This past year witnessed two major federal developments on employment status. In June, the National Labor Relations Board (NLRB) held that the hair and makeup stylists petitioning for union representation at the Atlanta Opera were employees entitled to protections under the under the National Labor Relations Act. In doing so, the Board overturned its previous decision in SuperShuttle, which identified “entrepreneurial opportunity” as the “animating principle” behind the common law agency test for distinguishing employees from independent contractors. In its place, the board reinstated a test that looked at all the incidents of the relationship to determine whether an individual was “rendering services as part of an independent business.”
Earlier this month, the Department of Labor similarly abandoned a Trump-era rule that narrowed the test for employment status under the Fair Labor Standards Act, here again reverting to a multi-factor approach. The Trump Administration’s 2021 rule had elevated “control” and “opportunity for profit and loss” into “core factors” in the test for employment status. The Biden DOL’s new 2024 guidance restored the “totality of circumstances” approach to determining employee status that had previously prevailed.
These changes have rightly been hailed as worker-friendly policies, since a wider range of workers will now qualify for employee protections under federal law. But how should we understand these developments from a political economy perspective? In this brief post, I argue that these decisions attempt to address three important trends in employment classification. First, they limit opportunities for businesses to manipulate the employee/independent contractor distinction, opportunities created when tribunals attempt to make employment legible as a contract. Second, they reject the ideology of human capital in employment status evaluations. And, finally, they abandon what I’ll refer to as the “arbitrage economy.”
Human servitude as “freedom of contract”
One way to understand the importance of the Biden-era classification rules is that they limit the ability of companies to exploit the ambiguities in legal tests for employee status that inevitably arise from treating one’s ability to work as something exchangeable via contract.
Employment might nominally look like a contract: the employee agrees that the employer can use their labour power and the employer promises payment. But labour power is nothing less than the ability to take purposive action, and you cannot contract away that which gives you the capacity to contract in the first instance. And given its inalienability, an employer cannot “use” an employee’s labour power without the employee continuously renewing assent. Further, the employer’s promises to pay is open-ended: the employer promises to pay for whatever it manages to extract from the employee ex post. The initial exchange between employer and employee thus fails to conclude a contractual bargain. As John Commons noted long ago, “The labor contract is therefore not a contract, it is a continuing implied renewal of contracts at every minute and every hour….” The “laborer is thus continuously on the labor market-even while he is working at his job he is both producing and bargaining, and the two are inseparable.”
Why does the lack of a distinction between bargaining and producing matter for employment status? In Capital, Volume I, Marx distinguishes two abodes. The first, the market abode, “within whose boundaries the sale and purchase of labour-power goes on, is in fact a very Eden of the innate rights of man.” Here, employer and employee “contract as free agents….” However, in the second abode, that of production, “He, who before was the money-owner, now strides in front as capitalist; the possessor of labour-power follows as his labourer. The one with an air of importance, smirking, intent on business; the other, timid and holding back, like one who is bringing his own hide to market and has nothing to expect but — a hiding.”
The lesson: using one’s superior power to dominate the terms of the bargain is consistent with independent contracting. In the market abode, the parties meet as equals, each makes the best bargain they can for themselves, and contract law remains largely indifferent to whether it is fair. However, when someone uses their power to dominate another in the abode of production, this suggests the command-obey dynamic of employment.
Because it is so difficult to fit employment into a contractual template, however, contract law’s premise of a distinction between bargaining and performance is an unreliable way of identifying the abode of production. And when tribunals apply the legal tests as if the rituals of contracting clearly separate these abodes, the legal tests become easier to manipulate.
Many businesses have become adept at engineering work relationships to shift features of employment from the abode of production to the market abode, without in fact restricting the company’s discretionary control over the worker. For example, employers typically supervise employees and review their performance periodically to provide feedback and make personnel decisions, like whether to discipline or terminate an employee. Under the legal tests, these practices should be evidence of employment status, as they reflect employer control over the abode of production. However, businesses have persuaded courts that supervising workers and holding “business discussions” with them to review and correct their work is instead akin to bargaining about whether to renew the worker’s contract. And, once some feature crosses the threshold, some tribunals feel they must exclude it from their evaluation of employment status: “Freedom of contract” prohibits them from considering any domination over the worker in the market abode. As the NLRB illustrates in SuperShuttle: “Large corporations such as Fed-Ex or SuperShuttle will always be able to set terms of engagement in such dealings, but this fact does not necessarily make the owners of the contractor business the corporation’s employees.”
So, one disagreement between the Trump and Biden DOLs concerns “contractual” control and supervision: whether contract terms, and supervising work to ensure compliance with these terms, counted as “control” over the work and evidence of economic dependence. The 2021 rule said no: “Requiring the individual to…meet contractually agreed-upon deadlines or quality control standards, or satisfy other similar terms that are typical of contractual relationships between businesses…does not constitute control.” Indeed, some tribunals have taken the position that, where an entity does not order a worker to do anything beyond what is agreed to in the contract, such control is not evidence of employee status.
