Lawsuit seeks to preserve employment freedom for independent workers

As was expected, the Biden administration formally killed a Trump-era rule on the definition of independent contractors under the Fair Labor Standards Act. On March 11, the Wage and Hour Division (WHD) of the Department of Labor announced it was withdrawing the rule, which was initially passed in the last few months of the Trump administration. While the new administration offered no immediate replacement for the rule, legislation passed in the U.S. House on March 9 offered a glimpse as to where the Democrats are heading.

For gig workers and the broader retail industry that relies on those workers for on-demand delivery of online orders, it may not be an appealing place. At least as envisioned.

In an interview with Modern Shipper, Evan Armstrong, vice president of workforce for the Retail Industry Leaders Association (RILA) and a spokesperson for the Coalition for Workforce Innovation (CWI), said the goal of a new lawsuit is to rescind the rule, but also to challenge the Biden administration to put forth a rule that meets the dynamics of the modern workforce.

“There is an opportunity to work collaboratively and in a forward-thinking way and we are actively having those conversations with members of both sides of the aisle,” Armstrong said.

Political motivations

CWI believes the Biden administration rescinded the rule simply for political reasons, which is not a justification for rescinding a final rule, Armstrong added, noting there is a process for regulations and CWI believes it wasn’t followed in this case.

Read: Biden administration kills Trump rule on independent contractor classification

“They moved very quickly to rescind the final rule,” Armstrong said.

CWI has joined a lawsuit filed by the Associated Builders and Contractors of Southeast Texas and the Associated Builders and Contractors against the Department of Labor to prevent the Biden administration from delaying implementation of the “Independent Contractor Status Under the Fair Labor Standards Act” final rule issued by the Trump administration.

The suit claims the Biden administration violated the Administrative Procedure Act, which sets forth certain protocols for creating and rescinding rules. Armstrong said in this case, the administration did not provide a justification for removing the rule, and has offered no alternative.

Biden’s DOL, in essence, would rescind the Trump administration’s rule that made it easier for companies to claim workers were independent contractors and not employees. The Trump-era rule was issued and finalized between Sept. 25, 2020, and Jan. 7, 2021. The Biden DOL said the Trump rule was inconsistent with the standards set by the Supreme Court and federal wage and hour laws. Comments on the new rule were due by Monday.

There is an opportunity to work collaboratively and in a forward-thinking way and we are actively having those conversations with members on both sides of the aisle.

Evan armstrong, vice president of workforce for the retail industy leders association and a spokesperson for the coalition for workforce innovation

The suit argues the delay is “arbitrary, capricious and contrary to procedures required by law,” noting DOL failed to provide a meaningful comment period or offer substantive justification for enacting the delay. It wants the court to halt action on the new proposed rule and restore the previous rule, effective March 8, the original date.

The lawsuit described the comment period for the Biden rule as too brief. “The department enacted the delay rule following a comment period of only nineteen days, during which the department considered only comments discussing postponing the Independent Contractor Rule’s effective date. … Courts have determined that agencies act arbitrarily and capriciously when enacting rules following similarly short and restrictive comment periods in the absence of good cause,” the suit said.

The suit also claims that the Biden administration rule “mischaracterized the independent contractor rule as adopting a ‘new legal standard,’ … when in reality, the independent contractor rule retains the long-standing ‘economic reality’ test for determining employee or contractor status.”

The PRO Act

The court battle is not the only front on which CWI is fighting. The group, which counts a cross-section of businesses and organizations among its members, including the Associated Builders and Contractors, the American Trucking Associations, America’s Newspapers, Amway, Customized Logistics and Delivery Association, Direct Selling Association, Kelly Services, Lyft, National Home Delivery Association, Postmates, and Uber, is also pushing back against the Protecting the Right to Organize Act (PRO Act).

The House passed the PRO Act on March 9 by a vote of 225-206. The legislation, which is expected to have trouble garnering the necessary 60 votes to pass in the Senate, would codify California’s ABC test for defining independent workers. The law would impact everybody from independent truck drivers to Uber drivers. In California, the ABC test affects the status of all independent contractors except those who have a carve-out either through legislation or through the Prop 22 vote on Election Day that exempted delivery drivers from companies such as Uber and Postmates. 

Armstrong, acting in his RILA capacity, urged the Senate to ignore the PRO Act in a statement at the time.

