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Duff: More Reaction to Regulatory Arbitrage

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A recently offered Pennsylvania bill doubling down on the ABC employee-status test for app-based companies like Uber and Lyft has created in me the strong impression that one school of national opinion seems to be coalescing around a presumption that the gig economy writ large is not benign but a form of regulatory arbitrage (to borrow a term from the gig-economy “friendly” Harris-Krueger/Hamilton Project Report).

Michael C. Duff

Michael C. Duff

As in New York, the proposed Pennsylvania legislation requires alleged employers to affirmatively disprove the employee status of their workers. But unlike the New York bill (or California’s AB 5), the Pennsylvania bill, House Bill 2215, introduced about three weeks ago, targets app-based enterprises like Uber and Lyft.

Under the Application-Based Company Worker Misclassification Act, "a person providing labor or services for remuneration to an application-based company shall be considered an employee rather than an independent contractor unless the application-based company demonstrates that all of the following conditions are satisfied:

  1. The person is free from the control and direction of the application-based company in connection with the performance of the work, both under the contract for the performance of the work and in fact.
  2. The person performs work that is outside the usual course of the application-based company's business.
  3. The person is customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed."

Moreover, the act would impose a variety of civil and criminal penalties for misclassification, though good-faith defenses are available. In short, the Pennsylvania bill is the polar opposite of the Handy Inc. bills about which I’ve written in these pages, both in substance and in spirit.

Obviously, it is unclear whether the Pennsylvania bill will become law. But what interests me is the sharp and focused tone of the proposed legislation. It is not merely abstractly altering the legal test for employment but additionally contemplates deliberate gaming of the system.

Intentional violations of the act would be misdemeanors; non-intentional violations would be summary offenses. It would be a specific violation of the act for an app-based company to fail to properly classify an individual as an employee for purposes of the Pennsylvania Workers’ Compensation Act (or to fail to provide workers’ compensation coverage).

My hunch is that organized labor was involved in drafting and sponsoring the bill.

Complete acquiescence to the gig economy in the end would yield fewer “employees.” Because only “employees” have the right to collectively bargain or to protest adverse working conditions, dissolution of employee status necessarily means dissolution of union representation.

Recently, the Trump administration's National Labor Relations Board determined in an administrative memo (the conclusion has not been tested in the courts) that certain Uber drivers were independent contractors rather than employees. In the recent past, the NLRB, an extremely political agency at its apex, has continued to utilize the common law, under Section 220 of the Restatement Second of Agency test, when analyzing employee status (it is bound to do so because the common law definition is the default under federal statutes).

Under the NLRA, workers of gig-type employers have, in recent years, been found employees: in two informal NLRB adjudications/internal memoranda — the Handy advice memo, the Postmates advice memo — and in one formal NLRB adjudication.

The NLRB has rejected the argument that intentional misclassification of workers, without more, violates the National Labor Relations Act. But “employees” acting in concert in protest over working conditions remain protected against employer retaliation. Gig employers taking adverse action against concerted worker protest on the theory that those employees are unprotected as non-employees under state law do so at their peril.

Still, the NLRB’s Uber memo is signaling its proclivity to withdraw federal law protection from gig workers. Evisceration of employee status at the state level could provide cover for an NLRB “vanishing employee” agenda. Unions would obviously fight such developments on multiple levels. Collective employee protest against employee misclassification under state law could feed into the strategy, but a shrinking base of "employees” would not help organized labor’s cause.  

Emerging ABC-type laws (in New York and California, in particular), which at first blush seem most closely connected to employment law (including workers’ compensation law), raise other complicated labor law issues. Some provisions would, in addition to modifying employee-status law, confer collective bargaining rights on gig workers, an idea that some in the European Union have been championing.

Assuming gig workers are employees, these provisions could be pre-empted under machinists’ labor law field pre-emption. On the other hand, if gig workers are not employees but are independent contractors, conferral by states of collective bargaining rights on them is fraught with antitrust complexity (though states, as opposed to cities like Seattle, enjoy broad antitrust immunity).

Organized labor involvement in “local” laws (including what I am speculating is its involvement in the Pennsylvania bill) is evidence that the legal battles playing out extend well beyond the domain of workers’ compensation. It will take effort for workers’ compensation specialists to discern the sometimes hazy lines of conflict bubbling up in their neighborhood.

Michael C. Duff is associate dean for student programs and external relations, and is professor of law, at the University of Wyoming College of Law. This entry is republished from the Workers' Compensation Law Professors blog, with permission.

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