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Counsel’s Corner: Independent Contractor Protests in the Gig Economy

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In the days leading up to the ride sharing platform Uber’s IPO its drivers held protests across the U.S. in major cities like New York, Boston, San Francisco, Philadelphia, Washington D.C. and San Diego.  The timing of the protests, organized by groups like Gig Workers Rising, was to bring attention to the drivers’ position that with close to 4 million drivers globally and a massive IPO value the company should be providing better working conditions.  Drivers argue that they should be awarded higher wages and benefits by the company who was poised to obtain massive financial gain with the IPO and who had acknowledged that the drivers are critical to its success. 

Protests, strikes and organization of unions addressing worker discontent are difficult issues for companies to address during the IPO process.  The protests reflect a potential problem with the gig economy business model.  The gig model should be immune from collective bargaining issues because gig companies engage independent contractors who are not employees.  However, these protests illustrate that this matter is more complicated and challenging than what would be assumed. 

Worker protests relating to their rights are not new.  American labor laws began developing in the 1930s to address disputes between workers and management over employment issues.  The National Labor Relations Act (“NLRA”) was passed in 1935 with the intent to protect employees and union members from unfair bargaining practices and the Fair Labor Standards Act (“FLSA”) was passed in 1938 to establish minimum wage and overtime standards for employees.  However, these regulations were enacted to protect employees.  Uber has always maintained that its drivers are independent contractors and on May 14, 2019 General Counsel for the National Labor Relations Board issued a memorandum advising that it agreed with Uber’s position.  

The NLRA does not provide for collective bargaining rights to independent contractors.  Independent contractors have their own businesses and businesses are exempt from the NLRA.  Additionally, U.S. antitrust laws prohibit businesses (i.e. independent contractors) from working together to set prices as this is considered anti-competitive activity.  Union organization is legal for employees, but, arguably, not for independent contractors.

Companies engaged in the gig economy reduce legal liabilities and related costs by engaging independent contractors.  Workers engaged as independent contractors cannot exercise the same rights as employees.  Nevertheless, the rise of the gig economy has included a rise in protests for workers rights by independent contractors as many of them have exactly the same demands as employees.  In response to worker discontent, some localities have enacted ordinances that authorize independent contractors in the transportation industry to unionize under the premise that if the federal NLRA does not protect independent contractors then local agencies could take action to do so.  In Seattle this local solution to the union issue was challenged last year in the 9th Circuit Court of Appeals.  The U.S. Chamber of Commerce argued against the Seattle ordinance and maintained that it violated federal antitrust laws and that the NLRA preempts state and local regulations.   

The 9th Circuit agreed with the Chamber that Seattle could not create the ordinance that might result in unauthorized anticompetitive activity.  In order for a locality to pass such an ordinance, it must demonstrate that the ordinance clearly effectuates state interests and that the state creates oversight mechanisms to ensure federal laws aren’t violated.  Seattle did not do so.  However, the Court did reject the Chamber’s other argument that the NLRA preempts state and local regulation conferring collective bargaining rights on independent contractors.

The court said that NLRA does not prohibit local governments from creating their own collective bargaining law covering independent contractors.  The Court reasoned that in creating the NLRA the U.S. Congress may have excluded independent contractors from NLRA coverage, but it did not intend to exclude them from all bargaining collectively.   The decision appeared to allow independent contractors to engage in collective bargaining as long as the arrangements do not violate antitrust laws. 

If the door is open for independent contractor collective bargaining, gig companies will face the same issues that it that would with employees.  The May 14th NLRB memo might help gig companies in dealing with independent contractor reclassification issues, but it won’t impact these workers’ protests, demands and strikes that are addressing the same issues that employees have.   Gig companies have begun to addressed independent contractor demands by offering better pay and other benefits like access to insurance and similar perks that are typically offered to employees rather than independent contractors.  This indicates that the solution to the independent contractor protests is to address the matter as you address employee demands.

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