Will The Democrats Roll Back The Gig Economy?

When is a freelancer really an employee and not a contractor? Are 'hybrid workers' just a way to sidestep labor laws? What's the plan, Joe?

In Biden Should Help Protect Uber and Lyft Drivers, Veena Dubal and Juliet Schor report on the Albertsons grocery store chain, which this month opted to replace its staff delivery drivers with Doordash gig workers, and who will lack many of the labor protections employees have:

When the gig economy sprang up during the Obama years, it seemed novel. Companies like Uber used software to offer assignments to people on call who set their own hours. One major caveat: As independent contractors, these workers wouldn’t get traditional wage protections, workers’ compensation, health insurance or unemployment benefits. But that didn’t stop the quick expansion of the gig economy.

In 2019, California legislators sought to improve life for gig-company workers, passing a law that required companies to treat app-deployed workers as employees. In response, the companies spent $200 million promoting Proposition 22, a state ballot initiative that affirmed gig companies’ classification of their workers as contractors while enshrining limited protections.

This hybrid labor category came from an unexpected source. In 2015, Seth Harris and Alan Krueger, labor economists from the Obama administration, argued against giving gig workers employment status. Instead, they proposed a compromise: App-deployed workers could receive some rights, like tax withholding and a right to organize, but not others, such as a minimum wage and unemployment insurance.

But researchers like us who have documented the exploitive conditions of gig work worried that this approach would hurt a much larger group of service workers — just as the Albertsons decision will.

One of the claims that gig economy companies make is that the gig workers want the agility of gig work, but research undercuts that:

In ethnographic research on Uber and Lyft ride-hail drivers, Dr. Dubal found that, contrary to the companies’ promises of freedom and flexibility, longtime drivers feel trapped in grueling work schedules and controlled by their algorithmic bosses. Notably, these findings undermine Uber and Lyft’s arguments against employment status.

The gig economy businesses, led by Uber and Lyft, are hoping to expand Proposition 22-like initiatives in other states, and some supporters would like to see other industries get gigified:

In a bad omen for workers outside California, Dara Khosrowshahi, the chief executive of Uber, has vowed to support efforts similar to Proposition 22 elsewhere. Lyft, a competitor, is behind political action committees that will support candidates who will protect its business model. Shawn Carolan, a venture capitalist whose firm has invested in Uber, has written that the Proposition 22 model should be extended to other industries, such as education, health care and computer programming — which would increase the number of Americans who toil without a safety net or predictable earnings.

And, of course, to accumulate the capital not spent on worker benefits to the bottom line of the gig economy companies.

Proposition 22 creates a 'hybrid worker' category for rideshare and delivery drivers with some limited protections:

The proposition's slimmed-down benefits list for rideshare and delivery drivers includes tiered levels of health care subsidies and occupational accident insurance, among other items. Overall, the benefits package establishes the framework for a potential hybrid employment category for gig workers, which Uber CEO Dara Khosrowshahi publicly supported in an August New York Times op-ed.

The researchers point out that the US Fair Labor Standards Act blocks exemptions from labor and employment laws, notwithstanding Proposition 22 and a letter that the Trump administration intended to do just that, asserting that gig workers are contractors. Note that the 'final rule' from Trump's Labor Department came on 6 January 2021, just days before Biden will be taking office, and would take effect 7 March 2021.

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The Biden administration views this 'final rule' as one of a slew of 'midnight regulations' that will be blocked on 20 January 2021, and Biden spokesperson Jen Psaki singled it out as a particularly egregious example of Trump overreach:

“If it takes effect, that rule will make it easier to misclassify employees as independent contractors, costing workers more than $3.7 billion annually," she said.

The House passed the Protecting the Right to Organize Act (or PRO Act) in February 2020, which might be the most significant reworking of US labor law in the modern era. The Senate has not taken it up, yet. Biden's campaign materials state that his administration will seek to go beyond the scope of the PRO Act, and to adopt the tests of California's AB 5:

Ensure workers in the “gig economy” and beyond receive the legal benefits and protections they deserve. Employer misclassification of “gig economy” workers as independent contractors deprives these workers of legally mandated benefits and protections. Employers in construction, service industries, and other industries also misclassify millions of their employees as independent contractors to reduce their labor costs at the expense of these workers. This epidemic of misclassification is made possible by ambiguous legal tests that give too much discretion to employers, too little protection to workers, and too little direction to government agencies and courts. States like California have already paved the way by adopting a clearer, simpler, and stronger three-prong “ABC test” to distinguish employees from independent contractors. The ABC test will mean many more workers will get the legal protections and benefits they rightfully should receive. As president, Biden will work with Congress to establish a federal standard modeled on the ABC test for all labor, employment, and tax laws.

The ABC rule of AB 5 is this:

For purposes of the provisions of this code and the Unemployment Insurance Code, and for the wage orders of the Industrial Welfare Commission, a person providing labor or services for remuneration shall be considered an employee rather than an independent contractor unless the hiring entity demonstrates that all of the following conditions are satisfied: (A) The person is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact. (B) The person performs work that is outside the usual course of the hiring entity’s business. (C) The person is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

The intention is to allow an accountant to operate as a contractor when helping an auto parts store with its tax forms. However, an accountant working for an accounting firm would have to be treated as an employee, and not as a freelancer. And any accounting firm that did not would be in violation of the law, as would other businesses attempting to do circumvent the law, like the example of Albertsons, which would like to treat the workers delivering groceries as hybrid workers. But delivery of groceries is a central aspect of what groceries do.

This rule has led to controversy, such as with freelance writers, who were capped at no more than 35 submissions per year per employer. That led to AB 2257, an amendment to AB 5:

AB 2257, which removes AB 5's stipulation that freelance writers hand in no more than 35 submissions per year per employer, was passed as an urgency measure and took effect immediately.

While there are still some missing pieces in AB 5 and AB 2257 — freelance photographers and videographers are still capped with the 35-piece limit — the goal of the California legislation was to create a better test to counter misclassification of workers by gig economy companies.

The situation with freelance writers and photographers raises other questions: are publishers exploiting freelancers who would be better off as employees? Should the publishing industry be treated as a special carve-out of the requirements of the Fair Labor Act, as with certain other industries such as domestic workers, fishermen, and agricultural workers? Or are the poor economics of publishing no excuse to avoid the burden of employment?

In a nutshell, Proposition 22 and Trump's midnight regulation are efforts to loosen restrictions on gig economy firms and weaken labor protections for workers.

Biden's administration might want to start with passing the PRO Act in the Senate. As Dubal and Schor state,

As inequality reaches record highs, the hybrid-worker category threatens the future of all service workers. With the building of progressive momentum to address racial and economic inequality, the Biden administration should expand protections for all workers, not allow them to erode for millions more.

There are myriad ramifications of rolling back the gig economy, but it is one thread in the fabric of greater economic equality for the US, a fabric that has frayed over the past decades. The fact that lots of people are working as gig workers does not mean that they should be, or that we, as a society, should continue the movement toward fewer protections for workers and fewer checks on employers. Extending the gig economy into healthcare, education, and other industries is a genuinely terrible idea, and Biden’s administration should put the brakes on those libertarian impulses, so frequently heard coming from the mouths of VCs and gig economy CEOs.

This may be one of the first tests of the Democrats’ tenuous hold on the 50-50 Senate. Will Chuck Schumer push the PRO Act in the first 100 days? Can we roll back the gig economy?