From JD Supra
May 24, 2021
A set of bills being finalized by the New York State legislature would, if enacted, dramatically alter the landscape of laws affecting independent contractor drivers who provide services to customers of ride-sharing technology companies like Uber and Lyft and delivery technology companies such as DoorDash, Instacart, and Amazon Flex. If enacted, it would establish “sectoral” bargaining, for the first time in the U.S., between a number of such companies negotiating as an industry with a union for wages, hours, and terms and conditions of work. What this potentially means for companies in other industries using independent contractors is also addressed below.
Under the latest version of the bills, each transportation or delivery technology company, referred to in the legislation as a “network company,” must sign a “labor peace” neutrality agreement with a union experienced in representing “network workers.” Individual network drivers and delivery couriers then will be entitled to designate a union to represent them in collective bargaining negotiations on an industry or “sectoral” basis.
The proposed law would allow a union that receives authorizations from at least 10% of active workers for one or more network companies to commence negotiations through an Industry Council where the union would negotiate all network companies in the same industry on behalf of all active workers providing services to such network companies. As explained below, the agreed upon results of such negotiations, once approved by a majority of the workers, would then become state regulations if approved by the state Network Worker Relations Board.
The bills not only would require collective bargaining between network companies and workers but also provide state benefits in the form of workers’ compensation coverage and unemployment insurance, financed by the transportation and delivery network companies.
The key characteristic of the proposed legislation is that it would not designate the workers as independent contractors or employees.
How did the bills arise?
The bills have been crafted by legislators in New York with input from network companies and organizations representing network workers. As noted, the bills, as a compromise, do not designate such workers as either independent contractors or employees. It represents a form of handshake arrangement between legislators, unions, and gig economy companies in the ride-sharing and delivery technology businesses.
Gig economy companies in these industries have fought hard to maintain their independent contractor business models in the face of increased efforts by legislators, such as those in California, to pass laws that would dramatically change the test for independent contractor status in an effort to force companies – including those outside of the gig economy – to reclassify 1099 contractors as W-2 employees. Those efforts by legislators have triggered a backlash by an overwhelming percentage of the freelancers themselves as well as the public, who voted in favor of a ballot initiative in California to exempt transportation and delivery network companies from this overly restrictive law. Many legislators are seeking alternative legislation that diminishes divisiveness and promotes widespread acceptance by key stakeholders.
Unions seeking to represent independent transportation and delivery workers have not met with great success in organizing such workers as employees under federal labor laws, but this new approach would effectively allow them to solicit members as independent contractors. This proposed law would add tens of thousands of workers to the unions’ membership rolls and provide them with an influx of membership dues. Under the proposed legislation, ten cents would be charged for every ride and every delivery as a “representation fee” and then remitted by the network companies to the network unions.
Antitrust issues may be sidestepped by the proposed new law
The preamble to the proposed legislation, first released by Bloomberg Law, recognizes that it is likely to be challenged as contrary to the federal antitrust laws, which historically have preempted state and local laws affecting collective bargaining negotiations over wages, hours, and working conditions of any workers covered by the National Labor Relations Act (NLRA). Antitrust laws also have been construed as barring groups of non-employees (such as independent contractors) from collaborating with each other to set wage rates and other terms and conditions of their work, and barring competitors in the same industry from setting wages, hours, and working conditions for non-employees.
The opening section of the law provides that “it is the public policy of the State [of New York]… to exempt from federal and state antitrust laws, the formation of industry councils and negotiation between network companies and network workers to negotiate with one another on an industry-wide basis,…regardless of the competitive consequences thereof.” The initial section of the law also provides that, “The intent and the policy of the State is for the statutory and non-statutory labor exemptions from the federal antitrust laws . . . to apply to network workers who choose to form, join or assist labor organizations in qualified labor activity in New York.” The bills includes other language intended to create counterarguments to any legal challenge that the proposed legislation would be violative of federal antitrust laws, including wording that the State “intends…that state action immunity apply to this statute.”
A unique feature of the proposed new law may help to shield it from antitrust scrutiny. The collectively bargained agreements reached between worker unions and network companies do not have the force and effect of contracts and are not binding agreements. Instead, they are reviewed and subject to modification by a state Network Worker Relations Board. Upon approval, the terms become state regulations. Thus, the initial agreement between the companies and the unions at the Industry Council level are only part of the regulatory process.
It remains to be seen if this feature is enough to prevent this type of law from being overturned as a violation of U.S. antitrust laws, especially where the proposed bills do not designate or treat network workers as employees or non-employees.
Does anyone oppose this set of bills?
There are union advocates that strongly oppose this proposed legislation. For example, in an article published in Labor Notes, a self-described “media and organizing project that has been the voice of union activists who want to put the movement back in the labor movement since 1979,” argues that the legislation would “put gig workers into toothless ‘unions.’” It notes that the proposed bills “would create a new bargaining scheme for app-based workers without addressing the question of whether or not these workers are legally ‘employees.’” Another union advocacy site, OnLabor, posted a commentary that likewise opposes the proposed bills. But the New York State AFL-CIO and the Transport Workers Union, strongly favor the proposed legislation. The National Employment Law Project (NELP) has also stated that it opposes the bills, favoring laws that would force network companies to treat network workers as employees.
While the OnLabor commentary notes that the Chair of the Senate Labor Committee, Jessica Ramos, opposes the bills, it also mentions that the Chair of the New York State Assembly Labor Committee, Latoya Joiner, supports the bills.
If a challenge is mounted to the proposed law, it is most likely to come from union advocates, an organization such as NELP, or unions who have not been selected by network workers. Those who may assert challenges under the federal antitrust law may also claim, alternatively, that the proposed bill is preempted by the NLRA because network workers are employees.
It is also conceivable that a business organization may challenge the bills, if enacted. The U.S. Chamber of Commerce sued the City of Seattle, Washington after it passed an ordinance in 2015 seeking to mandate a collective bargaining process between ride sharing companies and drivers. Three years later, the U.S. Court of Appeals for the Ninth Circuit found that the ordinance, as drafted by the City Council, was not entitled to state action immunity from the federal antitrust laws. It is likely that the legislative sponsors of this new proposed legislation in New York have drafted the bills in a manner that seeks to overcome the types of legal challenges brought against the Seattle ordinance. If legal challenges are mounted, though, years of litigation may ensue.
What does this mean for other companies using independent contractors?
Prop 22 in California and these new proposed set of bills in New York only address workers in the ride-sharing and app-based delivery industries. What is the takeaway for companies using independent contractors in other industries?
Even if the proposed legislation is enacted in New York, it would not cover companies in other industries. Further, because it only applies in New York, it would not govern workers – even those in the ride-sharing and app-based delivery industries – under other state or federal laws dealing with independent contractors.
There has been a great deal of attention these days focused upon proposed new laws that may change the test of independent contractor status under federal and many state laws. However, it is most likely that little or no legislation will pass substantially altering the myriad of tests for independent contractor status. It is more likely that any legislation enacted will only increase penalties under existing laws for misclassification of employees as independent contractors, as we suggested in a prior commentary.
The increased focus on worker classification at the state and federal level has prompted more and more companies, both large and small, to take a proactive approach and undertake steps to enhance their level of compliance with current independent contractor laws at the state and federal levels. Savvy businesses have used a process such as IC Diagnostics(TM) to restructure, re-document, and re-implement their independent contractor relationships, while still maintaining their current business model, in a customized and sustainable manner to minimize misclassification exposure.