January 5, 2021

Worker Classification Debate Continues Across the Country

Across the nation the debate continues whether or not workers in the gig economy should be classified as independent contractors or employees.

Classifying workers as employees or independent contractors greatly impacts the benefits these workers are entitled to; employees are entitled to workers’ comp, disability, and other traditional benefits, while independent contractors are not.

The Department of Labor announced a final rule clarifying the standard for employee versus independent contractor status under the Fair Labor Standards Act (FLSA). To summarize the rule, the Department establishes that independent contractors are in business for themselves and are not economically dependent on a potential employer for work. This means that a contractor has a degree of control over work and that the worker’s opportunity for profit or loss is based on initiative and/or investment.

This federal ruling comes only months after a key ballot initiative passed in California, greatly impacting the gig economy.

A few years ago, the California Supreme Court established the “ABC Rule,” a series of three criteria that must be met for workers to qualify as independent contractors, essentially reclassifying millions of independent contractors as employees.

This was swiftly followed with the passage of affirming state legislation, but then in a twist of events, Proposition 22 was passed during the 2020 election, creating an exception in California for app-based transportation and delivery companies from providing employee benefits to certain drivers. In essence, rideshare drivers were initially reclassified as employees entitled to benefits, but the passage of this ballot averted that.

Proposition 22 was backed by organizations including Uber, Lyft, DoorDash, and Instacart, and recently these same companies have helped to form the App-Based Work Alliance, an organization that is now working to introduce similar initiatives in other states.

Other states have worked to duplicate California’s ABC rule, which could reclassify millions of workers across the country as employees entitled to benefits. However, with special interest groups now pushing to create more exemptions across the country, the future of the gig economy is still uncertain.

The Department of Labor’s recent ruling is scheduled to go into effect March 8, 2021, and it is uncertain how this federal ruling will conflict with future exemptions created by states.

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