A statement by Secretary of Labor Marty Walsh last week about the question of gig workers versus full-time employees sent the stock prices of several companies heavily reliant on independent contractors plummeting.
But beyond that immediate reaction, the statement and what occurred in its wake can be seen as one of the first significant developments in what will be a key labor issue facing the Biden administration and by extension those industries that rely on independent contractors for much of their workforce.
Walsh, in an interview with Reuters, said that “in a lot of cases, gig workers should be classified as employees.”
He said some workers are “treated respectfully and in some cases they are not, and I think it has to be consistent across the board.”
Although Walsh made no firm declarations about policy and does not have unfettered ability to make sweeping changes on his own, his remarks sent the prices of several gig-economy companies plunging. Uber, Lyft and DoorDash all saw big declines in their stock prices Thursday. By Monday, even with a strong equities market overall, prices had not recovered from their earlier declines.
Notably, even though trucking is a heavy user of independent contractors, there was no obvious reaction in the price of publicly traded trucking companies to the Walsh statements.
Even if the reaction to Walsh’s statements turns out to have been overblown, as he didn’t spell out particular policies that would push companies to turn gig workers into employees, his comments highlighted the fact that there are big decisions coming up out of the Biden administration to address the definitions of independent contractors and employees.
“The Biden Administration clearly believes that more gig workers should be classified as employees,” Snighda Mamillapalli, an associate in the litigation, labor and employment practices at the law firm Pullman & Comely, said in an email to FreightWaves in reaction to the Walsh statement.
Walsh’s comments might be considered the second development in the administration’s establishment of a policy on gig workers. The first would have been the delay and assumed ultimate withdrawal, soon before it was to go into effect, of a Trump administration rule generally seen as classifying more workers as gig workers in the gig-vs.-employee standoff. There were other letters of guidance also withdrawn in the early days of the Biden administration as a result of the Trump rule on ICs disappearing.
Given that the remarks occurred the day after a federal appeals court lifted the injunction that was keeping the AB5 independent contractor law in California from being implemented in the trucking sector, it drove home the point that the legal landscape over this issue during the next several years is likely to be a busy one with possibly huge implications.
“All of this was totally, completely predictable,” Michael Lotito, co-chair of the Workplace Policy Institute at the Littler Mendelson law firm of San Francisco said about Walsh’s comments. “The transition team had been lined up to implement these kinds of things even before Marty [Walsh] was confirmed.”
When the PRO Act was being debated before being approved by the House of Representatives (it awaits Senate action), trucker-centric social media was rife with comments that the act’s inclusion of the ABC test would effectively end the independent contractor model in trucking. It was never quite that extreme. But given Walsh’s statement last week, when combined with the absence of an independent contractor rule on the books, it’s likely that what will come down eventually will make defining a worker as an independent contractor a lot harder.
Just what would a DOL rule be able to do? It becomes the guiding principle of DOL actions governing the question of the definition of an IC. And that is likely to mean a new era for the never-ending IC-vs.-employee wars.
“The likely end result is that federal labor laws will be interpreted broadly to apply to gig economy workers, when the whole point of those new economy jobs was to adopt the work to the new realities of the economy and the desire of such workers for freedom from traditional employment,” Gerald Maatman, a widely recognized expert on labor law who is a partner at Seyfarth Shaw, said in an email to FreightWaves.
If an independent contractor rule goes into effect and a company that uses the services of ICs ignores it, it is going to have a problem, Maatman said. There would be two fronts for litigation, he said: lawsuits by the Department of Labor or by private attorneys representing employees. “Then in a litigation setting, the employer will need to show that the new rule is inconsistent with what the [Fair Labor and Standard Act] provides,” Maatman said. “It is a guarantee for litigation.”
And whatever is coming is likely to have an impact that is rapid. Mamillapalli said that when a new rule gets put into place, “employers will be obligated to follow it.” As soon as it’s in place, she said, “workers will be able to bring complaints for violations, and the DOL presumably will go on some sort of enforcement campaign.”
Maatman said he expects a new proposed rule in 30 to 60 days.
The Department of Labor is not the only area whose policies can impact the issue of IC vs. employee. There is an expectation that David Weil is going to be returning to head the Wage & Hour Division of the department.
Weil was head of the WHD in the Obama administration. Under it, the division released numerous guidance letters — yanked when the Trump administration took over — that were more sympathetic to the idea that workers were employees rather than ICs.
Lotito said should Weil return to his old slot, he expects there will be new guidance letters. Their biggest impact, Lotito said, is they “give the field personnel guidance on how to investigate and make evaluations for the situation in front of them.”
Should a case the WHD is looking at ultimately make it into a legal proceeding, Lotito said “courts are going to give deference to the guidance.” But he added that the guidance letters are not produced through the process of formal rulemaking, like a new DOL rule on independent contractor status would be.
Maatman said guidance handed down by WHD is “often called ‘regulation by threat of litigation’ in terms of moving the private sector to adopt policies to avoid being sued.”
He added that Weil is “widely regarded as super pro-worker.” The result, according to Maatman, would likely be more DOL legal actions against employers.
It appears clear that the IC-vs.-employee debate is at an inflection point. Mamillapalli said the “pendulum is swinging back to the approach used before 2016, when earlier rules and guidance was scrapped with the arrival of the Trump administration.”
The question of control — always key in the IC-vs.-employee debate — is likely to become a bigger part of that decision, she added. The focus will be on “the overall relationship between a worker and the company, including the extent of the worker’s economic dependence on the company” as part of a classification decision.
“Companies should be using this moment to reevaluate their workplace policies and practices to minimize the risk of misclassification,” Mamillapalli added.