The Other Labor Topics
With Labor Day upon is, it’s worth a moment to pause and reflect with gratitude on all the successes we enjoy as workers based on the debates, battles, and policy advancements that have taken place long before our times. I am not a member of a union, but I still benefit from decades of union advocacy on things like safe working conditions, the 40-hour work week, and in more recent times, paid time off policies and a litany of other benefits that provide security and peace of mind to me and my family.
The Labor Movement lives on, continuing to advocate around familiar topics like higher wages, expanded paid family medical leave, more robust healthcare, and safer and more environmentally friendly working conditions in all manner of industries. Plenty of digital ink is spent documenting and commenting upon these worthwhile topics, any one of which could be its own article or series of articles. For today, however, I wanted to take a look at several unique labor-related causes on the forefront of policy debates from Maine to California (especially in California).
Gig Worker Classification
Is a driver for Uber an independent contractor or an employee of Uber? This question has led to untold millions of dollars of lobbying, lawsuits, and other legal battles in recent years. Uber says their drivers are self-employed, which saves the company from having to pay health insurance, offer paid time off, or contribute to retirement plans, among other financial implications. Uber is a publicity traded company, and as such, aspires to profitability. Reducing labor costs is one way to do that.
Drivers argue, on the other hand, that they are not being properly compensated for their labor, and they also deserve the workplace benefits that millions of other Americans enjoy in other corporate settings. Uber would argue, however, that its drivers enjoy other non-compensatory benefits by being characterized as independent contractors, including flexibility in scheduling and not having to report to or be managed by a traditional corporate structure.
Somewhat of a compromise was struck in 2020 through California’s Proposition 22, which was approved by California voters by a 59-41% margin. Prop 22 was seen as a win for the gig companies, but did provide some support for the workers, too. It preserved the rights of gig employers like Uber, Lyft, DoorDash, and many others to continue to characterize their drivers as independent contractors (i.e. not employees of the company), but Prop 22 also said that gig workers had to earn a minimum of 120% of the local minimum wage and be entitled to some form of health care subsidy upon achieving a certain number of hours.
Prop 22 has been the subject of ongoing legal challenges ever since it passed and could be pursued further by either the Harris or Trump Department of Justice next year or could likely eventually make it to the Supreme Court, although that could still be years away.
Taxation of Tips
The 2024 Presidential Campaign has seen a rare point of coming ground between the two sparring candidates, and that is around the question of the taxation of tips. Trying to appeal to younger voters and the millions of Americans in the restaurant and hospitality sectors especially in key states like Nevada and Florida, both former President Trump and Vice President Kamala Harris have suggested that tips should be tax-free. At a campaign rally in Las Vegas on June 9th, Trump said, “To those hotel workers and people who get tips, you are going to be very happy, because when I get to office we are going to not charge taxes on tips…we’re going to do that right away, first thing in office.” Harris responded in August by saying (also at a rally in Las Vegas), “It is my promise to everyone here when I am president, we will continue our fighting for working families of America including to raise the minimum wage and eliminate taxes on tips for service and hospitality workers.” Trump immediately accused her of copying him.
So will it happen? Economists estimate an elimination of taxes on tips would cost the federal government $150-$250 billion per year in revenue. There is also some nuance that neither candidate has thoroughly addressed like whether the proposals apply to only income taxes or also Social Security and Medicare taxes, as well. There is also an obvious question about whether the president (regardless of who it is) can enact such a change or whether Congress would be supportive. The Harris Campaign, at least, has noted that such a change would require legislation and that she would likely marry tax cuts on tips with an increase in the federal minimum wage, which as of now still stands at $7.25/hour (although many states have higher state minimum wages).
Economists and others have also warned that if tips become non-taxable, both employers and employees will move to categorize more regular wage income as “tips,” so as to avoid taxation. I’ve even seen some realtor friends on Facebook pondering whether real estate commissions could be considered a “tip” under any new federal tax guidelines. Most likely….no.
The Elimination of Non-Competes
According to the Federal Trade Commission (FTC), over 30 million Americans are subject to non-compete agreements at their jobs. Per an FTC bulletin from this past April:
Noncompetes are a widespread and often exploitative practice imposing contractual conditions that prevent workers from taking a new job or starting a new business. Noncompetes often force workers to either stay in a job they want to leave or bear other significant harms and costs, such as being forced to switch to a lower-paying field, being forced to relocate, being forced to leave the workforce altogether, or being forced to defend against expensive litigation.
By eliminating non-compete clauses, the FTC estimates that 8,500 new businesses would be started each year by workers who are essentially boxed into their current jobs. FTC Chair Lina Kahn estimates that without non-competes, there would be an estimated 17,000-29,000 new patents per year, and the average annual wage would go up for all American workers by an extra $524/year by making wages more competitive.
The five-member FTC commission only narrowly passed the new rules, doing so by a 3-2 margin. A carve-out was preserved to allow existing non-competes for members of executive management, which the FTC defines as employees making over $151,164/year who are in a policy-making position. But new non-competes even for executive-level management would not be permitted under the new rules.
However, just two weeks ago, these proposed rules were blocked by a federal judge in Texas, who said the FTC lacked the statutory authority to enact such a change, and that the FTC failed to address or understand the nuance between different industries. The rules were set to go into effect on September 4th, but will now be on hold unless (or until) the FTC successfully appeals the decision, which will likely take some time.
Happy Labor Day
As noted at the outset, not all of us are a part of a union, but we all have a vested interest in good working conditions and fair play. I hope this Labor Day Weekend everyone gets a chance to take a break, kick back, and enjoy one of the last weekends of the summer before (at least here in the Northeast) we turn to fall.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Have a great week, everybody. I’m spending the weekend in Cumberland, Maine with my son’s U11 soccer team. The day of publishing of this article (September 1st) is also my wife’s and my 12th anniversary, which we will happily spend this year watching soccer. Happy Anniversary to us.