Uber told investors not to panic over gig-work reclassification. It’s only partly right.

Testing, testing, 1-2-3

Tuesday was not a good day to be a gig company. Shares of Uber, Lyft, and DoorDash sank after news broke that the Labor Department wants to change the classification system for independent contractors: The proposed rule narrows the definition such that some current gig workers would be reclassified as full-time employees, entitling them to benefits such as federal minimum wage and overtime pay. The Labor Department plans to solicit public feedback for 45 days before publishing the final rule, which will likely come out in 2023. The current draft is due for publication Thursday.

The new classification system would replace the business-friendly standard from the Trump era. In the final days of the Trump administration, the Labor Department reconfigured the gig-work test such that Uber and Lyft drivers were firmly on the side of independent contractors.

• The Trump-era test focuses on two “core factors”: whether a worker has control over their work, and the extent to which their profits are determined by their own initiative and/or investment.
• The new test, similar to the one used before that change in the last days of the Trump administration, will reportedly consider additional factors, including whether the work performed is core to a company’s business. That particular test presents a huge challenge for Uber, Lyft, and DoorDash, though Biden administration officials insist the proposed change isn’t targeting any one industry, according to The New York Times.

Uber and Lyft are telling investors not to hit the panic button.

• Lyft released a statement suggesting the rule change would be no big deal, and that it had expected such a proposal from the beginning of the Biden administration.
• DoorDash struck a similar cool tone in its statement: “While this is just the first step in the process, we do not anticipate this rule causing changes to our business model.”
• And an Uber spokesperson told The Washington Post the proposal takes “a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.”
• It’s worth noting, though, that industry groups representing gig-work companies ranged from sounding calm (“the new labor standard could impact the current status of gig workers”) to very alarmed (“this move would destroy the thriving, new gig economy”).

The companies may be right not to panic, but they still need to pay attention. The new standard doesn’t directly disrupt the status quo. Instead, the impact of the new classification system would mostly be felt through the guidance it provides for courts and state legislatures. And while a similar standard was applied during the Obama era, that came before the ongoing wave of attempts to reclassify gig workers as employees.

The court component could be particularly important. We’ve already seen courts play the primary role in deciding the outcome of attempts to reclassify gig workers in both Massachusetts and California. The Labor Department wants to give judges a new rubric, and that makes the potential indirect consequences of this change significant.

• As if this case weren’t already complicated enough, there’s the question of midterms and the 2024 presidential election. A rightward midterm swing would give Republicans a chance to legislate more favorable employment laws for gig companies. And a Republican president could plaster over the Biden-era rule, just as we saw in 2021 and are seeing now.

Gig companies are used to working through this kind of uncertainty. They’ve been operating in regulatory limbo (that’s a generous way of putting it) since the very beginning. And still, their best-case scenario through all this is maintaining a status quo that’s only allowed them to produce cumulative losses in the billions of dollars.

— Hirsh Chitkara (email | twitter)

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A MESSAGE FROM ERICSSON

Standardization is why phones from different companies can still connect, and Ericsson’s inventors have been at the table helping to establish standards for every generation of cellular technology, from 2G to 5G. On World Standards Day, learn how this underappreciated concept keeps innovation churning forward.

Learn more

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