Biden's gig economy rule.

Tens of millions of workers could be impacted.

I’m Isaac Saul, and this is Tangle: an independent, nonpartisan, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 12 minutes.

Quick hits.

1. Igor Danchenko, the consultant whose information comprised the bulk of the "Steele dossier," was acquitted on charges of lying to the FBI. (The acquittal)
2. President Biden told voters he would codify Roe v. Wade into law if Democrats keep control of Congress. (The promise)
3. Netflix added 2.4 million subscribers after consecutive quarters of losses, beating revenue and earnings expectations. Separately, U.S. stocks (S&P 500, Dow, and Nasdaq) have risen for two consecutive sessions. (The numbers)
4. 1.3 million people have been displaced and at least 600 killed during floods in Nigeria. (The disaster)
5. Lafarge SA, a French cement maker, plead guilty in U.S. court to charges that it made payments to groups designated as terrorists by the U.S., including the Islamic State. (The charges)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.

Today's topic.

The new contractor rule. Last week, the Labor Department proposed a new rule that would make it more difficult for companies to treat workers as independent contractors. The change could have a huge impact on the so-called "gig economy," impacting ride-hailing drivers, delivery services, janitors, construction workers, home care workers, freelance writers, and other independent contractors.

Specifically, the new rule would require that companies consider their workers to be employees when they are "economically dependent" on an employer. The Labor Department says determining factors would be a worker's "opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, (and) whether the work is an integral part of the employer’s business."

Under the Trump administration, a new rule was introduced that prioritized two specific questions: Whether a worker could set their own schedule and work for multiple employers, and how great their opportunity for profit was, based on their own initiative or investment. This test allowed most workers to remain independent contractors.

The Biden administration's new rule will reinstate a six-factor test that was developed through several Supreme Court cases that were argued around the 1938 Fair Labor Standards Act. Those tests, roughly speaking, are:

• The worker's opportunity for profit or loss depending on their control over things like accepting or declining jobs.
• Investments in a worker's ability to do additional work indicate contractor status; investments in tools to perform a specific job indicate employee status.
• The degree of permanence of the work relationship. When a working relationship is indefinite, it indicates employee status.
• The nature and degree of control that a worker has over the economic aspects of the relationship.
• The extent to which the work performed is integral to the employer's business (when it is critical, the work is more likely to be an employee function).
• The skill and initiative of a worker. Whether the skills used are specialized is not relevant to employee status, but rather if a worker's foresight or judgment determines success in the job.

So, if a worker has little control over how they do their jobs, or how much opportunity they have to increase their earnings, they are more likely to be considered an employee.

If a worker is considered an employee, that means they may be entitled to basic benefits and legal protections, and also that federal and state labor laws (like minimum wage and overtime pay) would apply to them. The proposed rule lowers the bar for employee classification from the current test implemented under the Trump administration.

"Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages," U.S. Labor Secretary Marty Walsh said.

The impacts of such a change could be widespread across the economy. "More than one-third of U.S. workers, or nearly 60 million people, did some freelance work in the past 12 months," Reuters reported. Additionally, studies have shown employees can cost a company up to 30% more than independent contractors.

Shares of Uber, Lyft and Doordash dropped dramatically on news of the rule's introduction.

“In a time of deep economic uncertainty, it is crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours,” Uber’s head of federal affairs, CR Wooters, told the Wall Street Journal.

While the new rule won't directly impact outcomes in litigation, it will help the Labor Department determine how to enforce rules and the position it takes in certain litigation, a former labor advisor to President Biden said. The rule will only apply to laws that the Labor Department enforces, like minimum wage. States and other federal agencies will still set the criteria for employment status.

The rule is widely expected to be challenged in court.

Today, we're going to explore some reactions to the rule from the right and left, then my take.

What the right is saying.

• Many on the right are critical of the rule, arguing that it will be a huge disruption to the gig economy.
• Some point to the high satisfaction many gig workers already have with their situation.
• Others say the Trump-era rule simplified the test, while this will complicate it.

