Discover more from Workonomics
The DOL's Long-Awaited Worker Classification Proposal | Roundup #7
The Labor Department fights back against a Trump-era rule
I said in my last roundup that I was taking off a week from posting and really hoped nothing major happened. Well, that didn’t exactly pan out.
From Rachel M. Cohen at Vox:
The Biden administration has released a long-awaited proposal that could make it easier for millions of truckers, Uber drivers, freelance writers, home care workers, and janitors to be classified as employees rather than independent contractors — a shift that would grant them access to a host of federal labor protections.
The [Department of Labor]’s 184-page proposed rule would change how the federal agency determines who constitutes an employee or an independent contractor under the Fair Labor Standards Act, the 1938 law that determines eligibility for protections like minimum wage, overtime, Social Security, and unemployment insurance.
It isn’t exactly a surprise that the Biden administration wanted to do this, nor is this entirely groundbreaking. It’s merely proposing reverting back to the original test for determining whether a worker was an employee or independent contractor, which was in place from from 1947 until 2021, and equally weighed 7 different factors about a worker’s situation to determine their employee status.
What happened in 2021? Well, in January (days before Biden took office), the Trump administration replaced the 7-factor test with a new version that was much more friendly to the major gig platforms. Instead of holistically taking into account 7 different factors that were applied for over 7 decades, the Trump rule reduced it to 5, reworded them, and regarded 2 of them as significantly more important than the others. From the same Vox article:
In the waning days of the Trump administration, the Labor Department finalized a new rule that gave extra weight to two specific questions when determining if someone is an independent contractor: how much control does a worker have over their work — can they set their own schedule, work for multiple employers, and reject certain projects? And how great is a worker’s opportunity for profit or loss based on their own initiative or investment? One tenet of independent contracting is that there should be “entrepreneurial opportunity” built into the arrangement.
How's that for a big “f*** you” from the Trump admin? Biden’s Labor Secretary Marty Walsh, for one, was not very happy about all of this.
While the Trump-era test certainly simplified the 7-factor test that preceded it, it also redesigned the test in a way that made it extremely hard for gig workers to pass. Take for example one of the “core factors” in that test, which took a factor from the original test (“the worker’s opportunity for profit or loss”) but added an additional clause (“based on their initiative and/or investment”) that changed its impact altogether.
Some Uber drivers are able to make pretty substantial hourly earnings on the platform (thereby satisfying that they have “the opportunity to profit”), and so this factor would clearly deem these workers independent contractors. But even if a large group of other drivers had meagre earnings, a court following the Trump-era rule could argue that these workers were simply not putting in enough “initiative or investment” into their contract work, but they still had the theoretical “opportunity to profit.” So these workers would also be held as independent contractors — just lazy ones, ones that need to take more initiative! This core factor was designed to be un-passable, even for workers being treated as de facto employees of the platforms.
What does the data have to show for this? Even though all gig workers have the opportunity to earn significantly on the platform, how many of them actually do? Based on this 2020 study, commissioned by the City of Seattle and conducted by researchers UC Berkeley and the New School, the answer seems to be not very many.
Based on Uber driver earnings data provided to the Seattle government, the average driver was earning far below the $15 minimum wage. In fact, looking at the above earnings distribution from a survey of over 6,500 drivers in Seattle, we can see that over 75% of drivers were earning less than minimum wage after expenses.
The Department of Labor’s most recent proposal would revert back to the 7-factors test, returning to a state of less biased, time-tested factors and more holistic consideration of all factors together. If implemented, it means that some, if not all, gig workers would be classified as employees rather than contractors.
This is not going to be an easy road for the Department of Labor as it rolls out this new ruling. Gig companies have shown a willingness to pay hundreds of millions of dollars to preserve independent contractor status. The Labor Department also lost a lawsuit in March 2022 when it tried to delay and then withdraw the Trump-era rule.
7-factor test is also not perfect, and the Labor Department knows this. Some stakeholders have agreed that the Trump ruling needs to be replaced but with something other than the 7-factor test. Some have been rallying the Labor Department to instead use the ABC test implemented by 20 states and DC. Others argue for an updated test that distinguishes between “casual” and “full-time” gig workers and grants different protections to each.
So the future of the proposal is far from certain. For now the Labor Department is collecting public responses on the proposed rule until December (which you can submit here). In a few weeks, we’ll have a clearer view of where the future of worker classification is headed.
Thanks for reading Workonomics! Subscribe for free to receive new posts and support my work.
Chicago Sun-Times: Unionized Starbucks in Edgewater Closing, Labor Organizers Say
Other News and Perspectives
Roosevelt Institute: Why Unemployment Can Stay Low While We Fight Inflation
NYT: Companies Hoarding Workers Could Be Good News for the Economy (and Matt Darling Twitter Response)
Review of International Economics: “Every five foreign farmworkers creates a 2 jobs for US workers in the short run, and about 1 job for a US worker in the long run”
Journal of Law and Political Economy: Worker Mobility in Practice: Is Quitting a Right, or a Luxury?
Journal of Law and Political Economy: The Persistent Absence of Full Employment: A Critical Flaw in the Legal “Freedom of Contract” Framework