[US] CARES Act May Cause A Shift In Gig Economy Employment Law

22 APR 2020

In 2019, the state of California enacted A.B. 5, controversial legislation intended to make it more difficult for businesses to classify workers - including those working within the gig economy - as independent contractors, Law360 details the new law and its wider implications.

The new law came into effect on January 1, it codifies and expands use of the so-called ABC test in California to differentiate between employees (who are entitled to certain benefits and other protections under the law) and independent contractors (who generally are not).

Worker classification has long been a polarizing issue and A.B. 5, along with the continuing growth of the gig economy, only intensified the debate. Businesses from several industries mounted challenges to the statute in court after California Governor Gavin Newsom signed the bill into law. And lawmakers have since introduced a number of bills looking to amend or repeal the law outright.

Other states may soon follow suit, regardless of the backlash in California. New Jersey had already considered similar legislation in 2019, Illinois and New York are expected to do so in the next year.

The motivation behind legislation like A.B. 5 is clear: extending the protections of various labour and employment laws - such as the right to earn minimum wage and overtime, and to collect unemployment insurance benefits - to as many workers as possible. But for many workers and small businesses, the legislation could do more harm than good. 

As the US Department of Labor acknowledged in an April 2019 opinion letter, the gig economy presents workers with singular entrepreneurial opportunities, including the right to simultaneously work on multiple different platforms; to work as much (or as little) as they want; to dictate when, where and how often they work; and to accept, reject and select among the job offers they receive.[1]

As many employees would likely attest, this level of autonomy is irreconcilably inconsistent with an employer-employee relationship. And for many workers, it is precisely the reason they choose to provide services as independent contractors, rather than work in a traditional employment setting.

The coronavirus pandemic has increased the tension between parties on both sides of the debate over worker classification. 

On March 26, for example, the New York State Court of Appeals reinstated a finding from the Unemployment Insurance Appeals Board holding that couriers who complete deliveries arranged through Postmates Inc.'s online platform are employees of Postmates, and as such, are entitled to unemployment insurance benefits under New York state law.[2] 

Although the Court of Appeals did not mention the coronavirus pandemic in its decision, the New York Attorney General's Office issued a press release noting that the ruling is "particularly relevant today as New Yorkers and Americans across the nation battle the coronavirus disease 2019 ... which has resulted in many workers losing their jobs and turning to unemployment insurance benefits to make ends meet."[3]

In most jurisdictions, courts and government agencies view a business’s extension of benefits (e.g., paid leave, medical insurance, retirement benefits, etc.) to independent contractors as strong evidence of employee status. Accordingly, although businesses may want to provide greater assistance to independent contractors who use their platforms, some may be reluctant to do so solely because of the current legal framework, which many believe has not yet adapted to the modern workplace.[4]

The Coronavirus Aid, Relief, and Economic Security, or CARES, Act, which President Donald Trump signed into law on March 27, could provide insight into how US labour and employment law, as applied to the gig economy, might evolve. 

Notably, the CARES Act provides for enhanced unemployment benefits for both employees and independent contractors. Among other things, the Act establishes a pandemic unemployment assistance program, which provides up to 39 weeks of unemployment insurance benefits to workers not otherwise eligible for unemployment compensation, including independent contractors and self-employed individuals, who are unable to work because of COVID-19.

Although the program is temporary, the CARES Act provides independent contractors and other self-employed individuals with a safety net during the pandemic, without jeopardizing their independence and autonomy. 

Voters in California will have an opportunity to nudge California law in a similar direction later this year. In October 2019, a coalition of businesses and drivers announced a ballot initiative designed to preserve certain gig economy workers’ independence, and establish earnings and benefit guarantees.[5] The initiative, known as the Protect App-Based Drivers & Services Act, will likely appear on the California ballot in November. 

Under the proposal, certain app-based transportation and delivery drivers would necessarily qualify as independent contractors under California law, so long as they retain certain freedoms, such as the right to control the days and times at which they make themselves available to perform services.

Notwithstanding their independent contractor status, covered drivers would be entitled to various benefits, including 120 per cent of the minimum wage, 30 cents per mile for automobile expenses (e.g., fuel, and vehicle wear and tear), health care stipends, occupational accident insurance, automobile accident and liability insurance, and protection against discrimination and sexual harassment. In other words, if approved, the initiative would both preserve workers’ independence and guarantee their entitlement to certain benefits. 

The prospect of extending benefits to independent contractors is not a new concept, and lawmakers in multiple jurisdictions proposed bills with similar objectives long before the coronavirus pandemic. However, the pandemic - and the federal government’s decision to temporarily extend unemployment insurance benefits to independent contractors through the CARES Act - may accelerate the rate at which businesses and lawmakers around the country explore alternative approaches to the traditional framework in their respective jurisdictions.

Accordingly, both businesses and workers - many of whom place a premium on the autonomy and entrepreneurial opportunities available to them in the gig economy - should be mindful that change could be on the horizon.

Source: Law360

(Links and additional notes via original reporting)

[1] See U.S. Department of Labor, Wage and Hour Division, Opinion Letter FLSA 2019-6 (April 29, 2019).

[2] See Matter of Vega (Postmates Inc. – Commissioner of Labor), 2020 NY Slip Op 02094 (NY Ct. App. March 26, 2020).

[3] See https://ag.ny.gov/press-release/2020/attorney-general-james-scores-major-win-gig-workers-victory-postmates-case.

[4] For example, the dissenting opinion in Matter of Vega acknowledged that “[w]e need a clear understanding, comprehending the modern realities of our rapidly evolving economy, of who should be an employee and who an independent contractor, including whether work relationships should continue to be measured on that dichotomy. It is past time for the law to reexamine the definition of work and its application to different forms of entitlement and obligation.”

[5] See https://protectdriversandservices.com/.