The Biden Administration Should Look to Virginia Democrats For a Better Way to Help Gig Workers
Earlier this month, the Department of Labor issued its long-awaited rulemaking on independent contractors. Under the new rule, it will be more difficult for those in the gig economy, as well as other independent workers, to classify as contractors. The Biden administration argues that reclassifying contractors as employees can ensure workers have the workplace protection and benefits they deserve. While this may be a noble intention, it stands to hurt both workers and employers. Democrats in Virginia have a better idea—if their labor union allies allow it.
The debate over worker classification kicked off with a 2018 state supreme court decision in California, followed by a state assembly bill known as A.B. 5, which had the effect of reclassifying most independent contractors in the Golden State as full-scale employees. This January, the Biden administration’s Department of Labor followed suit by issuing a regulatory rulemaking to change how independent contractors are classified.
The new rule, which reverses a Trump-era rule that was more protective of independent contractors, uses multiple factors to determine whether a particular worker is an independent contractor or not. Based on the criteria included in the rule, it will likely result in many losing their contracting status. For instance, if a worker performs tasks that are an “integral part” of the employer’s business, that would suggest they should be classified as an employee under the new rule. This small change will affect jobs as diverse as real estate agents and rideshare drivers to freelance writers—all of whom are contractors engaged in integral functions of the businesses with which they are associated.
The cost to businesses of reclassifying contractors as employees is well-documented, but most workers also do not want to give up their contracting status. What workers want more than anything in today’s job market is flexibility—even more than salary increases or expansive benefits—and being an independent contractor allows them to set their own schedule and have their own autonomy. That’s why fewer than 1 in 10 contractors want a more traditional employment relationship and nearly 80 percent want to remain as contractors. The experience in California should also act as a cautionary tale, as recent empirical research shows that both self-employment and overall employment declined in the state after A.B. 5’s passage.
Given both the costs of reclassification and the reality that it flies in the face of what workers actually want, altering independent contractor status is a lose-lose proposition. If the lack of workplace protections and benefits is the motivation behind reclassifying workers, there are nimbler and better ways to do this. A recent bill introduced by Democrats in Virginia shows how.
The legislation would preserve contracting status for those who are classified as contractors, meaning efforts to reclassify these workers as employees would be off the table. But it would also create what are known as portable benefit accounts in which employers would contribute a set percentage of funds that could also be supplemented by pre-tax contributions from independent contractors themselves. These funds would be portable in the sense they would follow contractors from job to job, and they could be put toward things like paid sick leave, unemployment insurance, health insurance, and more.
The concept of coupling the protection of contracting status with a flexible benefits system is an idea that also should appeal to right-leaning policymakers. That’s because such an approach not only helps businesses, but stands to benefit workers by preserving the entrepreneurial flexibility they desire as independent contractors. In addition to this flexibility, it likewise provides workplace protections and benefits that can help these workers weather the exigencies of life—all without the harmful negative impacts of widespread worker reclassification.
According to our sources, local Virginia labor unions initially expressed interest in this Democrat-introduced portable benefits model, only to catch flak from their national parent organizations who pressured them to reverse course. Unfortunately, the influence of the national labor brass appears to have doomed the bill for now, although its mere existence suggests that Democratic lawmakers are starting to buck the party’s consensus on worker reclassification.
If the Biden administration truly wants to help protect workers, it should look 100 miles South to its fellow party members in the Old Dominion—and it should finally stand up to its labor union backers.