The new independent contractor rule is a bit of a nothing burger

Written By Althea Erickson

So why is everyone freaking out about it?

Last week, the Department of Labor (DOL) released a new rule governing independent worker classification under the Federal Labor Standard Act (FLSA). You might have seen the breathless headlines. Here are a few that caught my eye: 

“Wow,” I thought, “They must have really shaken things up…”  But no, they didn’t. The new rule essentially codifies the status quo we’ve been living under for years. 

So why the sensational coverage? It’s helpful to know the backstory. 

For basically ever, each administration has tried to shift classification rules and enforcement to align with their policy priorities. Democrats generally want tighter rules and more enforcement. Republicans want looser rules and more lax enforcement. Like so many other issues, it goes back and forth depending on who’s president. 

The Trump Administration tried to make its mark on the classification debate in its waning days, putting a new rule in place on January 7, 2021. Why cut it so close, you ask? Well, they DID have a lot going on… You might remember what happened the day before. 

So yeah, a lot going on, but they still managed to get their new rule out before Team Biden walked in the door on January 20th. The Trump rule would have loosened the FLSA independent contractor test to two “core” factors among five total factors, making it easier to classify someone as an independent contractor for the purposes of minimum wage and overtime rules.

On Feb 5th (two weeks in), the Biden Administration tried to delay the rule, and then in March attempted to withdraw it altogether. But the courts ruled that they couldn’t simply delay or withdraw the rule, requiring the Biden DOL to issue a new rule to replace the Trump Administration rule. 

So Team Biden went back and proposed a new rule that essentially codified the status quo prior to the Trump rule. Previously, the test was mostly based on court precedents and informal guidance letters. Now we have an official rule. So it’s all a bit more buttoned up, I guess. 

The new rule establishes a six part test that looks at the context of a worker’s situation, and requires a judgment based on balancing those factors. Yes, the new explanatory language more explicitly accounts for app-based work, but it doesn’t meaningfully change the world we’ve been living in for some time. Just look at the statements from the app-based gig companies: 

  • Uber: “This rule does not materially change the law under which we operate, and will not impact the classification of the over one million Americans who turn to Uber to earn money flexibly.”

  • Lyft: “While we are still reviewing the new final rule, our initial view is there is no immediate or direct impact on Lyft’s business at this time.”

  • Doordash: “DoorDash is confident that Dashers are properly classified as independent contractors under the FLSA, and we do not anticipate this rule causing changes to our business.”

I’m no employment lawyer, but it looks like we all came to the same conclusion. The markets also reacted positively for the companies. Same same all around.

That’s why I get frustrated when the coverage links this new rule to the AB-5 fight in California. This is VERY misleading. 

For those not tracking this debate closely, AB-5 is a California law that created a three part test (known as the ABC test) to determine whether a worker is an employee or independent contractor under California employment law. I’m not going to go into the specifics (how much can I bore you in this very first newsletter?!?), but suffice to say it is much broader than any federal test. 

Under the ABC test, a lot of freelance professionals in California were no longer allowed to work as independent contractors. As a result, many either lost their jobs or had to become employees. Lawmakers recognized that it wasn’t a good fit for everyone, and passed a follow-on bill to exempt all kinds of industries–musicians, writers, etc.–from the law. Uber and other gig companies managed to get out of it by passing Prop 22 in 2020, though that’s still under appeal in the courts. 

All’s to say, the ABC test IS a pretty big deal, and would merit some breathless headlines if the DOL were putting it into place for the FLSA. But they’re not. The Department of Labor doesn’t have the authority to create an ABC test for the FLSA unless Congress passes a new law. 

So it’s all a bit of a nothing burger. But it does matter. Why? 

Because this moment demonstrates how deeply entrenched and calcified our public conversation on this topic has become. Even when basically nothing happens, we can’t help but retreat to our corners and fire out our existing talking points (or lawsuits) in response. And I think we need a new strategy.

For years, the conversation around gig and independent work has been limited to a conversation about classification. I can understand why. 

We built all of our worker protections around employment, when most people were, in fact, employed. Our primary organizations fighting for worker protections were unions, which depend on an employment relationship for collective bargaining to work. On top of that, we built political power through the labor movement to protect and expand on those gains. 

I think of employment as the giant highway we built to protect workers, and any side roads were viewed as a threat to that main thoroughfare. We just needed to build more access roads to connect the side roads with the main highway and everything would be great.

The problem, though, is a lot of folks live out on those side roads and aren’t going anywhere. Some of those people prefer to be self-employed. Some need a more flexible schedule, for example because of caretaking obligations or a disability. Some work in the informal economy. There are lots of reasons someone might work outside traditional employment. And we need labor protections for them too. 

It’s time to stop thinking about misclassification as the ENDS we’re all fighting about, and start thinking about it as a MEANS among many other strategies to get all workers the protections they need. 

If we could make that mental shift, a few important things would start to happen. 

First, all policy conversations about independent work would not begin and end with misclassification. For as long as I’ve been working on these issues, we have delayed or shut down necessary conversations about benefits and protections for independent workers due to ongoing struggles around classification.

Those fights are important and impact the lives of many workers, but they should not impede other very important policy conversations about protections for those who are legitimately self-employed. Both debates can happen.

If we could widen the aperture of the policy debate, we could start exploring new approaches to delivering worker protection outside of employment. This new DOL rule is about minimum wage and overtime protections. We could use this opportunity to ask, “What could minimum wages for freelancers really look like?” 

Maybe we start to explore collective bargaining rights for independent workers that don’t run afoul of antitrust law. Maybe that opens an interesting conversation about sectoral bargaining. Boy, that would be a fun and interesting conversation (for a policy nerd like me, anyway), and might even open up new roads to improve the lives of many workers who were never covered by minimum wage rules in the first place.  

And if we did that (now I’m really dreaming here), those new explorations might help us build a path out of the deeply entrenched worker protection debate that has dominated the discourse for the last 50 years. Maybe we could find common cause between worker advocates and those looking to simplify life for small businesses. Maybe we could build new coalitions to win those protections. Maybe we could ensure that ALL workers have access to the same fundamental protections, regardless of how they work. 

Now THAT would be worth doing.  But to get there, we need to rethink the role classification plays in our larger conversation about worker rights and protections. 

I think we’re ready for a broader conversation. Do you?

Odds and Ends

Althea Erickson
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