The rise of the gig economy has sparked a new conversation about what constitutes an employee versus a small business: are gig workers working for themselves as contractors, or are they employees of the company that hires them?
It’s a debate with significant implications for lawmakers in areas like minimum wage and tax policy. Earlier this year, the U.S. Labor Department classified these gig workers not as employees, but as contractors, in a case that enabled an unnamed company hiring these gig workers to not have to pay federal minimum wage, overtime or Social Security taxes.
At the time, Labor Department official Keith Sonderling said the decision “offers further insight into the nexus of current labor law and innovations in the job market.”
“There are few more contentious issues currently than the status of workers operating on platform-type business models,” noted Brandeis University Heller School Dean David Weil in an interview with The New York Times in March.
But the Labor Department’s classification came in the form of an “opinion letter” that only applies to the unnamed company seeking guidance and clarity, meaning the jury is still out on exactly how to classify the estimated 57 million Americans said to be participating in the gig economy.
California Trucking Weighs In
State governments are grappling with this debate, too.
This week, reports in Capital Public Radio in California noted a legislative proposal that would classify independent truckers as employees, not as contractors — the opposite of what the Labor Department stated in its opinion. A legislative proposal, Assembly Bill 5, may require truckers to establish an independent business and contract with larger trucking companies.
“I think in the end we’re going to come up with an opportunity for truckers to either be employees or truly small businesses,” said Assemblywoman Lorena Gonzalez, according to CPR. “But we are not going to give a carveout to an industry that has systematically and continually misclassified workers.”
“Trucking companies have done everything to avoid treating employees as employees,” she added.
Gonzalez noted that the classifications would not apply to major gig economy companies like Uber and Lyft, whose drivers are classified as contractors.
Freight Firms Fight Back
According to CPR, the trucking industry has relied on truckers as independent contractors in order to bear the ebbs and flows of supply chain inconsistency, hiring truckers only when needed or for specialized work.
Trucking companies in California say the proposal under Assembly Bill 5 is likely to lead to supply chain disruptions.
“Just imagine if that segment of the industry [did not] have that flexibility to be independent and haul and truck for various parts of the good movement chain,” said California Trucking Association (CTA) CEO Shawn Yadon. “It has that type of a dramatic impact on the industry — and really on the economy.”
The CTA saw its appeal rejected by the U.S. Supreme Court earlier this year after it challenged that classification of truckers as employees, which would require firms to adhere to minimum wage and other labor laws.
CPR noted that industry truckers have testified at state committee hearings against the bill, with Gonzalez telling reporters that lawmakers and industry players will likely negotiate on the matter.
The outcome could have broader implications for worker classification in California, with professionals in a range of industries including healthcare and franchise business owners petitioning for an exemption from having professionals be classified as employees. Exemptions have already been secured for professionals in the hair styling, law and dentistry industries, among others, reports said.
Reports also noted the proposal of a third category of professional that offers the flexibility of a contractor with the benefits of an employee like guaranteed protections, though labor unions and lawmakers have not reached a consensus on this.