Dubal put it, “The greatest test is political will — that is, if the Department of Labor is willing to enforce the law against the largest, most egregious, deep-pocketed and well-connected violators.”