On May 6, 2021, an extraordinary op-ed ran in the pages of the Washington Post, originally entitled “As a CEO, I want my employees to understand the risks of not returning to work in the office.” (The headline was later changed to a less threatening statement.) The author was the CEO of Washingtonian Media and in her article she very publicly threatened employees who hesitated about returning to work in the office with reclassification (or, rather, misclassification) from employee to independent contractor status. She explained that reclassification was appropriate because “about 20 percent of every office job is outside one’s core responsibilities—‘extra.’ It involves helping a colleague, mentoring more junior people, celebrating someone’s birthday—things that drive office culture.” Therefore, she concluded,
If the employee is rarely around to participate in those extras, management has a strong incentive to change their status to “contractor.” Instead of receiving a set salary, contractors are paid only for the work they do, either hourly or by appropriate output metrics. That would also mean not having to pay for health care, a 401(k) match and our share of FICA and Medicare taxes—benefits that in my company’s case add up roughly to an extra 15 percent of compensation.
After the Washingtonian Media staff responded by not publishing the following day, the CEO released a public statement stating that there would be no changes to benefits or employment status. However, what the Washingtonian CEO did not comprehend is that the choice of whether to classify a worker as an employee or independent contractor was not hers to make based simply on whatever factors she deemed important. And despite what it might add to office culture, the sharing of sheet cake with coworkers is not actually a factor in determining employment status. The Washingtonian affair showed just how much confusion there often exists over the classification of workers, even among executives who are responsible for such decisions.
Whether a worker is classified as an employee or independent contractor (or freelancer, which is simply another term for independent contractor) can have enormous financial and legal impacts for the worker and employer alike. As opposed to an employee, an independent contractor is not guaranteed minimum wage or overtime; cannot receive unemployment if laid off or workers’ compensation if injured on the job; gets no protection from discrimination in the workplace; gets no employer contribution to Social Security or Medicare; and cannot organize with other workers to form a union and collectively bargain for better terms and condition of employment. Employers, therefore, can save money and reduce their legal risk if their workforce is classified as independent contractors instead of employees—leading many companies to misclassify their workers in order to maximize profits.
The Size of the Problem
While the Washingtonian Media debacle concerned writers, the practice of worker misclassification is far more prevalent for those employed through app-based platforms—delivery drivers, grocery shoppers, day-laborers, and the like. The universe of workers who are classified as independent contractors through a coordinated effort by Silicon Valley to argue that app-based workers should not be classified as employees is large and growing, touching on so many areas of our daily lives: ridesharing drivers at Uber and Lyft; delivery drivers at Amazon Flex and Shipt; personal grocery shoppers and food delivery drivers at Instacart, Doordash, and Grubhub; and home services day laborers at TaskRabbit and Handy. These and many other companies are classifying their major workforces as independent contractors, and the list grows each day.
Just how much of America’s workforce is now misclassified as independent contractors is hard to calculate accurately, but it is significant. Depending on the definitions used, the estimates for how many workers engage in these sort of alternative work arrangements varies greatly. Using the Bureau of Labor Statistics Contingent Worker Supplement, economists Lawrence Katz and Alan Krueger estimated in 2016 that 15.8 percent of the workforce were “temporary help agency workers, on-call workers, contract workers, and independent contractors or freelancers;” whereas a survey by Upwork and the Freelancers Union in 2017 estimated that 36.3 percent of American workers were freelancers. Furthermore, a variety of studies have shown that between 10 percent and 30 percent of employers misclassify their workers as independent contractors—which would mean that millions of American workers are robbed of the wages, benefits, and rights they are owed each year.
