Freelancing and Labor Law: A Short History

The labor force is changing, and freelancers have found themselves at the center of the tumult.

Written by Max Rivlin-Nadler, this story originally appeared on The Freelancer.

The past decade has been one of the most chaotic times for labor in American history, due in large part to the Great Recession and the rapid development of technology.

Take, for example, the slow death of private sector unions — today, less than 9 percent of private sector employees belong to them, compared with 20.1 percent in 1983. Companies like Uber and Airbnb, meanwhile, have facilitated the controversial rise of the so-called “sharing economy,” which some Americans are using to supplement their income, while others survive entirely on driving cars or renting out homes. Many employers have recently become increasingly reliant on temp workers rather than full-time employees. And to add even more chaos to the changes, more Americans are now choosing to freelance by choice than by necessity, according to a study commissioned by Freelancers Union.

As a result of all these transformations, concern over independent workers’ rights has reached something of a fever pitch. Just today, the Department of Labor announced that it would revive its survey of independent workers for the first time since 2005 because of the “profound changes” taking place in the American workforce.

But what’s often left out of all this discussion is why — and how — freelance work reached this critical point. Why, for example, are independent contractors and employees the only two categories available for American workers? Why is it illegal for domestic, agricultural, and independent laborers to unionize? Why are companies like Uber and Airbnb investing so much of their resources into lobbying and costly legal cases?

To answer these questions, it helps to look back at a few of the formative moments in labor history. As the economy continues to change, and businesses and governments move to adapt, knowing the history of how we got here may be more important than ever.

The NLRA and the creation of modern labor rights

Like the Great Recession that lasted from 2007 to 2009, the Great Depression, which spanned 1929 to 1941, set off a chain of events that dramatically changed the way Americans worked. As unemployment rose to new heights, the concerns of workers were taken more seriously than ever before — and in 1935, federal labor rights as we know them were created.

The National Labor Relations Act (NLRA), passed as part of Roosevelt’s New Deal, remains to this day the foundational law for the rights of workers. Factory workers, construction workers, truck drivers, and most other types of private sector employees were guaranteed the right to form unions, take collective action, and engage in collective bargaining with their employers to determine wages.

It also established the National Labor Relations Board (NLRB), an independent governmental agency tasked with investigating unfair labor practices. Since then, the NLRA has been a powerful tool for workers trying to level the playing field between employer and employee.

In its original form, the NLRA didn’t specify whether independent contractors were defined as employees. According to a report from from UC Berkeley’s Journal of Employment & Labor Law, “Employees and Independent Contractors under the National Labor Relations Act”:

The scope of the Act’s coverage in this area was left for the National Labor Relations Board to determine. In general, the Board held that “independent contractors” were, by definition, not “employees” and therefore were not entitled to the protections and benefits of “employee” status.

What exactly separated an independent contractor and an employee, however, was left for the NLRB to decide.

The legislation also failed many American workers in one crucial aspect: the racially-driven omission of any rights of agricultural workers and domestic workers.

To pass the act, supporters needed the support of southern senators, which meant rescinding protections for agricultural and domestic workers, the majority of whom, in the south, at least, were black.

“The exploitation and vulnerability faced by these workers is no accident,” writes Juan F. Perea, a law professor at Loyola University Chicago, in a paper published in the Ohio State Law Journal about the racist origins of the NLRA. “The New Deal Congress desired and produced exactly this result. Specifically, southern congressmen wanted to exclude black employees from the New Deal to preserve the quasi-plantation style of agriculture that pervaded the still-segregated Jim Crow South.”

The result is a dark legacy that still exists to this day. And independent contractors, regardless of race, would soon face new scrutiny in the boom of the post-war economy.

The Taft-Hartley Act

In 1947, American labor was strong as a result of a booming economy and the NLRA. The union-imposed moratorium on strikes during wartime had expired, and workers began striking more than ever; in fact, the surge was so huge that historian now refer to the time period as “the strike wave of 1945–1946.”

As a result of the strike wave and rising communist fears, Congress began to limit the power of organized labor. The Taft-Hartley Act, a 1947 amendment to the NLRA, was one of the major efforts to do so.

The Taft-Hartley Act was written to clear up confusion surrounding the definition of “employee,” including the line “any individual having the status of an independent contractor,” to the section that already excluded domestic and agricultural workers, leaving an even larger segment of the workforce outside of the protections of the NLRA.