The Wall Street Journal editorial board said Biden is "going after gig workers."

"The Fair Labor Standards Act defines an employee as 'any individual employed by an employer.' But the Supreme Court in a series of cases starting in the 1940s laid out a multi-prong 'economic reality' test that instructs courts and businesses to weigh many factors when determining whether workers are employees or contractors," the board wrote. "These include the degree of a company’s right to control the manner in which work is done; a worker’s opportunity for profit or loss depending on skill; a worker’s investment in equipment or materials; whether the service requires a special skill; the working relationship’s permanence; and the extent to which a service is integral to a company’s business... Different federal courts have placed different emphasis on different factors, which has resulted in confusion for companies, especially those that operate nationwide.

"The Trump Administration tried to clear up the mess with a rule that told courts and companies to weigh foremost the nature and degree of a worker’s control and the opportunity for profit,” the board added. "This test enabled most independent contractors to remain so. The Biden proposal replaces the Trump rule with a 'totality-of-the-circumstances' analysis that focuses on whether workers are 'economically dependent upon an employer for work.' Under this standard, gig workers would probably have to be reclassified as payroll employees... Newspaper columnists, truck drivers, real estate agents, barbers, consultants and many other freelancers could be ensnared. The Administration is proving it’s an equal-opportunity jobs killer."

In MSNBC, Noah Rothman said the rule would "throttle" the gig economy.

"Proponents of the new rule, which would impose on businesses stricter definitions of what constitutes an employee, would extend needed benefits and protections to contract labor," Rothman said. "Critics insist that the practical effect will be to throttle the sharing economy into submission. They’re both right, but, on balance, the losers from this rule will far outnumber its winners... after all, the new rules are likely to impose new costs on companies that depend upon contract labor — costs that will be passed on to you, the consumer. The 'PRO Act' was modeled after a 2019 California law, AB5, which was supposed to remedy the supposed indignities endured by participants in the so-called 'gig economy.' It was hailed as a 'victory for workers,' but the workers themselves didn’t seem to appreciate the reform much.

"The law’s practical effect was to make freelance labor impractical," Rothman wrote. "Overnight, independent writers, graphic designers, photographers, journalists and content producers found themselves unemployable. Local papers had to contract out of state to get the scoop on what was happening just next door. Music festivals ceased operations and performing arts groups went on hiatus. But it was the law’s attack on the popular ride-sharing services Uber and Lyft that proved a bridge too far. In 2020, a ballot measure defining 'app-based transportation' drivers as independent contractors passed by nearly 3 million votes. California lawmakers repealed AB5 not long thereafter... Consumers aren’t the only Americans satisfied with the 'gig economy.' According to a December 2021 Pew Research Center survey, nearly 80% of current or one-time gig workers say their experience was a positive one.”

In Reason, Christian Britschgi said Biden is chipping away at Trump's deregulatory legacy.

"Organized labor and liberal lawmakers have tried to lump as many workers into the 'employee' bucket as possible in an effort to guarantee more people the overtime pay and benefits that come with that designation. But those efforts have often provoked rebellions from gig workers themselves (and the companies they do business with) who object to the added regulation and rigidity that comes with being an employee," Britschgi wrote. "Sean Higgins, a labor policy researcher at the free market Competitive Enterprise Institute, says that litigation chaos is unlikely given that the DOL is reinstating federal standards that had been on the books for decades. But the Biden administration's new standard reduces certainty for businesses and workers about when an employer-employee relationship exists.

"The Trump rule 'boiled it down to a fairly simple question of just who is in charge around here. That determined whether a worker was a freelancer or not. It put the power in the hands of the workers themselves,' Higgins tells Reason. Returning to the old six-factor test 'makes everything more confusing.' The primary impact of DOL's rule-making, says Higgins, will be to make it easier to have states pursue A.B. 5–type bills and regulations by reimposing that more expansive federal definition of employee," Britschgi said.

What the left is saying.