The Worker Classification Maze
Despite the myriad legal and financial impacts that follow from whether one is classified as an employee or independent contractor, there is no single test to determine a workers’ status. Different states and different federal agencies have each developed and refined versions of a century-old, vague, and non-exhaustive list of ten factors, often referred to as the common law test. The U.S. Department of Labor has developed a non-exhaustive seven-factor test called the “economic reality test” to determine if a worker is an employee or independent contractor for purposes of determining if they are owed minimum wage, overtime, and other benefits of employment under the Fair Labor Standards Act. The Internal Revenue Service has developed a twenty-factor test to determine whether the worker is a contractor or employee for payroll and other tax purposes. Some courts have further used a hybrid method that combines elements from various tests to determine if a worker was an employee for purposes of being eligible for FMLA or protections under Title VII. Individual states have a variety of tests that they have used over the years. And the National Labor Relations Board (NLRB) has applied various tests over the years to determine whether a worker has the right to form a union and collectively bargain. Importantly, each governmental entity can only determine the employment status of a worker with regard to the statutes that it governs. This means that if the NLRB applies its test and determines that a worker is an employee under the National Labor Relations Act (NLRA) and can legally join a union, it has no bearing on whether the IRS, the Department of Labor, or a state would similarly determine that the worker is an employee.
The variety of tests used to determine employment status is enormously important, but it is not well known beyond the confines of employment lawyers, human resource professionals, accountants, and perhaps Silicon Valley, which has consistently been pushing the boundaries of classification in one direction. The ignorance of this area of law among the general public—and even among some legislators and government officials—has allowed employer groups to spread misinformation and confusion in order to kill legislation that would greatly benefit workers.
The PRO Act and Its Critics
Currently, the employer-driven misinformation campaign about worker classification has been aimed at the Protecting the Right to Organize (PRO) Act, which recently passed the House of Representatives. The PRO Act is one of the most ambitious and comprehensive attempts to fix labor law and fulfill some of the original promise of the National Labor Relations Act (NLRA). And, with near unanimous support from Democrats in Congress, and strong backing from the most pro-union president in decades, the PRO Act has a real—if uphill—chance of passage. Perhaps that is why big business groups and those intent on killing the bill have resurrected tactics they used successfully in killing previous labor reform bills and focused them now on a single provision—the PRO Act’s so-called Freelancer Provision—and started a misinformation campaign that argues that the provision hurts rather than helps workers. In a nutshell, these critics argue that the PRO Act will hurt freelancers because it will reclassify independent contractors as employees in all aspects of the law, when in reality the PRO Act only impacts labor law governed by the NLRA, and would not change the employment status of workers in any other realms of law. If the PRO Act were to be signed into law tomorrow, the only thing that would change for millions of American independent contractors is that they would be able to choose to work together to have a collective voice in their wages and terms and conditions of their work.
The limited domain of the PRO Act does not mean it would have little impact in improving workers’ prospects. The NLRA’s protection of the rights of workers to act in a concerted manner and collectively bargain only covers certain employees, therefore the fundamental question of whether a worker is an “employee” under the NLRA is of enormous consequence. Unfortunately, the NLRB and the circuit courts have applied vague tests that have changed depending on whether there is a Republican or Democrat in the oval office, thereby whipsawing workers from inclusion under labor law to outright exclusion.
In the seminal 1968 case, NLRB v. United Insurance, the Supreme Court held that when Congress passed the 1947 Taft-Hartley amendments to the NLRA that explicitly excluded independent contractors, it intended to incorporate the common law agency test to determine when a worker was an independent contractor. The Court did not provide a roadmap for applying the many factors, but was careful to caution that there was “no shorthand formula or magic phrase that can be applied to find the answer, but all of the incidents of the relationship must be assessed and weighed with no one factor being decisive.” The NLRB affirmed the use of the ten-factor common law agency test in its 1998 Roadway Package Systems decision, but was faced with the employer’s insistence that “the right to control the manner and means of accomplishing the end result is the ‘most important’ factor or ‘predominant’ consideration in determining the individual’s status.” A unanimous NLRB rejected this argument and held that even though several of the factors focus on control, application of the common law test must take into account the ten factors listed, as well as other relevant factors.