But the Taft-Hartley Act did not make it easier to distinguish a contractor from an employee. In the years since, the NLRB and various states have provided wildly different definitions of contractors and employee, which have huge ramifications for workers who are trying to find protection under the NLRA.

Left out, but still organizing

Since the passage of the NLRA, and its amendment in 1947, farm workers, domestic workers, and independent contractors have constantly pushed for more rights.

In the intervening years, unions have become integrated, the Civil Rights Act legally ended employment discrimination, and the demographics of farm and domestic workers have shifted from African-American to, mainly, immigrants. Clear progress, but many of these workers still remain outside the purview of the NLRA.

Accordingly, many workers in these fields still lack the right to minimum wage, overtime pay, and workers compensation. Some substantial progress, however, has been made in providing basic protections for many of these workers thanks to efforts that have taken place outside of traditional unions.

“There are many groups of workers who have won significant improvements without legal recognition as unions — the Farm Labor Organizing Committee is one of many such examples, as are the fast food strikers, none of whom have unions recognized by the NLRA,” said Gordon Lafer, an economist at the University of Oregon’s Labor Education and Research Center.

Though organizations like the Farm Labor Organizing Committee aren’t federally recognized unions, they can still advocate for their members. Freelancers, likewise, have organizations that attempt to protect their rights.

Freelancers Union and National Domestic Workers Alliance have advocated at the state and national levels for greater protections. Freelancers Union has begun to push legislation such as pay protection in New York State to get companies to pay freelancers on time. Even President Obama endorsed the movement, saying, “Freelancing isn’t free.”

But now, with the rise of the “gig economy,” the disparity between the rights of an employee and an independent contractor have become much more evident, even as the definition between the two has become even more unclear.

Uber and the rise of the gig economy

Across the country, independent contractors and domestic workers have been filing lawsuits against companies like Uber, Lyft, and Handy, claiming that they were misclassified as independent contractors while they were effectively filling the role of employees.

For the companies, there’s obvious incentive to label these workers as independent contractors. Why? Because contractors have very few rights compared to employees who receive a minimum wage, get paid time off, and can organize a union.

By taking advantage of the NLRA’s omission, companies like Uber have achieved sky-high valuations, all while keeping compensation low and only hiring a few full-time employees.

And as if the dispute wasn’t complicated enough, it differs by state. A class-action lawsuit alleges that Uber drivers in California are employees under state law. Meanwhile, Uber has retained the services of a law firm with extensive experience arguing in front of the Supreme Court, gearing up for a case that might end up finally clarifying the definition of employee on the federal level.

In addition to being left out of employment protections, independent contractors who communicate with one another and attempt to form a union often run afoul of antitrust laws that are meant to regulate price-fixing.

However, some municipalities have already gone ahead with granting independent contractors the right to unionize despite the Taft-Hardly Act’s explicit exclusion of independent contractors. The Seattle City Council passed a bill this December allowing Uber and Lyft drivers to form a union (a bill certain to face legal action, however).

“We know there will be legal challenges, but right now we’re signing people up for the union because there’s just an overwhelming amount of drivers who want to make change collectively,” said Dawn Gearheart, an organizer with the App-Based Drivers Association, which has been organizing drivers in Seattle since 2013. “We think the city worked very hard to make sure they’ll have a defensible law.”

A new type of worker?

Some economists and lawmakers — including Alan B. Krueger, former chief economist to President Obama, and Seth D. Harris, former deputy labor secretary — have proposed a third way forward for independent contractors: a new type of classification that would allow a worker to secure some basic rights, while sparing companies from the burden of full employment costs.

The third category would help provide independent contractors some of the rights not guaranteed to them by the NLRA — namely collective bargaining — while still shifting some of the costs away from employers.

The California 1099 Self-Organizing Act, which was proposed in the California legislature last December, is the first major legislation proposed based on the concept.

Though the bill was created with Uber drivers and other share economy workers in mind, the Self-Organizing Act — and similar legislation — could greatly effect the rights of freelancers as a whole.

In the coming years, many experts agree that more and more workers will bypass the protections of the NLRA — and full-time employment — in search of work that’s more flexible and opportunistic than a standard 9-to-5. How exactly those workers will be treated by employers and the government, however, is anything but clear.