Written by: Jovan Gill
Introduction
As the gig economy rapidly expands, the rights of its workers have been called into question. ‘Gig workers’ refers to those who provide freelance services, such as DoorDash drivers, Uber Eats drivers, Instacart, and others. Rather than being committed to the typical American eight-hour workday, these laborers provide on-demand services often characterized by their short-term and digital connection to consumers.
Under the Fair Labor Standards Act (FLSA), an economic reality test is utilized by the Department of Labor (DOL) to determine the eligibility of these workers to be classified as ‘independent contractors,’ which allows them numerous bureaucratic freedoms. However, many have begun to argue for a new classification for these workers: official employee. The word ‘employee’ in American legislation offers its designated recipients guaranteed rights; hence, why some want the laborers of the gig economy to be protected as employees. Others argue against this because they value the freedom provided by contracting far more.
There’s been increasing pressure on administrations for stricter protocols regarding the classification of independent contractors. In 2021, the DOL under the Trump Administration passed a New Independent Contractor Rule that redefined the standards for gig workers (Federal Register Volume 86, Number 4, 2021). However, critics during the time of the Biden Administration argued that the ruling was too passive and extreme in labeling the workers as contractors. Shortly after, the DOL rescinded their ruling, stating that they would return to processes supported by “longstanding judicial precedent” (Department of Labor, 2024). Fluctuations in these rulings leave many wondering about the fate of these gig workers and the precarious balance between government oversight and labor freedoms in the economy.
Independent Contractors
The classification of gig workers as independent contractors affords many freedoms for the workers and companies alike. Companies are able to operate with weaker regulations and avoid fees associated with worker compliance, such as worker benefits and payroll taxes (Gerstein, 2024). Massachusetts State Auditor Diana DiZoglio estimates that Uber and Lyft avoided paying approximately $47 million in unemployment taxes, workers’ compensation, and paid medical and family leave insurance in the state of Massachusetts during prior years. In turn, many believe this allows companies to keep services easily accessible and affordable to their consumers. Additionally, companies free from legal obligations are able to scale growth more rapidly, fostering competition and rapid technological advancements within the industry. Many consider the independent contractor system to be an integral component of the gig economy’s rapid economic growth.
Some gig workers have also voiced a preference to be independent contractors because it allows them immense flexibility. For many, gig work is a means to an end that allows them supplemental income free from a nine-to-five schedule. Workers are able to choose when, where, and how much they work, a choice that would otherwise be restricted under employee classifications.
More drastically, concerns about the future of gig work have been raised should their title as freelancers be eradicated. Dara Khosrowshahi, CEO of Uber, highlights the fear that the switch to employees would enact higher costs for companies, limiting how much they can hire: “Uber would only have full-time jobs for a small fraction of our current drivers and only be able to operate in many fewer cities than today. Rides would be more expensive, which would significantly reduce the number of rides people could take and, in turn, the number of drivers needed to provide those trips.” The number of available opportunities for those who rely on flexible work could reduce, putting the entire industry at risk. The gig industry is an effective option for workers who seek flexible and efficient streams of income, a dynamic characteristic that is subject to change should federal regulation change the rules to label gig workers as employees.
Employee Designation
In contrast, those who champion the ‘employee designation’ raise the concern of workers’ rights, or rather the perceived lack thereof, under the label of ‘independent contractor.’ Under the Fair Labor Standards Act, employees are entitled to rights that many believe the majority of gig workers do not have, such as minimum wage and overtime pay, firm contribution to health insurance, workers’ compensation, and unemployment insurance. Switching the title of gig worker to employee could afford them these protections, especially in circumstances of unemployment where they are no longer able to work.
Income stability is central to the label of employee, for much legislation has been written to prevent sudden wage volatility and cuts. Gig workers are often cited as vulnerable because of their forced adherence to sudden firm changes. It’s possible that employee designation could offer them leverage to champion for more favorable working conditions.
Under the National Labor Relations Act of 1935, gig workers are unable to legally unionize, collectively bargain, or strike in other collective acts. As official employees, the United States legal system would give gig workers the right to unionize and demand better working standards should they choose to do so. Their bargaining power would automatically increase, as would their legal protections.
Oftentimes, the fight for employee designation of gig workers is framed as a microcosm for future risk of labor protections, as current standards set precedent for more and more companies to shift to ‘gig’ systems, which opens the doors for more flexible freedoms in the labor force but also raises concerns over working conditions.
Proposition 22
The State of California passed Proposition 22 (Prop 22), a piece of legislation aimed at addressing the concerns of both sides of the gig worker classification debate. Prior to Proposition 22, the state had passed California Assembly Bill 5 (AB 5) in 2019, which announced a new “ABC Test” that classified most gig workers as employees. In retaliation, many larger corporations such as DoorDash, Uber, and Lyft lobbied against this, claiming that gig workers value the flexibility that comes from being independent contractors. The response to this was Proposition 22, which was passed shortly thereafter in 2020. It specifically addresses app-based delivery and ride-share drivers, exempting them from being classified as employees.
Alongside the exemption, Prop 22 establishes a baseline for basic worker protections. It allows gig workers to remain as independent contractors while also guaranteeing them minimum earnings, health care subsidies, and several different types of insurance, such as vehicle, injury, or accident based, all of these determined by the level of activity and hours worked by the driver (California Secretary of State, 2020).
Conclusion
The legal framework regarding the classification of gig workers has continued to evolve alongside the industry. Some prefer the independent contractor status because of the freedoms and flexibility it offers to both firms and workers, while others lobby for employee designation because of its guaranteed labor protections, such as minimum wage, insurance contributions, and the right to unionize. The criteria for these classifications are established by the Fair Labor Standards Act, including the Department of Labor’s 2021 Independent Contractor Rule and their 2024 reversion to the economic reality test. These developments, alongside California’s passage of Proposition 22, which guarantees independent contractors basic working rights, illustrate the ongoing efforts to restructure and define the employment status of gig workers within the United States’ existing labor law structures.
References
Ballotpedia. (n.d.). California Proposition 22, app‑based drivers as contractors and labor policies initiative (2020). https://ballotpedia.org/California_Proposition_22%2C_App-Based_Drivers_as_Contractors_and_Labor_Policies_Initiative_(2020)?
California Secretary of State. (2020). Proposition 22: App‑based drivers as contractors and labor policies initiative (2020) – official voter information guide. https://vigarchive.sos.ca.gov/2020/general/propositions/22/
Gerstein, T. (2024, May 20). How Uber and Lyft avoid millions in business taxes — and what it means for gig-economy workers. Slate. https://slate.com/business/2024/05/uber-lyft-gig-economy-driver-classification-business-taxes-unemployment.html?pay=1771979742648&support_journalism=please
Massachusetts Office of the State Auditor. (2024, April 30). Assessing transportation network companies’ financial obligations to Massachusetts programs (Report). Commonwealth of Massachusetts. chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.mass.gov/doc/assessing-transportation-network-companies-financial-obligations-to-massachusetts-programs/download
National Labor Relations Act of 1935, 29 U.S.C. §§ 151–169 (1935).
U.S. Department of Labor, Wage and Hour Division. (2024, January 10). Employee or independent contractor classification under the Fair Labor Standards Act (Final rule). Federal Register. https://www.federalregister.gov/documents/2024/01/10/2024-00067/employee-or-independent-contractor-classification-under-the-fair-labor-standards-act
U.S. Department of Labor, Wage and Hour Division. (n.d.). Employee or independent contractor classification under the Fair Labor Standards Act rulemaking. https://www.dol.gov/agencies/whd/flsa/misclassification