A category, not a technology

The “gig economy” is, despite its name, not really a technology. It is a labor-classification arrangement. Workers who use a platform app to find customers — driving rideshare, delivering food, doing tasks, performing care work — are classified as independent contractors rather than employees. That single classification difference determines almost everything else: minimum wage, overtime, unemployment insurance, workers’ compensation, the right to organize.

The classification is contested because the work, in substance, often looks very much like employment. Drivers don’t set their own prices, market themselves to customers, or carry their own commercial insurance. They work according to the app’s algorithm, are deactivated for failing the app’s metrics, and have no meaningful control over the conditions of their labor. The traditional legal tests for distinguishing employees from contractors — control, integration into the business, opportunity for profit and loss — do not produce confident contractor classifications.

The legal tests

There are several distinct legal tests, and which one applies depends on which statute is at issue:

• The common-law control test asks whether the hirer controls how the work is done. Used for tax purposes by the IRS.
• The economic-realities test asks whether the worker is economically dependent on the hirer (multi-factor analysis: control, opportunity for profit/loss, investment, skill, permanence, integration). Used under the Fair Labor Standards Act for minimum-wage and overtime.
• The ABC test is a stricter three-prong test. A worker is presumed to be an employee unless the hirer proves: (A) the worker is free from the hirer’s control, (B) the work is outside the usual course of the hirer’s business, and (C) the worker is customarily engaged in an independent trade. If the hirer fails any prong, the worker is an employee.

The ABC test is the most worker-protective. It is the test used by California (AB 5), Massachusetts, New Jersey, and several other states for state employment law. The “B” prong — work outside the usual course of business — is the prong that platform companies almost always fail. A driver for a rideshare company is, by any common-sense reading, performing the company’s core business.

Proposition 22 and what came after

In 2020, after California’s AB 5 codified the ABC test for state employment law, a group of platform companies (Uber, Lyft, DoorDash, Instacart) spent over $200 million to pass Proposition 22, a ballot measure carving app-based drivers out of AB 5. Proposition 22 passed.

Proposition 22 created a new category of worker — the “app-based driver” — with a constructed bundle of benefits well below standard employment protections: a minimum guarantee tied to “engaged time” only (not waiting time, which can be a third or more of the work day), a healthcare stipend tied to weekly hours, and limited occupational accident insurance. Crucially, app-based drivers under Proposition 22 have no right to unionize.

Several other states have passed Proposition 22 analogues. The pattern is consistent: heavily industry-funded ballot measures, opposed by labor and consumer groups, passing on uneven turnout.

Litigation over Proposition 22’s constitutionality is ongoing. The California Supreme Court upheld it in 2024 against a challenge based on the legislature’s exclusive authority over workers’ compensation. Other state-level challenges are at various stages.

The federal lever

The federal Department of Labor’s 2024 final rule on independent contractor classification under the Fair Labor Standards Act reinstated the strict multi-factor economic-realities test. This rolled back a 2021 Trump-era rule that had simplified the test in ways that made contractor classification easier.

The 2024 rule does not, by itself, reclassify platform workers as employees. It establishes the test that DOL enforcement and litigation will apply. Whether platform workers count as employees under the test will continue to be litigated case by case.

The PRO Act, discussed in a separate brief, includes the ABC test for purposes of the National Labor Relations Act — meaning that platform workers would have organizing rights under federal labor law if it passed.

What’s at stake

The misclassification fight is not just about platform workers. It is about whether large categories of work can be defined out of the protections that took eight decades to build.

If a company can credibly argue that its workforce is a workforce of independent contractors, it owes no minimum wage, no overtime, no unemployment insurance contributions, no workers’ comp premiums, no Social Security or Medicare employer share, no health-insurance employer mandate, no payroll taxes. It also faces no obligation to bargain.

The economic incentive to misclassify is therefore enormous. The DOL has estimated that misclassification costs the federal government, state unemployment funds, and Social Security tens of billions of dollars annually in lost contributions. The cost to misclassified workers — wage theft, lost benefits, lost organizing rights — is correspondingly larger.

What to watch

• DOL enforcement of the 2024 rule. Whether the rule is enforced aggressively or symbolically depends on staffing, priorities, and the political environment.
• State-level fights. Several states (NY, NJ, IL, MA) are advancing new state-level enforcement initiatives. Washington and California are testing new sectoral-bargaining frameworks for platform work.
• Sectoral approaches. Some advocates have shifted toward sectoral bargaining models (industry-wide councils that set standards) as a complement or alternative to the misclassification fight. Seattle’s pioneering work on app-based driver pay, and Massachusetts’ nurse-staffing legislation, are early examples.
• Litigation over Proposition 22 analogues. Outcomes will shape the next decade of platform labor regulation.
• PRO Act inclusion. The ABC test in the PRO Act is one of its most important provisions for the platform workforce.

Bottom line

Misclassification is one of the most consequential silent fights in US labor policy. Its outcome will shape whether the protections of US labor law continue to apply to a workforce that increasingly looks like the workforce of the future, or whether large parts of the economy are written out of those protections under a thin technological pretext.