In 2009, the D.C. Circuit Court of Appeals issued a split decision that elevated one part of the common law inquiry above all others. As described aptly by the dissent of Judge Merrick Garland, the majority in the D.C. Circuit case concluded “that the common-law test has gradually evolved until one factor—’whether the position presents the opportunities and risks inherent in entrepreneurialism’—has become the focus of the test.” The NLRB rejected this approach in its 2014 FedEx Home Delivery decision, reaffirming the prior test, which put weight on all the factors, and stating that with regard to the entrepreneurial opportunity highlighted by the D.C. Circuit, “the Board should give weight to actual, but not merely theoretical, entrepreneurial opportunity, and it should necessarily evaluate the constraints imposed by a company on the individual’s ability to pursue this opportunity.”
The NLRB applied its 2014 test, which was a return to its previous test, through 2017, when the D.C. Circuit refused to enforce because it did not comply with the D.C. Circuit’s 2009 decision, and therefore violated the law-of-the-circuit doctrine. When the composition of the NLRB changed under President Trump, the new majority in 2019 used the D.C. Circuit decision to once again change the test used by the NLRB to determine employment status by essentially adopting the D.C. Circuit’s 2009 test. The NLRB held that it needed to apply the common law test, but must also treat entrepreneurial opportunity, as “a principle by which to evaluate the overall effect of the common-law factors on a putative contractor’s independence to pursue economic gain.” NLRB member McFerran in dissent rightfully explained how these two requirements were contradictory, and that the contradiction led to the majority’s incoherent application of the very test they were applying, because “the majority insists that it is free to adjust its test whenever and however it likes.” It should be noted that none of the NLRB’s changes in its test to determine independent contractor status changed the status of these workers under any other areas of law; it simply extended the rights to join or form a union to them.
What the PRO Act Would Do—and What It Wouldn’t
The PRO Act seeks to fix the unstable and unwieldy independent contractor (or freelancer) test by adopting the so-called ABC Test, stating that:
An individual performing any service shall be considered an employee (except as provided in the previous sentence) and not an independent contractor, unless—
(A) the individual is free from control and direction in connection with the performance of the service, both under the contract for the performance of service and in fact;
(B) the service is performed outside the usual course of the business of the employer; and
(C) the individual is customarily engaged in an independently established trade, occupation, profession, or business of the same nature as that involved in the service performed.
The ABC test originated in Maine in 1935—the same year as passage of the NLRA—and has since become the dominant reform of state independent contractor definitions. The test essentially creates a rebuttable presumption that, according to a 2015 analysis of state laws, can “root out common misclassification tactics, including the establishment of multiple tiers of subcontractors to shift liability and shield a general contractor.” Furthermore, according to an analysis by Professors John A. Pearce II and Jonathan P. Silva, “the ABC Test eliminates the most easily manipulated factors, such as intent and location, in favor of a concise test of three dispositive factors, all of which must be satisfied. In applying other types of tests, courts often ignore some factors in favor of others. With the ABC Test, the three prongs act as a simple checklist of objective factors for courts to apply.” The consistency and success of the ABC test makes it an ideal reform for the PRO Act to institute in amending the NLRA.
Critics of the PRO Act have, however, seized upon the public’s general ignorance of classification tests to create a wedge among workers in their effort to kill the bill. The U.S. Chamber of Commerce has created a “Questions and Answers” page concerning the PRO Act’s independent contractor test where it warns that “the PRO Act would apply the ABC test to all 50 states for the first time ever.” The page mischaracterizes the fact that the PRO Act would only change the NLRA’s definition of independent contractor, by implying that instead the PRO Act would turn all freelancers into employees: “Should the PRO Act pass, businesses will be reluctant to take on independent contractors who could end up in a union, or for whom the business must accept an employer–employee relationship where one does not currently exist.” In the one instance where it implicitly acknowledges that the PRO Act will have limited scope, it warns that “It also is likely that if the ABC test is established under one federal law, it will spread into other areas.”
