Skip to main content

Submission to US Department of Labor Re: Independent Contractor Status under Fair Labor Standards Act

Cheryl Stanton

Administrator, Wage and Hour Division

US Department of Labor

200 Constitution Ave., NW

Washington, DC 20210

 

Re: RIN 1235-AA34, Independent Contractor Status under the Fair Labor Standards Act

 

Dear Ms. Stanton,

We write to express our deep concern with the proposed rule[1] issued by the United States Department of Labor (DOL) that interprets the Fair Labor Standards Act (FLSA) in a way that could make it harder for on-demand workers to be classified as employees.[2] This proposal would give employers and corporations more leeway in classifying gig workers as independent contractors, thereby allowing them to pay below minimum wages, avoid paying overtime or providing workers’ compensation insurance, and avoid paying a share of Social Security taxes and contributions to unemployment insurance.

Under the current US labor regulatory regime, gig workers classified as contractors are afforded few of the rights given to employees. Employee status confers to workers a host of labor rights and protections hard-won by the labor movement beginning in the 19th century.[3] Independent contractor status does not confer those rights and protections. They are not covered by federal minimum wage and overtime wage laws. They do not typically qualify for unemployment insurance or for workers’ compensation, the main form of recourse for workers who get sick or injured on the job. Labor protections are crucial to protect workers from exploitation, and from falling into poverty. Inappropriately classifying gig workers as independent contractors thus renders them more vulnerable to economic insecurity, workplace mistreatment, and physical harm. Making it more difficult for gig workers to access basic protections such as paid sick leave or minimum wage is particularly egregious in the midst of the Covid-19 pandemic and economic uncertainty.

The proposed rule announced on September 22, 2020 would further narrow the test of whether a worker qualifies for employee status.[4]

Under the FLSA, multiple federal courts of appeals have held that a worker is an employee if they are “economically dependent” on the employer and an independent contractor if they are “really in business for him or herself.”[5] The finding of economic dependence depends on six factors: (1) the nature and degree of the employer’s control; (2) the worker’s opportunity for profit or loss; (3) whether the work is an integral part of the employer’s business; (4) the amount of the worker’s investment in equipment and facilities; (5) the need for special skill or initiative; and (6) whether the relationship between the worker and the employer is permanent.[6]

In 2017, the DOL revoked 2015 guidance[7] adopted under the administration of President Barack Obama, which suggested that, under this test, many gig workers would meet the criteria for employment status.[8] The 2015 guidance reasoned that gig workers could still be employees even if they set their hours and were not directly supervised. Although gig workers could work more hours to increase their income, this was not unique to independent contracting. In contrast, gig workers were less likely to increase opportunity for profit by exercising “managerial skill,” such as hiring their own workers or advertising their services—a hallmark of independent contractor status. 

The proposed rule would alter the framework and focus on two core factors above all others: (1) the extent to which a company controls how a worker performs a job,[9] and (2) the opportunity that a worker has for profit or loss.[10] This is problematic for the following reasons:

Nature of employer control

The proposed rule would place significant emphasis on the extent to which an employer controls how a worker performs their job, such as whether they choose assignments, work with little supervision, or work with the employer’s competitors. But this interpretation of the control factor potentially omits other ways that gig companies control their workers, such as the ways in which they unilaterally change the formula for calculating base earnings,[11] the setting of default tip options,[12] and restrictions on the range of assignments that are offered to workers at a specific time or in a specific locale. 

Opportunity a worker has for profit or loss

The proposed rule would also be more likely to classify workers as independent contractors if they have the opportunity to profit in the job based on “personal initiative,” or through capital investments such as hiring helpers or buying equipment. But this narrow focus on profit or loss overlooks the precarious financial realities of gig work that make gig workers economically dependent on their employers. 

Human Rights Watch has investigated the impacts of misclassification of app-based food and grocery delivery workers.[13] We have found that the lack of minimum wage protections has enabled some gig companies to introduce black box algorithms to calculate workers’ base pay. Even though these algorithms determine a critical component of workers’ wages, companies are often secretive about how they work, all the factors involved, and how these factors are weighted in the final calculation of base pay.[14]

The introduction of these algorithms has also been linked to significantly lower earnings for a large proportion of workers, sometimes driving earnings below the minimum wage.[15] Workers in California have told us that after accounting for work-related expenses (such as car maintenance, gas, PPE, and a mobile phone and plan) the average hourly pay they received was below the local minimum wage.