• Many on the left are supportive of the rule, arguing that it will amount to a massive win for workers.
• Some point to the absurdly low wages for Uber and Lyft drivers that will get a bump from this change.
• Others argue that opposition is really just coming from the business lobby.

In The New Republic, Timothy Noah said Biden is telling the gig economy to "stop stealing wages."

"Studies show that somewhere between 10 percent and 30 percent of today’s workforce in the United States consists of people misclassified under current law as independent contractors so that employers can dodge paying minimum wage, overtime, payroll tax, unemployment insurance, and any other benefits they give their 'real' employees," Noah wrote. "A 2009 Government Accountability Office study concluded that misclassification cost the Treasury nearly $3 billion each year. That was based on old data and is almost certainly too low. The Labor Department’s proposed regulation would make it harder than it is right now for businesses to classify people who work for them as independent contractors. Naturally, it’s occasioning bellyaching from the business lobby.

"It will 'foster massive confusion, endless litigation, reduced innovation, and fewer opportunities for employees and independent contractors alike,' griped the National Retail Federation to Rebecca Rainey of Bloomberg Law... But all the rule does, really, is bring Labor Department policy back in line with the FLSA’s statutory language and nine decades of judicial interpretation that followed," Noah notes. "If the worker is an independent contractor, they are not entitled to receive the minimum wage or overtime pay. A recent study of rideshare drivers in California, who are all classified as independent contractors, found their median wage to be $6.20 per hour. If they were employees, that level of pay would constitute wage theft by Uber and Lyft under both federal law (which sets an hourly minimum of $7.25) and California law (which sets it at $15)."

In Mother Jones, Jacob Rosenberg said the rule could change work for millions.

"The measure would be a small but significant lowering of a Trump-era standard that could allow more workers to gain the benefits of employment, like guaranteed minimum wage and overtime," Rosenberg writes. "The hope of the Trump admin was to enshrine an employment model that carved out contractors, aiding gig companies like Uber. But if the new DOL proposal were enacted, companies that make their workers independent contractors instead of employees—despite the workers doing the tasks of an employee—could be punished for violating labor law... After the intense battle over the issue in California, there was a risk—especially among more centrist Democrats—of pissing off not only massive companies like Instacart, but also an extremely vocal coalition of freelancers (including, um, best-selling novelist Walter Kirn) who complained that employee status would winnow their ability to move freely between hustles.

"It seems those concerns have been pushed aside," Rosenberg said. "We’ve moved from an economic model of mass employment and control in the 20th century—think of the factory—to an atomized series of contractors, subcontractors, and outsourced laborers such as maids, construction work, home-care workers. This switch has been presented as offering a kind of autonomy to those workers. But it’s also meant a mass erosion of the historic wins by workers that have been tied to employment: health care, the minimum wage, and safety standards to name a few. Not to mention, of course, the power of unionization."

In The American Prospect, Harold Meyerson called it "one more pro-worker" move from Biden.

"Notoriously, the federal minimum wage doesn’t amount to very much. It’s been stuck at a pathetically low $7.25 an hour for well over a decade, though many states have set their own minimum considerably higher," Meyerson said. "Nonetheless, a proposed rule released today by the Department of Labor would effectively guarantee a raise for the thousands of Uber and Lyft drivers in California, who are mislabeled as independent contractors and thus not covered under state or federal minimum-wage legislation. According to a recent study, when the expenses they have to pay to buy, lease, and/or maintain their cars are subtracted from their income, their real hourly income comes out to be a less-than-princely $6.20.

"Today’s proposed rule, accordingly, would raise that level by about a dollar, and more importantly, qualify those drivers for overtime pay and require their employers to pay into the funds for Social Security and unemployment insurance," Meyerson said. "Those changes would take place because the DOL’s new rule would establish more real-world standards for what constitutes employment—criteria such as determining the rate the drivers charge and what share they pay to the parent company, or, if they drive trucks for FedEx or other companies, whether those trucks can be used for other work or driver use—that sort of thing. It’s a 'if it quacks like a duck, it’s a duck' rule. Which stands in sharp contrast to the rule, still on the books, promulgated by Trump’s Labor Department."

