Guest Post: The Ghent System and Progressive Federalism

Matthew Dimick is Associate Professor of Law at the University at Buffalo School of Law.  He can be reached at mdimick@buffalo.edu.

Last week, the US Department of Labor released its latest union membership statistics.  In 2016, the rate of union membership among wage and salary earners—or union density—was 10.7 percent, down 0.4 percent from the previous year.  Unsurprisingly, union membership remains low, and far below its historical high point.  In 1964, for example, nearly a third of workers belonged to a labor union.

Union density is not the end-all and be-all of unionism, but it’s hard to overestimate its importance for succinctly capturing the strength of a labor movement.  Union members pay dues, are more likely to vote (and probably more likely to vote Democrat), and are more likely to participate in job actions and other tactics necessary to put economic pressure on an employer.  Even more broadly (and loftily), union membership initiates workers into an institution of community for both transcending differences (e.g., between races and genders) and developing broader, collective interests.

It’s not surprising therefore that goal number one of the labor movement has been to reverse the decades-long decline in union density.  This goal takes on existential proportions in light of the continued legal and political assaults on labor unions.  Last year, public sector unions—constituting no less than 40 percent of total union membership—dodged a bullet when the death of Justice Scalia led to a deadlocked Supreme Court in the Friedrichs case.  Had Justice Scalia lived, it is almost certain that the Court would have allowed public sector workers to enjoy the benefits of collective bargaining without having to join the union or otherwise contribute to supporting it financially.

Unfortunately, with a Trump presidency, labor supporters weren’t allowed much of a reprieve.  And given the larger political climate and vicissitudes of national labor law, this should impel the labor movement to seek out other ways of building union membership.  One of these ways, as I discuss in this post, is to adopt what is called the “Ghent system.”

Uber and Progressive Federalism

As Jon reported last night, an individual arbitrator has issued an award finding a California Uber driver to be an independent contractor rather than an employee.  The award is wrongly decided. I won’t engage in a complete analysis here, but, to find employee status, the arbitrator relies primarily on four California cases, three of which involved FedEx drivers. The arbitrator concludes that the facts of the Uber case resemble previous cases in which workers were found to be independent contractors. She holds:

Uber drivers are not supervised; supply the cars they drive; do not wear Uber uniforms or signage; can drive simultaneously for any competitor, including Lyft, Uber’s biggest competitor; are paid for each ride and have the unfettered option to work as little or as much as they want and whenever they want in the geographical location assigned to their platform.

But to find independent contractor status on this basis, the arbitrator has to ignore some other highly relevant cases, including a 2006 California decision involving drivers who worked for a courier company, JKH Enterprises, Inc. v. Dep’t of Industrial Relations. In JKH, the court found that the drivers were employees despite the following:

[T]he drivers are free to decline to perform a particular delivery when contacted by the dispatcher, even if the driver has indicated his or her availability for the day . . . .  All drivers [] use their own vehicles . . . They pay for their own gas, car service and maintenance, and insurance . . . . The drivers’ cars do not bear any JKH marking or logo. And the drivers themselves do not wear uniforms or badges that evidence their affiliation or relationship with JKH.  Some of the drivers perform delivery services for other companies as well . . . .  The drivers receive no particular training. . . . All drivers set their own schedules and choose their own driving routes.  Their work is not supervised.  Indeed, JKH only has a vague idea of where its working drivers are during the business day. . . . The drivers take time off when they want to and they are not required to ask for permission in order to do so.

So, this particular Uber arbitration award is wrongly decided. Of much broader importance, however, the award brings home something critical about progressive federalism: namely, progressive states need to clarify that gig workers, like Uber drivers, are employees within the meaning of state employment law.

Regressive Federalism

As we approach January 20th, labor advocates and other progressives are placing their hopes in a handful of states and cities.  The hope, as part of a “progressive federalism,” is that these states and cities will have the capacity to chart a course distinctly different from the one being pursued by the federal government.

Among these promising localities is New York, where both the state legislature and the the City Council and Mayor are already at work on a number of innovative and promising bills. But Josh Eidelson at Bloomberg Businessweek and Cole Stangler at The Village Voice report on a bill under development in New York that should be a concern to progressives and to labor. This bill, being pushed by Handy and by Tech NYC (“a newly formed statewide tech-industry trade association that includes Uber”), would allow companies to categorize their workers as independent contractors if those companies contribute to a “portable benefits” fund.  Although we haven’t been able to track down the official legislative language yet, news reporting on the bill suggests that it will function as follows: Gig-economy firms that wish to take advantage of the new law would contribute 2.5% “of the fee for each job performed by the gig economy worker” to a portable benefits fund. Workers would then be permitted to use the monies in their account to purchase a health or retirement plan, or perhaps other benefits.  In exchange, all those who work for participating firms would be classified as independent contractors under state law as long as they are permitted to choose their schedules and work for other companies.

Put somewhat bluntly, the proposed bill would allow gig firms to buy their way out of New York employment law for a fee equal to 2.5% of each job performed by their workers.

Thinking about a Third Category of Work in the Trump Years

During the last few years of the Obama Presidency, we saw a productive debate over the question of whether changes in the organization of work called for a new legal categorization of workers. In particular, the question was whether we need a third category, intermediate between “employee” and “independent contractor,” to capture the kinds of work arrangements typified by gig economy firms like Uber. Seth Harris and Alan Krueger, in a leading example, called for the creation of a legal category they named “independent worker,” which would grant some – but not all – protections of employment law to workers engaged in these types of work relationships.

There were several primary points of contention in the debate. One was whether such a third category actually was necessary, or whether the existing categories of employee and independent contractor were flexible and capacious enough to capture the new work relationships. Harris and Krueger took one position on this question, I took another.

A second question was whether a third category would result in ‘leveling up’ or ‘leveling down.’ One hypothesis was that if we created a new category – independent worker or something similar – workers previously classified as independent contractors would be shifted up (as it were) into the new category and thus granted expanded protections relative to what they enjoyed as contractors. The other hypothesis, the more pessimistic one, was that workers previously classified as employees would be shifted down into the new category and thus offered fewer protections relative to what they enjoyed as employees.

The Obama administration, with the Perez/Weil team in charge at the Department of Labor, presented a relatively favorable political context for trying out a third category of worker.