DOL’s proposed rule would fail to take into account these challenges, which demonstrate the significant authority that gig companies exercise in setting the terms of how much workers are permitted to earn or stand to lose, whether from each gig or over a period of work. This omission distorts the analysis of the opportunities for profit or loss available to gig workers, and the effort they are forced to exercise to maximize these opportunities in order to make ends meet.

Reducing the determination of employment status to these two factors is therefore problematic because it represents an incomplete and flawed picture of the employment relationship between gig workers and companies.

Human rights impact of proposed rule

The number of people considered gig workers has been growing over the last decade,[16] meaning more people would be affected by the proposed rule, and would be working without basic protections, undermining their rights to an adequate standard of living and safe and healthy working conditions.[17]

In addition to introducing black box algorithms that lead to unpredictable fluctuations and reductions in pay, gig companies have shifted to workers the risk of long wait times between requests, unemployment, the healthcare and other costs associated with getting injured on the job, and risks for slowdowns. But workers individually are not in a position to bear these risks.

For example, workers have struggled financially after getting hurt while delivering groceries, due to the lack of workers’ compensation.[18] Without guaranteed paid sick leave, workers are also at the mercy of company policies that establish unduly burdensome requirements for eligibility. The Covid-19 paid sick leave policy introduced by the online grocery company Instacart in March 2020 required a positive Covid-19 test result or a mandatory quarantine order by a public health agency, which were difficult for workers to obtain early on in the pandemic.[19] As a result, at least one worker we interviewed continued to work for the platform despite having Covid-19 symptoms because she was unable to qualify for the policy. Even though Instacart relaxed its policy requirements in June, this problem would have been avoided if workers were classified as employees and had guaranteed paid sick leave from the outset.[20]

The coronavirus pandemic has highlighted the shortcomings of a system where certain workers are deprived of unemployment benefits because they do not have employee status. To deal with the surge of people out of work and to prevent people from falling into poverty, Congress passed the CARES Act in March 2020, which deemed gig and self-employed workers eligible, for the first time, for unemployment funds. The proposed rule would be at odds with the government’s recognition that gig workers require basic labor protections, such as unemployment insurance.[21] 

We would also like to express our support of other organizations that requested the Department of Labor to extend the comment period for responding to the Notice of Proposed Rulemaking for at least thirty additional days.[22] The Department has given at least 60 days for notice and comment for most of its proposed regulations and interpretive rules coming out of the Wage and Hour Division. Given the high stakes and importance of the topic covered by this independent contractor interpretive rule, a 60-day comment period should be a minimum allowance.

While employment status alone does not solve all the concerns that gig workers raise, it is crucial to protect workers from exploitation and prevent them from experiencing severe financial hardship as companies change pay algorithms or as workers get injured or sick on the job. We are deeply concerned about the proposed rule’s impact on people’s right to an adequate standard of living. Human Rights Watch calls on the Department of Labor to withdraw this proposal, which harms the workers who should be at the center of the DOL’s mission.

We would be happy to provide additional information, and also welcome the opportunity to further discuss this issue with representatives from your agency. If you would like to arrange such a meeting, please contact Namratha Somayajula (somayan@hrw.org).

 

Sincerely,

 

Lena Simet

Senior Researcher and Advocate

Poverty and Inequality

 

Amos Toh

Senior Researcher and Advocate

Artificial Intelligence and Human Rights

 

 

[1] Proposed Rule: Independent Contractor Status Under the FLSA, 29 CFR Parts, 780, 788, and 795, US Department of Labor Wage and Hour Division, https://www.dol.gov/agencies/whd/flsa/2020-independent-contractor-nprm (accessed October 26, 2020).

[2] Independent Contractor Status Under the Fair Labor Standards Act, US Department of Labor Wage and Hour Division, September 25, 2020, https://beta.regulations.gov/document/WHD-2020-0007-0001 (accessed October 26, 2020).

[3] National Employment Law Project, Rights at Risk: Gig Companies’ Campaign to Upend Employment As We Know It (New York: NELP, 2019), https://www.nelp.org/publication/rights-at-risk-gig-companies-campaign-to-upend-employment-as-we-know-it/ (accessed October 26, 2020).

[4] “US Department of Labor Proposes Rule to Clarify Employee and Independent Contractor Status Under the Fair Labor Standards Act,” US Department of Labor news release, September 22, 2020, https://www.dol.gov/newsroom/releases/whd/whd20200922 (accessed October 26, 2020).