My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. It is meant to be one perspective amid many others. If you have feedback, criticism, or compliments, you can reply to this email and write in. If you're a paying subscriber, you can also leave a comment.

• I have some actual conflicts of perspective here worth noting.
• Generally speaking, I think there is a big chunk of gig workers who are being robbed of the wages they deserve.
• Still, this rule is probably a blunt tool that will do more harm (by eliminating contract work jobs) than good.

This is one of the few times in Tangle I've had to start with an ethical disclosure: My entire team is made up of contractors.

In our case, I don't think this rule would impact us much. All of the people who work for Tangle work about 5-10 hours a week except our social media manager Magdalena, who works about 20. And each of their workloads is pretty consistent with how a contractor is defined, even under this new test created by the Biden administration. But still, it seems worth stating that plainly from the outset.

The other interesting perspective I have on this is as a journalist. For years, before creating Tangle, I supplemented my income with contract work. When California's AB5 law went into place, I saw how badly it hurt freelance writers, and heard many complaints from my journalist friends there. So my perspective is tainted in two ways: One, I'm not in a position to afford to pay the extra expenses (like paying into unemployment insurance) for my contract employees. And two, I'm a former freelance writer who saw how heavy-handed regulation in that industry could damage it. In one specific example, Vox, a company I have actually written freelance pieces for, ended ongoing relationships with 200 freelance writers to give jobs to 20 full-time writers.

All this is to say, while I understand the good faith attempt to prevent the kinds of horror stories we hear about contract work, I'm quite skeptical of a rule like this. There are lots of gig workers who are essentially working full-time jobs for companies like Uber and Lyft, who should get some kind of worker protections and benefits (and be paid above the minimum wage). Most of them, the ones I've spoken to, complain about things like the absurdly low real hourly pay, once you take into account the costs companies never cover in fuel, maintenance, and the mileage such work puts on their vehicles. I am very interested in seeing those issues resolved, but I worry that this rule’s broad effect is more likely to eliminate many contract work jobs and upset the vast majority of contract workers.

In this case, we have two pretty solid pieces of evidence to support that belief: One is the passage of a real-world example, which was AB5 in California. The other is the survey data we have on an array of actual contract and gig workers.

AB5 was, basically, a disaster. It was implemented right before Covid-19 hit, which made the devastation it wrought on freelance workers hard to parse from pandemic-related job cuts. But its opponents came from all across the ideological spectrum. By the time the law was passed, it was so full of exemptions and carve-outs that those sections of the bill alone spanned nearly 7,000 words. By the time it went into effect, the backlash to it was swift and widespread.

The Congressional version of AB5, the PRO Act, failed to pass Congress. So Biden is now going the executive route, hoping this rule can withstand court scrutiny. Along with the impact of  AB5 on California, the public response, and the fact this is something Congress should (but couldn't) codify into law, there is ample evidence it isn't even something most actual contract workers want.

A 2015 Government Accountability Office (GAO) survey of independent contractors and self-employed writers found that over 85% were content with their status. In 2018, the Bureau of Labor Statistics said 79% of independent contractors preferred their contracting arrangement over a traditional job. And finally, a 2021 Pew survey found that 78% of gig workers rated their experiences with those jobs positively.

The Pew survey showed quite clearly that most gig workers cite saving up extra money, being their own boss, schedule flexibility, and the need to cover gaps in income as their reasons for taking these jobs. Only 28% say they chose gig labor instead of more traditional employment opportunities. This makes sense. 80% to 90% of gig workers work less than 20 hours a week, according to some NLRB surveys. The 10-20% who don't are the ones I am worried about.

For those contractors, the flexibility of work and reliance on income is critical. If I were to adjust the Trump-era rule, I would keep its focus on the flexibility of schedule, but emphasize reliance on income rather than the squishier “opportunity for profit.” Scheduling autonomy, to me, is critical. I’ve heard from Uber drivers, for example, who say that Uber’s app will punish them if they decline multiple trips in a row because they are too long or going too far away from their home. The app will log them out or stop offering them shorter, closer-to-home rides. If an algorithm in an app can take away a contractor’s flexibility, are they still a contractor? These are big and tricky questions.

