In reversing a Trump labor rule, Biden administration takes aim at ‘gig economy’

Lane Turner/Globe Staff/file

WASHINGTON — Tech companies like Uber, Lyft, DoorDash, and Instacart have disrupted the US economy by creating a labor force of millions of so-called gig workers. Now Washington appears poised to disrupt the disruptors, taking the first step Wednesday in what appears to be a larger battle with industry giants to give those workers more rights.

The Labor Department formally withdrew a Trump administration regulation, which never went into effect, that would have made it easier for companies to classify workers as independent contractors rather than conventional employees covered by federal laws on minimum wage and overtime.

“Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” Labor Secretary Martin J. Walsh said in announcing the decision. The move came after Walsh said last week that his department was looking into worker classification because “in a lot of cases gig workers should be classified as employees.”

“These companies are making profits and revenue and I’m not [going to] begrudge anyone for that because that’s what we are about in America . . . but we also want to make sure that success trickles down to the worker,” Walsh told Reuters in comments that caused large drops in stock prices of gig economy companies like Uber and DoorDash.

Walsh could do more to complicate the companies’ easy access to a largely benefits-free pool of employees in the future — a possibility the companies are dreading. He could issue new guidance for how companies should comply with existing regulations on worker classification or formally propose new regulations to make the distinctions clearer. President Biden has said he supports a three-part test used by many states that says a worker is considered an employee simply if their job is part of a company’s core business, the work is directed by the company, and the worker hasn’t established an independent business in the same field.

A pandemic that highlighted flaws in the gig economy and a Democratic administration focused on expanding workers’ rights have changed the regulatory outlook for the industry. There’s new momentum to force companies to treat gig workers more like employees and provide the accompanying benefits, including unemployment benefits, which the federal government stepped in to provide for gig workers during the pandemic. Progressives and workers’ rights advocates have pushed for such a seismic shift, but the companies warn it could damage a vital economic sector that provides flexibility to workers.

“It’s a good sign that this Labor Department and more broadly this administration fundamentally understands the crisis that is affecting so many low wage workers in this economy,” said Brian Chen, a staff attorney at the National Employment Law Project, which advocates for workers’ rights. “Aside from the technology, the gig economy really isn’t anything new at all. It’s essentially an age-old business model where employers shift all the cost and risk onto workers.”

The App-Based Work Alliance, which represents major gig economy players Uber, Lyft, DoorDash, Instacart, and Postmates, cites company-funded polls showing gig workers strongly prefer to remain independent contractors. The group said it is open to making changes but said providing flexibility to workers must be a priority “in these tough economic times.”

“The vast majority of app-based workers choose to work fewer than 20 hours a week and want to remain independent contractors so they can earn income on their own terms and set their own schedules,” said spokeswoman Whitney Brennan. “We encourage the Biden administration to listen to these workers and develop modern policies that allow workers to keep the flexibility they want and need while also expanding access to protections and benefits.”

Biden’s campaign platform called for ending “an epidemic of misclassification” of gig workers and independent contractors in other industries. In addition to nominating Walsh, a former union president and strong supporter of worker rights, as labor secretary, Biden reportedly is considering nominating David Weil to head the Labor Department’s Wage and Hour Division, which deals with worker classification. Weil, dean of the Heller School for Public Policy and Management at Brandeis University, held that job during the Obama administration and has been an outspoken critic of how companies like Uber classify their workers.

On top of potential regulatory changes, Congress is considering legislation that could roil the gig economy. The Protecting the Right to Organize Act, which passed the House but faces obstacles in the Senate, would make it easier for gig economy workers to unionize and collectively bargain with companies.

While Walsh’s comments about worker classification are “a fantastic signal,” enacting the legislation and providing funding for union organizing would be the best way to improve the lives of app-based workers, said Henry DeGroot, a board member with the Boston Independent Drivers Guild, an association of Uber and Lyft drivers.

“Ultimately it comes down to workers coming together, standing up, and having real independent worker power,” he said.

Senator Mark Warner, a Democrat from Virginia who is one of only a few Senate Democrats yet to support the PRO Act, agrees that companies have not done enough to provide benefits. But he argues expanding union organizing rights is not the best solution. He said he’s focused instead on finding a way for independent contract workers to accrue portable benefits like paid sick leave and workers’ compensation across jobs.

“We need to think about not what we wish the work environment was in some kind of past model, but where the workforce is today and what the workforce of today wants,” said Warner, who warned of political ramifications for Democrats of being too aggressive on reclassifying gig workers. “We might have a whole lot of young people who actually don’t want any administration to mess with the kind of work arrangements they put together.”

Until now, most of the regulatory action has been on the state level. Last summer, Massachusetts Attorney General Maura Healey sued Uber and Lyft, alleging they were violating state law by classifying their drivers as independent contractors. And a major battle played out in California last year after the state legislature passed a law in 2019 that made it more difficult for businesses to classify workers as independent contractors.

Major gig economy companies fought back, spending about $210 million to fund a ballot measure that California voters approved in November exempting drivers for app-based companies from the law. The initiative created a new middle category of worker in California with some additional benefits that fell short of what was mandated under the 2019 law.

New Labor Department efforts on gig workers could rectify the problem of a patchwork of state laws — for now. But as Wednesday’s move to rescind the Trump rule showed, a new administration can change regulatory direction. Chen said federal legislation would provide greater stability, although more is needed than what’s been proposed in the PRO Act. There’s a big difference between having the right to form a union and actually doing so, he said, as was shown by the recent failed unionization effort of Amazon warehouse workers in Alabama.

In the meantime, the Biden administration needs to act aggressively to stop worker misclassification or risk more companies moving to gig arrangements, Chen said.

“If agencies tasked with enforcing labor laws are not going to hold the line with these companies, it’s going to break open the dam and give them more ways to avoid our federal laws and worker protections,” he said. “They want to really just gig out any job.”