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Policy / Digital economy

Biden administration ready to take on gig economy companies

The likes of Uber and Lyft could soon face greater regulation in the US, but they are unlikely to accept it without a fight.

US labour secretary Marty Walsh sent shock waves through gig economy companies when he announced that gig workers should be classified as employees in “a lot of cases”. The shares of Uber and Lyft tumbled by a combined market value of more than $20bn in response. But will Biden’s administration really go after gig economy giants?

US labour secretary Marty Walsh sent shock waves through the gig economy when he announced gig workers should be classified as employees in ‘a lot of cases’. (Photo by Alex Wong/Getty Images)

Uber was recently forced to reclassify its drivers as “workers” in the UK, a designation that entitles them to benefits such as holiday pay and pension contributions. In the US, it’s a different story. Late last year, a group of gig economy platforms – including Uber and Lyft – undertook a massive PR campaign in California that is credited with pushing through Prop 22, a law that allows the companies to avoid classifying workers employees in the state.

Uber plans to use this as a blueprint to push similar legislation across the US, but there are signs that the Biden administration is going to be less hospitable than Trump’s government towards gig economy companies. 

Biden and the gig economy: what will the US government do?

“Walsh is a cautious guy who doesn’t court headlines and has a close relationship with Biden,” says professor John Logan, director of labour and employment studies at San Francisco State University. “It’s clear he would only have said [his comments] with the blessing and encouragement of the White House.” 

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Another danger sign for the gig economy is that Biden has appointed David Weil to the wage and hour division at the Department of Labour, which deals with the issue of worker misclassification and enforcement of the Fair Labor Standards Act. “Professor Weil has been a staunch critic of the underpayment of workers by these companies and has even indicated that Prop 22 may violate federal law,” says Veena Dubal, professor of law at the University of California.

Weil has spoken out in favour of state laws limiting worker misclassification in California and Massachusetts. He led the wage and hour division in Obama’s Department of Labor too, and “his choice suggests that tackling misclassification is a priority for the Biden administration,” says Logan.  

The new administration has rolled back a Trump-era gig contractor rule that would have made it easier for companies to classify workers as independent contractors too. The Department of Labor said the rule was “in tension” with the text and purpose of the Fair Labor Standards Act.

The PRO Act, legislation that is currently being considered by the Senate, represents another regulatory threat to the gig economy. The act would establish an “ABC” test to determine whether workers are employees or not, dependent on whether they conduct work that falls out of the “usual course” of the company’s business. But although it passed the House, the PRO Act still faces an uphill struggle in the Senate, says Logan. It would require the suspension of the filibuster, and even then, three Democratic senators still oppose the legislation and would need to sign on for it to come to a vote.

The question is what the Biden’s team will do next? Walsh is planning meetings with gig economy companies in the coming months, but it is not yet clear what these will entail.  “The Department of Labor has signalled that they are ready to take the necessary steps to stop the misclassification of low-wage workers via so-called gig companies,” says Dubal. “I think that we can expect that the department will initiate investigations into these companies on how much workers are paid.”

I think that we can expect that the department will initiate investigations into these companies on how much workers are paid.
Veena Dubal, University of California

These probes could yield sanctions for Uber and its counterparts, but investigations into gig economy companies can be lengthy and resource-intensive. Other possible routes for the department include trying to amend the Fair Labor Standards act to give legislative backing to its position, which could prove difficult given the balance of the Senate, or even to issue a new rule to replace the rescinded Trump rule, which was due to come into effect 1 May, says Logan. 

The replacement rule could define most workers as employees, in accordance with a 2015 guidance document produced by Weil when he was the Obama admin’s wage-hour chief. 

Get ready for the fightback

The challenge for legislators is that the gig economy companies are going on the offensive themselves, buoyed by the Prop 22 win, where they “essentially spent $200m to buy their own labour law”, says Logan. “[They] are not waiting around to find out what the Biden administration will do on this”. The companies argue that changing their business model to designate workers as employees would push up prices for customers and offer fewer and less flexible jobs for workers.

The UK case shows that under pressure, Uber will capitulate and reclassify its drivers as employees (although it will still wrangle over what exactly this entitles them to). But gig economy companies fiercely resist taking on new legal and economic responsibilities. “They have stepped up their lobbying enormously at both the state and federal levels, and will likely fight this to the bitter end,” says Logan.

Laurie Clarke

Senior reporter

Laurie is a senior reporter at Tech Monitor.