Historical Issue Examined: Are Workers Employees or Independent Contractors?
The question of how workers are to be classified is to address whether a worker will be deemed to be an Employee (EE) or an Independent Contractor (IC) for employment benefits, compensation, retirement, vacation, sick pay, withholding, Federal, state and local reporting, and other related issues.
Prior Tips addressed this issue as to workers that worked part-time and/or with various jobs. In such an instance, the worker was often labeled a “gig worker,” since the worker often undertook a short-term job or function, often for a “limited gig” or activity.
In such endeavors, the company hiring the worker needed to take a position as to whether the worker was an EE or an IC. For employment benefits, tax issues, and related points, such demarcation was crucial.
In the noted prior Tips, we discussed cases both in and outside the USA as to this Gig issue. One Tip addressed the concern with delivery workers in California that were treated as IC, then changed to EE positions, and then, with some legislation, changed back to the IC grouping. Some of the issues identified in the prior Tips raised concern with Uber, Lift, Amazon, and other businesses that delivered or transported goods and people. Uber, in California, was on the verge of leaving California and not providing the Uber transportation service, if the drivers were held to be EEs. Such classification, argued Uber, would destroy the financial position for Uber in California. These same types of arguments have been made in NY, New Jersey, and other states which supported the position of treating such workers in transporting goods and people as EE. Many of these conflicts remain unresolved in various states within the USA and outside the US, such as in Great Britain and France.
Current Developments on Gig Issue at the Federal Level in the US
Recently, the Biden Administration addressed this issue of gig workers. It reconsidered this issue of how to treat gig workers, such as food delivery services, Uber and Lyft drivers, and others by reviewing a previous position of the Trump Administration.
On January 6, 2021, the Trump Administration issued a final rule under the U.S. Department of Labor (USDL), supporting the conclusion that many gig workers would be held to be IC and not EE. It took this position by looking to what was called an “economic reality” test. This test looked to see if the worker was more of an IC-- by being in business for the worker, not for another company.
In reaching this position, the Rule under the US Department of Labor, per the Fair Labor Standards Act (FLSA) looked to two core factors. These factors, said the Rule are the most probative to the issue of whether the worker is an IC or EE. These two items are:
a. The nature and degree of control over the work by the alleged employer or the lack of such control; and
b. The worker’s opportunity to gain a profit, via the worker’s initiative or their investment.
The Rule issued also identified three other factors that could be helpful to resolve this issue as to whether a worker is an EE or an IC. (The two key items, however, were noted, above.)
These other 3 items are:
1. The skill needed by the worker for the gig job;
2. The permanence, if any, of the working relationship of the worker and the company; and
3. Whether the work being undertaken is part of an integrated unit of production.
The Rule also looked more to what the actual practice was by the worker and the potential employer as opposed to a contract or theory. This Rule under the Trump position was published on January 7, 2021. This meant the Biden Administration would be the new administration within a few weeks. When the new administration came into control, they obviously considered this issue, since the Biden Administration, on March 12, 2021, issued a Notice of Proposed Rule Making (NPRM), with the position of proposing to withdraw the Trump Administration Rule, noted above. (See 86 FR 14027.)
The Biden Administration has now formally withdrawn the Trump Administration Rule on this gig issue. This withdrawal was effective May 6, 2021.
The Biden Administration concluded, via the U.S. Department of Labor, that it withdrew the prior USDL position on this Rule because the Rule:
“…was in tension with the FLSA’s text and purpose, as well as relevant judicial precedent.”
It further stated in this May 6th Notice that the “… prioritization of two ‘core factors’ for determining employee status under the FLSA would have undermined longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.”
The Notice of May 6th also stated the effective impact of this withdrawal, when it said:
“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect.”
Conclusion
What this change means to the resolution of the controversy of whether a worker is an EE or IC is obvious on the Federal level: The Federal government is supporting the treatment of many gig workers as EEs.
However, if one reviews the prior Tips, it is clear that the water is not clear! Is a delivery company dealing with workers delivering packages or people now required, under this new Federal position, to withhold income tax, pay employment taxes, provide medical care, paid vacations, retirement plans, etc. for workers? If such benefits for workers are required to be paid, will this mean that some companies, such as Uber, Lyft, et al will choose to cease operations in various locations in and outside the US?
It remains to be seen what the courts will do with this issue of worker status, given this very recent position by the USDL and the Biden Administration.
What will be the position of many states that are examining this enigma at this time?
Will other countries modify their positions as to the treatment of gig workers?
By
Dr. Mark Lee Levine