The ongoing effort to crush digital platform-based transportation services recently got a boost from a California judge who held that companies like Uber and Lyft must immediately reclassify all of their drivers as employees. The ruling comes as a result of trial lawyers and California’s Attorney General bringing a lawsuit against the companies based on the requirements of Assembly Bill 5. This controversial legislation restricts the nature of independent contracting and freelance work across California. Without a successful appeal, both Uber and Lyft have said that they will pull out of the state of California by the end of this week due to the burdensome requirements and unaffordable costs of changing their entire business model overnight.
The very real possibility that hundreds of thousands of California drivers and millions of California commuters will no longer have access to ride-sharing applications to generate income or rides demonstrates the need for federal workforce protections. Avoiding a patchwork of state burdens and restrictions on entrepreneurship can only be achieved through clarity at a national level. While it’s rare that Washington can be pointed to as having any workable solution to state issues, in the case of Big Labor’s assault against the gig economy, it may come down to just that.
The Trump administration recently announced that it would be fast tracking a regulatory order for “determining independent contractor status under the Fair Labor Standards Act.” Under current guidelines, there is no single federally limiting labor test in determining whether someone is an independent contractor or an employee. The distinction is important because it can limit the nature of flexible work agreements between workers and businesses when it comes to working hours or the ability to take on multiple jobs. Unfortunately, it might take more than federal agency deference to fully address the issues arising out of states like California. Due to the ability of new administrations to interpret and re-interpret the FLSA, as was the case in 2015 and again in 2017, these standards continue to change to the potential detriment of the American worker. Under a Biden-Harris administration, independent contractors face a promise of demise.
Instead of leaving the fate of millions of workers to the regulatory re-interpretation of bureaucrats, Congress should implement a federal standard for the nature of workforce relationships between individuals and businesses. The standard would supersede state and local laws to avoid the compliance nightmares associated with a patchwork of laws like AB5 in California and to maximize the ability of all individuals to work with and for whom they wish without the needless involvement of Big Labor or Big Government. This standard would preserve the ability of freelancers and independent contractors to generate income regardless of whether they live in California, Florida, or Ohio.
Such a federal standard would not prohibit businesses from providing perks or benefits to contractors and it would not punish them for doing so. Congress should not mandate that businesses treat freelancers or contractors like employees if those businesses choose to provide health care or retirement contributions and benefits, for example. A restrictive mandate like this would drive up the cost of entrepreneurship, straddling startups and small businesses alike with unaffordable burdens while dismantling the opportunities that exist within the current contracting model.
As an alternative, Congress could create a safe harbor for businesses who choose to give workers benefits under a federal standard for worker agreements. This safe harbor would allow for a business to make retirement, universal savings accounts, or Health Savings Account contributions to independent contractors, without jeopardizing the nature of the independent contracting agreements or lumping these workers into a category of those defined as employees.
This sort of federal standard would protect businesses who are in a financial position to provide their contract workers with benefits without mandating that their smaller competitors significantly increase their overhead costs to the point of insolvency. At the end of the day, both businesses and workers should be given maximum flexibility with limited government intervention in the nature of benefits, hours, or workforce flexibility and mobility. A federal preemption standard would go a long way in saving nearly 9% of the American economy from the litigious nature of unions and their allies in the Democrat Party.