Still, it seems one legislative version of this rule was a flop, the other didn’t pass Congress, most gig workers don’t really want regulations that may restrict any other opportunities, and undoing the Trump administration’s simplification of the rule could just create a big mess. Given all that, I’m hoping that the public comment period either pushes some constructive changes to the proposal or leads to the failure of its implementation.

Your questions, answered.

Q: Your take isn't 100% personal, is it? It must include some thought about seeking middle ground for the sake of the brand, no?

— Curt from Santa Cruz, California

Tangle: Funnily enough, I actually try really hard not to do this.

The "original promise" of Tangle is that I told readers I would not filter my thoughts, and instead just give my most honest analysis of the debate at hand. Usually, when I decide what topic to cover, I’ve heard enough about the story to form some kind of baseline opinion or bias. Reading arguments from across the political spectrum often tempers or complicates that opinion, which I think can make “my take” come out on the other side as “middle ground.”

Sometimes, though, I just agree with one side or the other, and I know I am going to upset a big subset of my readers. That makes the stakes of describing my perspective much higher, but it is always a worthwhile effort to just be straightforward about my views.

I've written this before, but I think trying to be a "heterodox" thinker or trying to be a "centrist" is an ideology of its own. Sometimes, the mainstream narrative is the right one. Sometimes, the Republicans are right. Sometimes, the Democrats are right. Sometimes, they're both wrong. And sometimes, they both have elements of winning arguments.

When I think about "my take," I try to focus on a few things: 1) Be open-minded. I read each side's arguments with the attitude that I don't know everything. 2) Call out the B.S. On most days, there is a popular narrative from the right or left that doesn't hold up to scrutiny. 3) Be honest about what I think. If I am beating around the bush or kowtowing a line to keep people happy, readers notice. And they don't like it.

Want to have a question answered in the newsletter? You can reply to this email and write in (it goes straight to my inbox) or fill out this form.

Under the radar.

Yesterday, House Minority Leader Kevin McCarthy (R-CA) told Punchbowl News what many have long suspected: If Republicans take control of the House, there is a chance they cut off funding for the war in Ukraine. The United States has already spent over $60 billion in Ukraine, and that money has flown out the door with little resistance. But a Republican controlled House could rein the spending in. Even McCarthy, who has supported the funding and compared Putin to Hitler, said there are already signs of resistance. "I think people are gonna be sitting in a recession and they’re not going to write a blank check to Ukraine. They just won’t do it," he told Punchbowl News. In May, 57 House Republicans voted "no" on a $40 billion aid package to Ukraine. That number, McCarthy says, is only going to go up as more money is spent. Punchbowl has the story.

Numbers.

• $5,120. The average monthly income of a gig worker.
• 63%. The percentage of gig workers who say they prefer a flexible work schedule to a bigger salary.
• $59,000. The median U.S. income.
• 30%. The percentage of Ukraine's power stations that have now been destroyed by Russian airstrikes.
• 60 million. The estimated number of "reclaimed hours" every day thanks to work from home policies, according to a Federal Reserve Bank of New York estimate.
• ~15%. The percentage of Americans who work entirely remotely.
• ~30%. The percentage who are on a hybrid schedule.

Have a nice day.

The first known map of the night sky was found hidden inside a Medieval parchment. The parchment, discovered inside a monastery in Egypt, yielded a "surprising treasure." Hidden beneath Christian texts, scholars found what they believe to be the long-lost star catalog of the astronomer Hipparchus — the earliest known attempt to map the star sky. The manuscript came from the Greek Orthodox St. Catherine's Monastery in the Sinai Peninsula in Egypt. Researchers believe the coordinates were drawn out in 129 BC, centuries before anyone else attempted to map the sky. Nature has the story on this remarkable find.

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