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Misclassifying employees as gig workers creates 'a race to the bottom' for businesses, Biden's top labor and antitrust regulators say

Ethan Dodd   

Misclassifying employees as gig workers creates 'a race to the bottom' for businesses, Biden's top labor and antitrust regulators say
  • Contractors lack many of the labor protections of workers directly employed by a company.
  • Businesses have an incentive to misclassify workers as contractors to undermine their competitors, according to the DOJ Antitrust Division.

Gig work is hot, but it's not fair for either workers or employers, top labor and antitrust regulators say.

The rise of technology companies like Uber, Lyft, and DoorDash has epitomized a new era in which workers clock in hours as they please — so long as the work is available. It's just the tip of the iceberg when it comes to those called "gig workers" — freelancers, contractors, on-call workers, and temp agency workers, who for decades have increasingly replaced full-time employees as independent contractors.

Federal regulators call this "misclassification" and are looking into the ways gig work not only prevents workers from organizing but unfairly privileges certain businesses over others and puts workers and employers at risk of antitrust lawsuits.

It's an example of the "whole of government approach" to policy issues spearheaded by the Biden administration, where federal agencies with different statutes can address the same issues from their respective angles, Jennifer Abruzzo, general counsel of the National Labor Relations Board, explained on May 4 at American Economic Liberties Project's Anti-Monopoly Summit in Washington, DC.

"I'm going after employers who are purposefully misleading their workers, who are employees, into believing there is something other than employees, such as independent contractors, because that chills those workers from actually exercising their rights," Abruzzo said.

Under the National Labor Relations Act of 1935, Congress gave employees the right to organize as a union and collectively bargain with their employer to improve wages and conditions and level the playing field between employees and employers, Abruzzo explained.

Not so for gig workers.

"If someone is an employee, they get the panoply of rights under various statutes. And if they're not an employee, they get none. They get no protections," she said.

"It really matters that employees are classified appropriately," Abruzzo said — and not just for workers.

Misclassifying employees as contractors "puts high-road employers" — who pay higher wages, provide benefits like paid leave and workplace flexibility, and offer training to workers — "at a competitive disadvantage," she said.

Employers may be less likely to go this route because "firms that misclassify their workers as independent contractors may gain an unfair competitive advantage over their rivals in cutting their costs," which could in turn harm competition in the markets for goods and services, the Department of Justice Antitrust Division wrote in a brief.

"The result could be 'a race to the bottom,' with rivals facing the unappetizing choice of either joining in the unlawful practice of misclassification or ceding the marketplace to their less-scrupulous competitors," the DOJ said.

In 2018, 20% of workers were contract workers, and 65% of part-time workers and over half of contract workers went without benefits, according to NPR. The worker-advocacy nonprofit National Employment Law Project has found 10% to 30% of employers misclassify their employees as gig workers, denying millions of workers compensation for workplace injuries, unemployment insurance, and better pay.

Citing the DOJ's brief, Abruzzo said NLRB "got to see from a different vantage point, from a different perspective how important it is to classify workers properly."

Misclassification also puts workers and employers at risk of lawsuits because only employees and their unions are exempt from antitrust liability, the DOJ explained.

"Independent contractors generally cannot coordinate their pricing decisions absent some exemption from the antitrust laws," the brief said, meaning organizing could be considered a violation of antitrust law.

Antitrust law also prevents third parties from coordinating prices for those workers, so "firms that set the prices at which their workers offer services to consumers," such as Uber, could face risk of antitrust scrutiny, the DOJ said.

As a result, the threat of antitrust liability means misclassification "reduces or eliminates workers' ability to bargain collectively," the federal agency argued.

"Even if the Antitrust Division" didn't prosecute "workers whose status as employees is unclear," the DOJ said, "the threat of private antitrust lawsuits and treble damages might nonetheless substantially chill worker organizing."

Workers are then left "with fewer tools to combat" the power of large employers who are more likely to "impose one-sided contract provisions, such as blanket non-competes or restrictions on employee information-sharing regarding wages or terms of employment, that themselves may tend to further restrain competition in the labor market," the DOJ elaborated.

In other words, employers can use misclassification to not only keep workers from bargaining for better conditions, but to keep them from leaving for a better workplace.

"Our goals are the same," Abruzzo said, as NLRB and DOJ Antitrust want to end "misclassification and employment structures that cause vertical constraints on competition." She emphasized, "That affects workers."