On Wednesday, May 5th the Biden Administration blocked the Trump-Era Rule that would have made it easier to classify gig workers who work for companies like Uber, Lyft, and DoorDash as independent contractors instead of employees. What is a gig worker you may ask? A gig worker is someone who works a temporary job in the service sector as a freelancer. Gig workers have the freedom to set their hours, work from home, and be their own bosses, consistent with what typically was understood to be the classic independent contractor model.
After the Biden Administration’s action, shares of companies that employ gig labor such as Uber, Lyft, and DoorDash immediately lost stock value.
The goal of the Administration is to provide the workers with wage and related protections, such as minimum wage guarantees, along with benefits normally associated not with independent contractors, but with employees, including such perks as sick time, medical benefits, and overtime pay.
Interestingly, on February 19, 2021, the United Kingdom’s Supreme Court decided that Uber drivers are workers and are not self-employed. Similar decisions have been rendered throughout the United States on a state-by-state basis. In the United States Supreme Court, no action had been taken to date. In California, in 2015, Uber drivers were found to be employees (O’Connor v Uber Techs, 82 F. Supp. 3d 113) but that case was overturned by Proposition 22 in the November 2020 election. Voters overwhelmingly chose to let the ride-hailing companies (who spent more than $200 million on the public relations campaign) continue to treat their drivers as independent contractors. In their public relations campaign, the gig companies warned the public that if the drivers were employees, the companies would employ fewer drivers, set the drivers’ schedules, and that there would be higher fares and longer wait times.
Most state court decisions found in favor of Uber, classifying the drivers as independent contractors while focusing on issues of “control” to determine employment status. Companies such as Uber emphasize the lack of control they have over the drivers. One of the main attractions of the gig job is the flexibility of hours. The driver determines what days of the week they want to work and what hours they want to work. They stop and start as they please. They drive without instruction or control from the Ubers of the world. The income from the work is shared with the company.
Interestingly, an Uber spokesman stated that the current employment system is outdated. “It forces a binary choice upon workers: to either be an employee with more benefits but less flexibility, or an independent contractor with more flexibility but limited protections.” The spokesman felt that the company believes it can offer the best of both worlds with its system intact.
By contrast, a DoorDash spokeswoman said, “Dashers work fewer than four hours per week on average and they overwhelmingly tell us how important the flexibility to earn on their own schedule is to them.”
It will be interesting to see the effect of the government’s protective and proactive stance. Will that signal the end of some gig economy employers? Will that stance reduce rather than increase the income of the workers since the overhead now may include benefits, overtime, and workers’ compensation premiums? And will that stance raise prices for consumers? The additional protection to the employees will come at a cost, and it remains to be seen how that cost will be divided among consumers and employers. Real wages for gig workers could go down, and consumer costs could rise.
The next and final question is whether the federal government’s stance will have an impact on state-by-state decisions concerning the applicability of workers’ compensation benefits. Most states require control over the worker’s efforts to be designated as an employee. Most, if not all, gig companies develop their business models to establish a lack of control. State Court decisions would have to ignore their own statutory and case law precedent to find an employer/employee relationship in many gig worker scenarios.
Chief Marketing and Business Development Officer