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labor How Millions of Gig Workers Could Be Impacted by a New Labor Rule

For the first time, they could qualify as employees and enjoy benefits and rights that have been off-limits for years.

photo from inside a car with a sign LYFT atop the dash board
Kelly Sullivan/Getty Images for Lyft.

By the time Dominique Smith downloaded a new app to his phone in November 2021, he had worked long enough as a rideshare driver to know that figuring out how much money he made wasn’t a simple proposition. 

He had driven for nearly five years at Lyft and Uber, during which time a fair amount of the money he “earned” never landed in his wallet — from the $300 a week he shelled out for a rental car to the constant filling of his gas tank. Though he worked long shifts, six to seven days a week, “There was no saving up, just trying to have the basics handled,” he said. Even the basics were a challenge. He would make regular stops for donated food at churches and food banks, and he bought discounted produce at Grocery Outlet. “It’s been a struggle to keep a roof over me and my dog’s head,” said the 34-year-old resident of San Jose.
 
The new app was called Driver’s Seat Cooperative. Smith was among 55 members of Rideshare Workers United in California participating in a study that tracked more than 12,000 rides over a period of six weeks to analyze workplace conditions and earnings. The main finding of the study, published in September by the National Equity Atlas, a project of PolicyLink and the USC Equity Research Institute (ERI), surprised even a veteran driver like Smith: On average, after the myriad expenses rideshare drivers had to absorb, they earned just $6.20 an hour. Had they been regular employees instead of gig workers, the study found, they would have earned nearly $11 more an hour — or $16.70 an hour.

“You’re under this illusion that you’re making so much money, but you’re not factoring in so much of the costs,” said Smith. “They are offloading monumental amounts of cost, so it behooves them to keep us as contractors.”

A Lyft spokesperson called the report a “flawed survey that is untethered to experiences of drivers in California,” and argued that “drivers wouldn’t continue to choose this work if there was any truth to these findings.” An Uber spokesperson also described the study as “deeply flawed” and cited internal company figures for drivers in California during the period covered by the study, which they said showed median gross earnings of more than $30 an hour.

Traditional employees typically enjoy a host of benefits and rights — expense reimbursements, unemployment and workers’ compensation insurance, paid sick time, family leave and overtime, among others — not granted to independent contractors. In California in 2019, elected officials passed Assembly Bill 5, which converted many gig workers, including rideshare drivers, into regular employees. A year later, however, Uber, Lyft and other app-based delivery companies spent more than $200 million to pass Proposition 22 — making it the most expensive ballot measure in state history — which exempted them from the legislation. (Last August, the Alameda Superior Court of California ruled Prop. 22 unconstitutional; the ruling has been appealed, and meanwhile, Prop. 22 remains in force.)

In October, the Biden administration joined the high stakes battle over worker classification by proposing a new rule that would make it more difficult for companies to define their workers as independent contractors under the Fair Labor Standards Act. If successful, the rule would reverse a Trump-era regulation, which itself had replaced an Obama-era rule similar to Biden’s proposal, and make it easier for millions of people — from rideshare drivers to janitors and construction workers — to be classified as employees. About “31% of current or recent gig workers — representing 3% of U.S. adults overall — say this has been their main job over the past 12 months,” per a Pew study

“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh when the proposed rule was announced. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”

Misclassification of workers is an issue that goes far beyond app-based gig workers. Ken Jacobs of the UC Berkeley Labor Center co-authorized a study in 2019 that estimated that nearly a quarter of truckers in California — the industry has long been known to misclassify workers — were working as independent contractors. Misclassification among construction workers is also notorious, with a 2011 report estimating that 19% of the construction workers in California who were defined as independent contractors were actually traditional employees. 

Under Biden’s proposed rule, “There is a very strong case that gig workers are misclassified,” Jacobs wrote in an email to Capital & Main. “The proposed rule would make it easier to prove misclassification in industries with a long history of misclassification, like janitorial, trucking and construction.”

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The new rule would expand the number of factors that need to be weighed when determining whether a worker is an independent contractor or employee, including whether the work being done is “integral to the employer’s business.” 

On the day the proposed rule was announced, shares of Lyft and Uber dropped by about 10%, while Lyft issued a statement that the rule did not reclassify drivers as employees or force the company to change its business model. A spokesperson for Uber said that the rule “takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.” Previously, when faced with the prospect of classifying their workers as employees through AB 5, both companies threatened to suspend operations in California.

Whatever legal precedents may develop from the proposed rule won’t be swift, with a 45-day comment period followed by the publication of the final rule. Once the rule is implemented, it would serve as the new standard the DOL uses to determine worker classification, setting up court fights that could pave the way for decisions that reclassify independent contractors as employees.

Brian Dolber, an associate professor of communication at California State University San Marcos, is a co-author of the National Equity Atlas report about drivers in California and is an expert on gig work. He’s also a former rideshare driver who now organizes with Rideshare Drivers United. “We’re heartened by the federal government signaling that they are beginning to take a serious look at misclassification,” he said. “But there’s definitely a long road ahead.”