U.S. is fundamentally redefining ‘gig work’; India must take note!

Note the fundamental changes the U.S. is making to ensure better wages, job protection and social protection for gig workers. It has a truly larger amount of gig work, known as “freelance”. In 2021, over 57 million or 36% of all U.S. workers worked “freelance”. India is not quite there yet but moving rapidly. The NITI Aayog says there were 7.7 million gig workers in 2020-21 (2.6% of nonfarm and 1.5% of total workforce) and it is likely to go up to 23.5 million (6.7% of nonfarm and 4.1% of the total) by 2029-30.

The Biden administration is actually undoing the damage the previous Trump administration had caused by making it easier for companies to legally (mis)classify vulnerable workers as “independent contractors” (also known as “partners”) to deny them protections available under the U.S.’s Fair Labor Standard Act (FLSA). What does such (mis)classification do? The U.S.’s Department of Labor (DOL) explained: “Misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large.”

That is, such “misclassification” of workers as gig workers is definitely good for companies but it hurts workers as well as economy.

This misclassification happened through the Independent Contractor Status Under the Fair Labor Standards Act or 2021 IC Rule – also called ‘Trump rule’ as President Donald Trump brought it. It turned the U.S.’s traditional and historic determination test of “workers” on its head. For “more than 7 decades” the DoL and federal courts had relied on a broad-based “economic reality test” to determine whether a worker is an employee, that is dependent on the employer and the business, or independent contractor (independent of the employer and the business).

The reversal that the U.S. has now initiated will be given a final shape and come into effect after the 45-day period of public consultation (which began on October 13) ends.

The reversal holds the key to real change in addressing the precarity of gig workers and hence, is significant for India to take note. Here, gig workers get abysmally low wages, unlimited working hours with no social protection whatsoever. The remedy doesn’t lie in social security cover alone – as (i) the Code on Social Security 2020 promises but not yet delivered or (ii) recommended by the NITI Aayog in its June 2022 report, “India’s Booming Gig and Platform Economy: Perspectives and Recommendations on the Future of Work.

But more of that later. First about the change in the U.S.

What the U.S. is doing

Rescinding the Trump rule, US is redefining “independent contractors” (legalese for gig workers) by reverting back to a more broad-based test of a worker’s economic independence.

The Trump rule narrowly decided “independent contractors” by giving primacy to two “core” factors: (a) the nature and degree of control over the work and (b) the worker's opportunity for profit or loss. It did list three other factors as “non-core” and made them irrelevant for the end result: (c) the skill required for the work (d) the degree of permanence of the working relationship between the worker and the employer and (e) whether the work is part of an integrated unit of production.

The new rule, as the DoL explains, restores the “multifactor, totality-of-the-circumstances analysis” to determine if a worker is an employee dependent on the employer and the business, or truly economically independent of them. There would be no predetermined assignment of weights (no more “core” factors) as the Trump rule did. The multifactor test includes “economic reality factors” such as “investment, control and opportunity for profit or loss factors” and “integral factor” which considers whether the work is integral to the employer’s business.

Such broad-based “reclassification” of workers as employees would allow a large number of gig workers to be treated as workers and get benefits under the FLSA. This would also raise the labour cost and no wonder there is considerable grumble from businesses. One analyst says the move, when fructifies, would “throw the business model upside down and cause some major structural changes”.

This change is similar to the 2020 law of California, the first U.S. state to adopt a new law to govern gig workers.

California law of 2020 on gig workers

Here is how the NITI Aayog’s 2022 report explains the ABC-test California has adopted to determine if a worker is employee or independent of the employer and the business where she/he works.

Under this test, a worker is considered an employee (not an independent contractor) “unless” the hiring entity (employer/business) satisfies the following three conditions:

• The worker is “free from the control and direction of the hiring entity” with respect to the performance of the work, under the contract for the performance of the work as well as in fact.

• The worker performs work that is classified “outside the usual work” of the hiring entity’s business.

• The worker is customarily engaged in an “independently established trade, occupation, or business of the same nature” as that involved in the work performed.

The Aayog says this law has extended labour protection like paid leave to about one million workers earlier classified as contractors.

Why must the Aayog be brought in to explain the Californian law? Here is why.