Gig companies have taken advantage of this tendency. Information technology has enabled companies to deploy digital Taylorisation: controlling workers, for instance, by breaking up jobs into simpler components, automating tasks, and leveraging information asymmetry. This likewise facilitates contractual Taylorisation. Take a food delivery platform, for example. Instead of a single contract directing a worker to make deliveries as the employer requests them, each delivery is a separate contract that directs where, when, and how to deliver a meal. The gig company has thus shifted this direction—and likewise its supervision of the worker’s compliance—from the abode of production to the market abode.
In contrast to the 2021 rule, the 2024 rule emphasizes that contractual control can be evidence of employee status, so employers cannot avoid responsibilities to employees through such shifts.
Human capital and the arbitrage economy
Other differences between the Trump and Biden NLRB and DOL concern the importance of “entrepreneurial opportunity” and what it means to be in business for oneself. The Trump-era NLRB and DOL embraced the ideology of “human capital” and a vision of the economy where profit is made not by adding value, but through arbitrage and speculation.
Under the neoliberal theory of human capital, an individual’s knowledge, skills, experiences, and relationships are considered “human capital” because they shape one’s economic future and are unbound to any particular kind of production. Individuals possesses the means of production in their human capital. Instead of owning labour power and performing work, they own productive assets, like time and skills, which they “invest.”
SuperShuttle and the DOL’s 2021 rule use the concept of human capital to interpret the existence of almost any worker discretion as “entrepreneurial opportunity” or an “opportunity for profit or loss.” In SuperShuttle, an airport shuttle company transformed itself into a gig company and reclassified its drivers as independent contractors. Although its drivers were completely dependent on SuperShuttle for work, and drivers had essentially no control over their revenue or costs, the majority on the Board held that they had significant entrepreneurial opportunity: “with total control over their schedule, they work as much as they choose, when they choose; they keep all fares they collect, so the more they work, the more money they make.”
SuperShuttle prohibited drivers from otherwise participating in the transportation industry or using their vans for any outside purpose. The NLRB, however, minimized this restraint on their entrepreneurial opportunity:
the [drivers] do not need the option to work for SuperShuttle’s competitors to maximize their entrepreneurial opportunity to the same extent that they would need that option if SuperShuttle’s hours of service were limited or if SuperShuttle limited the number of hours that they could drive.
Note above the equation of working time with any other undertaking, such as a driver marketing its services to other companies. Under SuperShuttle, a driver’s time was human capital, equivalent to any other capital. Therefore, a decision to venture this capital by working longer was entrepreneurial.
Many gig economy companies have made similar arguments. For instance, a company commenting on the 2024 rule argued that if a driver decided to drive an extra day one week, this decision “is plainly an entrepreneurial decision that reflects managerial decision making.” It continued, “technological advances . . . have facilitated independent contractors’ ability to quickly determine what earnings opportunities and hours worked will yield for them the biggest return on the investment of their time.”
This ideology has been particularly harmful to workers in gig jobs that don’t require specialized skills: although the skill factor here would normally point towards employment status, tribunals have trivialized it by contending that workers exercise entrepreneurial skill when they control their schedules (i.e., decide how to invest their time).
The 2024 rule pushed back on this reasoning and rejected the 2021 rule’s suggestion that controlling one’s schedule necessarily demonstrated “substantial control over key aspects of the performance of the work” and therefore was evidence that the worker was in business for themselves.
The policy changes also reveal disagreements about how businesses should pursue profit: by adding value or by arbitrage and speculation. According to SuperShuttle, any contracting opportunity a worker has is “entrepreneurial,” no matter how unrelated it is to product market competition. A shuttle driver “hiring” another person to drive in their place is “entrepreneurial”—they just need to find someone willing to accept less than the company pays them. Likewise, logging into the system for more hours is “entrepreneurial” because it increases the chance of receiving a ride request. The expectation is that workers can be entrepreneurial by identifying arbitrage opportunities or simply speculating.
In contrast, the Biden-era policies tend to associate being in business for oneself with adding value to the economy. In referring to the formal opportunity to hire a helper, for example, the DOL notes “if the action is not feasible financially (for example, the worker is lower-paid and cannot hire others or make purchases),” then the contracting opportunity is not probative of being in business for oneself. As to whether someone has an “opportunity for profit or loss depending on managerial skill,” the 2024 rule gives several examples dealing with product market competition, like “whether the worker determines or can meaningfully negotiate the charge or pay for the work provided,” and “whether the worker engages in marketing, advertising, or other efforts to expand their business or secure more work.”
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To an outsider, the differences between the Trump and Biden-era rules might seem like a pedantic quarrel over the semantics of precedent. After all, why should so much ride on the distinction between having “entrepreneurial opportunity” versus “rendering services as part of an independent business”? A political economy perspective, however, reveals a deeper logic: the Biden DOL’s and NLRB’s changes address some pernicious trends in employment classification—the ability of businesses to manipulate the inherent ambiguity in trying to treat employment like a contract, the ascension of the ideology of human capital, and the norm of the arbitrage economy.
This is not, of course, to hail these changes as any kind of panacea. For one, their fate may turn on the who wins the upcoming presidential election. Moreover, the multi-factor, open-ended tests for employment status that they endorse offer less clarity than the ABC test that many states have adopted. Nevertheless, going forward, they should remind us that the employment status wars are fundamentally about how we wrestle with the contradictions of late capitalism.
