The (Mis)classification Issue: Should Federal Laws Preempt State Statutes That Classify Gig Economy Workers as Independent Contractors?

By Yousif, Marilyn | The Journal of Law in Society, Spring 2019 | Go to article overview

The (Mis)classification Issue: Should Federal Laws Preempt State Statutes That Classify Gig Economy Workers as Independent Contractors?


Yousif, Marilyn, The Journal of Law in Society


I. INTRODUCTION

In today's competitive business environment, employment relationships have transformed from long-term stable relationships between workers and their respective firms to ones in which workers are free agents operating in a "boundaryless" workplace. Industries are increasingly employing workers as "independent contractors" and often times intentionally to reduce labor costs. (2) This intentional or improper misclassification of workers deprives individuals of benefits and protections that would otherwise be afforded to them if they were properly classified as "employees." (3)

Particularly, this new business environment poses a conundrum for Michigan's working poor. In some Michigan cities, such as Detroit, "low-wage jobs, especially those in the service sector, are increasingly shifting away from traditional full-time employment with benefits towards part-time, on-demand or contingent employment with fluctuating hours and few benefits." (4) Given that Michigan's labor pool is already dominated by low-wage jobs, Michigan's working poor, specifically those in Detroit, are more vulnerable than ever before to financial and job instability.

Unfortunately, this problem expands to more individuals when national policies that were designed to ensure that workers receive decent wages and benefits no longer apply to those who are classified as "independent contractors." Several state legislatures have enacted statutes formulating their own versions of "pronged tests" to determine whether a worker is an "employee" or an "independent contractor." (5) Though enacted for purposes of preventing willful misclassification of workers, these statutes come into direct conflict with federal law. (6) As a result, Congress and courts have expanded their roles in governing the workplace through control tests, with a primary intent to determine the employment relationship between worker and employer and to reduce the number of misclassified workers. (7) This "existence of an employment relationship triggers rights and duties under numerous federal, state, and local statutes," (8) and therefore, it is important to address when a federal law should preempt a conflicting state statute.

This Note analyzes Michigan's 2017 "Limousine, Taxicab, and Transportation Network Company Act" and its effect on employment relationships between workers and employers in the gig economy. Specifically, the focus is on Section 37 of the Act, which labels Transportation Network Company (TNC) drivers as "independent contractors." The background section of this Note dives into the history and development of the National Relations Labor Act (NLRA) and the Fair Labor Standards Act (FLSA). It then explains the role of rideshare companies, such as Uber and Lyft, within the gig economy. More specifically, it addresses how workers in the gig economy are classified as "independent contractors" and thus have lost their protections under the FLSA and NRLA. The background section ends with a detailed overview of Michigan's "Limousine, Taxicab, and Transportation Network Company Act," also known as Michigan's TNC Statute, explaining that state legislatures have taken it upon themselves to classify workers' employment status by use of mandatory legislative provisions. The overview of Michigan's TNC statute sets up for the argument that such action on the part of state legislatures is impermissible and preempted by federal law.

The analysis section of this Note begins with an overview of the Supremacy Clause and identifies well established and federally implemented control tests used to determine employment relationships between employers and their workers. The argument that follows is that, when it is impossible to comply with both state and federal requirements, federal laws like the NLRA and FLSA preempt state laws, such as Michigan's TNC statute. The analysis section demonstrates that worker misclassification is so heavily contested that employers have taken stances both against and for federal preemption through the use of case law. …

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