“The PRO Act puts the interests of politically connected organized labor over workers, employers and the economy. It is a return to antiquated thinking about work and no amount of amendments for government studies will alter that fact. Ultimately, the bill only seeks to prop up unions at the expense of employee rights, worker protections, innovation, and growth. Instead of working to find common ground between employers and workers and encouraging collaboration the legislation further exacerbates the parties and inserts barriers for compromises,” he said on March 9.

Outdated labor laws

CWI believes that workplace and labor laws in the U.S. have failed to keep up with the changing dynamics of a modern economy. The group attempts to educate policymakers on the benefits of independent work and supports policies that empower “individuals to choose nontraditional work arrangements.”

The organization has conducted surveys of gig workers to gather their insights on their jobs. A CWI survey in January 2020 found that 69% of gig workers worked full time, 46% considered it a long-term opportunity and an additional 39% said it was a lifestyle choice. A full 91% said they would continue in their current independent work arrangement for the next six months. Additionally, 94% said they were very satisfied or somewhat satisfied with their work arrangements.

It is these workers whom CWI is trying to protect, ensuring they maintain the flexibility they crave. The survey found that 21% liked being their own boss and an additional 18% preferred the work flexibility freelance or gig work provided.

“[In] poll after poll you see independent workers support that they [want to] choose how they want to work,” Armstrong said, pointing to the success of Prop 22 in California.

If the CWI-backed lawsuit is successful, it will send the Biden administration back to the drawing board, where CWI and others can perhaps have more input in crafting a “commonsense, forward-looking solution” to the future of work, Armstrong said.

That is important when considering what the next generation of workers is looking for in careers. A RILA and ManPower Group survey, Fully Stocked: Alternative Workforce Models for Retail, found that 46% of Generation Z workers are freelancers. “And as more Gen Zers come of age in the workforce, that number is only projected to grow. Gig work is easy for them to find and manage through the portal they rely on most: their smartphones,” the report noted.

The report further noted 80% of potential retail workers would prefer non-full-time work to allow for time to study, take another job or be with family.

Consumer demands

A separate report from RILA and McKinsey & Co. noted that 90% of consumers now see order fulfillment within two or three days as table stakes, with 30% expecting same-day delivery. The stress that places on the supply chain without the flexibility of gig workers who can scale workforces on demand is tremendous. The report cites the need of retailers to augment their workforce, including by expanding “their talent pool for hourly and frontline associates by tapping into on-demand labor models such as the gig economy.”

If allowed to stand, the Biden administration rule could disrupt this growing and important part of e-commerce fulfillment. It could also upend the overall gig economy in which nearly 60 million Americans participate, according to data from the Small Business Labs, Gallup, Statista and Upwork. The data, released in February, found that for 29% of Americans, an alternative work arrangement is their primary job.

Gig workers are also more likely to be satisfied in their jobs, according to Statista. The firm found 47% of gig workers were satisfied with their working hours compared to just 34% of workers in traditional jobs.

Read: Prop 22 wins in California; takes Uber, Lyft and other drivers out from under AB5

The fate of the lawsuit is uncertain, but Armstrong is confident CWI will prevail. When President Donald Trump took office, his administration tried to undo an Obama-era regulation finalized in late 2016 that required the Equal Employment Opportunity Commission (EEOC) to not only collect employee data on job categories by sex, race and ethnicity, but also ordered it to collect pay data. A lawsuit that lasted until March 2019 finally settled the issue with the plaintiffs winning, reinstating the Obama rule.

In writing about the decision by Judge Tanya S. Chutkan of the U.S. District Court for the District of Columbia, law firm Fisher Phillips said the government “could not demonstrate that any relevant circumstances warranting the action had occurred between the time the proposed rule was finalized and the time the revisions were cast aside. And although the OMB (Office of Management and Budget) indicated that it did not believe the public had ample opportunity to review the proposals and offer meaningful comment, Judge Chutkan rejected this argument as ‘misdirected, inaccurate, and ultimately unpersuasive.’”

Writing for legal website JDSupra, Fisher Phillips’ Richard Meneghello says it could be a year or more before the current CWI suit is settled. It’s likely to be even longer before the future of work is decided.

Click for more Modern Shipper articles by Brian Straight.

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