[5] Independent Contractor Status Under the Fair Labor Standards Act, sec. II(B)(2) (accessed October 26, 2020).

[6] “Fair Labor Standards Act Advisor,” US Department of Labor, https://webapps.dol.gov/elaws/whd/flsa/scope/er14.asp (accessed October 26, 2020).

[7] Administrator’s Interpretation No. 2015-1 re: The Application of the Fair Labor Standards Act’s “Suffer or Permit” Standard in the Identification of Employees Who Are Misclassified as Independent Contractors, July 15, 2015, http://www.constangy.net/nr_images/usdol-administrators-interpretation-davis-weil-no2015-1-fl-c1.pdf (accessed October 26, 2020).  

[8] Benjamin Sachs, “New DOL Guidance on Employee Status: News for Uber or Lyft?” OnLabor, July 15, 2015, http://www.onlabor.org/new-dol-guidance-on-employee-status-news-for-uber-or-lyft/#more-5299%20- (accessed October 26, 2020).

[9] Independent Contractor Status Under the Fair Labor Standards Act, sec. IV(D)(1) (accessed October 26, 2020).

[10] Independent Contractor Status Under the Fair Labor Standards Act, sec. IV(D)(2) (accessed October 26, 2020).

[11] Veena Dubal and Sanjukta Paul, “Law and the Future of Gig Work in California: Problems and Potentials (Part 1),” OnLabor, September 9, 2020, https://www.onlabor.org/law-and-the-future-of-gig-work-in-california-problems-and-potentials-part-1/ (accessed October 26, 2020).

[12] Kim Lyons, “Instacart Workers are Organizing a National Boycott to Reinstate a Default 10 Percent Tip,” The Verge, January 13, 2020, https://www.theverge.com/2020/1/13/21064108/instacart-workers-organizing-tip-protest-delivery-default (accessed October 26, 2020).

[13] Lena Simet and Amos Toh (Human Rights Watch), “Grocery App Workers’ Rights Are Under Siege,” commentary, WIRED, October 1, 2020, https://www.wired.com/story/opinion-grocery-app-workers-rights-are-under-siege/. 

[14] “California: Proposition 22 Threatens Gig Workers’ Rights,” Human Rights Watch news release, October 15, 2020, https://www.hrw.org/news/2020/10/15/california-proposition-22-threatens-gig-workers-rights.

[15] “Data Shows Shipt’s ‘Black-Box’ Algorithm Reduces Pay of 40% of Workers,” post to “Coworker” (blog), October 15, 2020, https://home.coworker.org/data-shows-shipts-black-box-algorithm-reduces-pay-of-40-of-workers/ (accessed October 26, 2020).

[16] Greg Iacurci, “The Gig Economy Has Ballooned by 6 Million People Since 2010. Financial Worries May Follow,” CNBC, February 4, 2020, https://www.cnbc.com/2020/02/04/gig-economy-grows-15percent-over-past-decade-adp-report.html (accessed October 26, 2020).

[17] Elka Torpey and Andrew Hogan (US Bureau of Labor Statistics), “Working in a Gig Economy,” Career Outlook, May 2016, https://www.bls.gov/careeroutlook/2016/article/what-is-the-gig-economy.htm (accessed October 26, 2020).

[18] Simet and Toh, “Grocery App Workers’ Rights Are Under Siege,” WIRED.

[19] Human Rights Watch Letter to Apoorva Mehta, Founder and CEO, Instacart, Re: Instacart Policies on Independent Contractors,” September 16, 2020, https://www.hrw.org/news/2020/09/16/letter-instacart-re-policies-independent-contractors.

[20] Ibid.

[21] “Unemployment Insurance Relief During Covid-19 Outbreak,” US Department of Labor, undated, https://www.dol.gov/coronavirus/unemployment-insurance (accessed October 26, 2020).

[22] Submission from National Employment Law Project to Director of the Division of Regulations, Legislation and Interpretation, Wage and Hour Division, US Department of Labor, “Re: RIN 1235-AA34, Independent Contractor Status Under the Fair Labor Standards Act,” September 25, 2020, https://beta.regulations.gov/comment/WHD-2020-0007-0004 (accessed October 26, 2020).

Your tax deductible gift can help stop human rights violations and save lives around the world.