NITI Aayog’s silence on fundamentals

The Aayog takes due notice of the California law and explains its salient points. It even talks of studies which have identified three key challenges for gig workers as (i) lack of job security (ii) irregularity of wages and (iii) uncertain employment status for workers. It also says, as a result of workers being classified as “independent contractors” such workers “cannot access many of the workplace protections and entitlements”.

Now, no prize for guessing that the Aayog doesn’t recommend the Californian law – that is, redefining the relationship between worker and employer/business.

Or anything else that addresses the three challenges – job security, wages, uncertain employment status.

Instead, it copy-pastes a list of social protections that can be provided to gig workers: paid sick leave, health access and insurance, occupational disease and work accident insurance, retirement/pension plans and other contingency benefits, support to workers in a situation of irregularity of work, supporting small businesses and entrepreneurs associated with platforms and contingency cover out of a corpus fund.

Going by the fact that in India most of regular wage/salaried workers – the best category workers – don’t even have written contract (that is, no legal status) and get no social protection, the Aayog’s recommendations make little sense.

Here is evidence of this from official data.

The latest PLFS of 2020-21 says, 64.3% regular wage/salaried workers had “no written job contract” and 53.8% were “not eligible for any social security benefit” in 2020-21. In 2017-18, 49.6% of regular wage/salaried had no social security cover at all and their numbers are swelling by the year (reaching 53.8% in 2020-21).

There is more to it.

Centre’s lip service

The Centre passed the Code on Wages 2019, in August 2019, claiming to expand and ensure minimum wage coverage even to “unorganised” (or informal) sector. But it excludes a substantial part of workers – 22% of the total establishments in fact, by excluding establishments with five or less workers engaged in “agriculture” alone. Gig workers, platform workers and home-based workers don’t even find a mention, let alone be included!

So, gig workers can’t expect to get minimum wages even when the Code on Wages 2019 comes into force in future (already late by more than three years).

The Code on Social Security 2020 does include gig workers as part of “unorganised” sector workers to be provided social security but the actual security cover is vague.

The code says, the Central and state governments “shall frame and notify, from time to time, suitable welfare schemes for unorganised workers”. There is no concrete plan, no timeline, no definitive funding architecture for any such scheme or schemes. It, in fact, removed very specific social protections given under the previous laws which it replaced.

Two years on, the code remains on paper, with no sign of rules to make it operational. So, no scheme has been announced by the Centre or state governments for any worker, not just gig worker.

Worsening conditions of gig workers

Past two years have witnessed multiple protests from gig workers against unfair working conditions, cut in wages/compensations/bonus/commissions and absence of social security cover. A survey of 2021 in Delhi-NCR region showed for most gig workers it was their primary job and their wages had considerably reduced after withdrawal of bonuses and commissions. A PIL was filed in the Supreme Court in December 2021 by app-based transport workers (Ola, Uber drivers) for better social security, which is still pending.

Fairwork India Ratings, which maps labour standards of platform economy (engaging gig workers) in five areas – fair pay, fair conditions, fair contracts, fair management, and fair representation – painted a dismal picture in its 2021 annual report. It said not one platform scored more than 7 points, out of 10; none ticked all five basic areas and three – Ola, Porter and Uber – scored zero. Incidentally, Ola and Uber are unicorns.

This should have rung the alarm bells, as gig work is expanding dramatically.

Start-ups, including many celebrated unicorns and established multinationals such as Amazon, Flipkart, Uber, Ola, Zomato, Swiggy, Urban Company, Big Basket, Grofers etc. hire gig workers at low wages with no social protections.

The Aayog lists 21 occupations for gig workers: professionals in computers, architecture, accounts, finance etc. to drivers, travel attendants, housekeeping workers, domestic and related helpers, personal care workers, street vendors, launderes, cleaners etc. They are spread across 15 industries: manufacturing, electricity, water supply, construction, retail trade, transport and storage, accommodation and food services, information and communication, financial and insurance services, real estate, administration, other education, educational support, residential care and repair of computers and personal and household goods.

Not all of them get low wages. Skilled workers do make good money but a larger proportion of unskilled workers (delivery, repair works etc.) don’t. The Economic Survey of 2021-22 says, informal workers constitute 89% of the total workforce. They don’t get social security. Besides, as mentioned earlier, 64.3% workers in best quality jobs (regular wage/salaried) are informal with no legal status (no written contract) and 53.8% get no social security of any kind.

No economy can thrive, no growth can be sustainable and no country can be prosperous with such precarious lot of workers.