Similarly, a new anonymous group called Fight For Freelancers USA—which describes itself as “an all-volunteer, grassroots coalition”—has created slick misleading videos that wholly mischaracterize the PRO Act’s independent contractor provision. In one video, it lists a series of noncontroversial right and wrong propositions, such as declaring that it is right to correctly classify employees and independent contractors under the law, and wrong to misclassify one group. It then broadly distinguishes between these two classifications of workers by explaining that employees get a guaranteed minimum wage, workers’ comp, unemployment, while being at the direction and control of their boss, while independent contractors are independent business owners who negotiate their own rates and schedules. It then states that the PRO Act would introduce the ABC Test, which would “misclassify independent contractors as employees.” It focuses on Part B of the test, which requires that “the service is performed outside the usual course of the business of the employer” and lists dozens of jobs that this would affect. It concludes that this is misclassification and implies that it would diminish individuals’ choice of how to earn a living. However, what the video and the rest of the group’s material fail to address is that none of the prior benefits or responsibilities that it previously mentioned with regard to being an employee—the guaranteed minimum wage, workers’ comp, unemployment, and so on—are at all affected by the PRO Act. Those employment laws are governed by the U.S. Department of Labor, individual states, and a partnership between the federal government and individual states, respectively, while the PRO Act only changes labor law under the NLRA.
Many op-eds and articles in a variety of publications have repeated this mistake, focusing on Part B of the test and assuming that if a worker is permitted to join a union under the PRO Act, they would somehow lose their independent contractor status under other employment or tax laws. For instance, a freelance writer named Bonnie Kristian writing for The Week starts off with a gross misunderstanding of labor law, writing “As written, [the PRO ACT is] intended to force companies to hire us as employees—with all the benefits, like insurance and vacation time, that entails—rather than as independent contractors.” She then warns that companies would not do so, and that the bill would “destroy my livelihood by making all my work contracts illegal.” Similarly, writing for Forbes, Erik Sherman writes about how the PRO Act’s independent contractor provision would transform independent contractors into employees. He claims to address the issue that the PRO Act would only change labor law, by citing to President Biden’s campaign website, where it said, “As president, Biden will work with Congress to establish a federal standard modeled on the ABC test for all labor, employment, and tax laws.” This argument shows that Sherman is not actually arguing against the PRO Act, but against other areas of law also adopting the ABC Test. Some writers got it right, though. Writing for The Jacobin, Brandon Magner explained that these articles “demonstrate a deep misunderstanding of labor law, invoking themes of forced unionization and ruined careers.”
Frieda Wiley, writing for YES! magazine, similarly focused on Part B of the test, arguing that under the test, “companies cannot hire independent contractors to do the same job as someone on their payroll when that is the company’s core business activity. This means the contractor must become an employee—or find a client who lacks the services they provide in-house.” Wiley then argued that women and workers of color would disproportionately suffer under the PRO Act’s ABC test, without ever mentioning that women and workers of color disproportionately benefit from unionization. To YES! magazine’s credit, once it learned of the fundamental errors in Wiley’s piece, it removed the article, and included an Editor’s Note, which clarified that:
After publication, it came to YES! Media’s attention that this op-ed, concerning the PRO Act as it was introduced in Congress, contained an error concerning the scope and impact of the bill that undermined the main premise of the article. The PRO Act’s ABC test would amend the National Labor Relations Act only—which only concerns union representation, not overall labor law—and therefore would not have the same deleterious effect on contractor employment as California’s AB5 bill, which includes a similar provision.
In an indication of how much misunderstanding there is of labor law, the note also contains a significant mistake. Contrary to what the note states, the PRO Act would indeed amend labor law overall—which includes union organization and other concerted activities by employees—but it would not amend overall employment law. These distinctions between various areas of labor and employment law can be confusing and obscure, and it is this confusion that corporate interests seek to exploit. However, in this instance one thing should be simple and clear to anyone examining the PRO Act in good faith: the act’s independent contractor test only touches upon labor law, meaning that it would not automatically transform any independent contractors into employees. At best, it will simply confer upon many current independent contractors the right to form or join a union.