Independent Contractors Are Not Outside Labor Law
In a recent essay, Unboxing the Gig Worker within Labor Laws, I argued that labor law exists to protect ordinary people from being exploited by systems that are larger, more powerful, and structurally advantaged. I focused on how gig work actually functions in practice—and why calling workers “independent businesses” collapses under even minimal scrutiny.
In writing that piece, I missed something important: how labor laws can also apply to independent contractors. I had my own business as an independent computer programming contractor for many years and thought I was well-schooled here.
Like many people, I had absorbed the idea that independent contractor status places work largely outside the reach of labor regulation.
That assumption is wrong.
Regulated Differently, Not Unregulated
Independent contractor status has never meant “outside the law.” It has always meant regulated differently.
Labor law exists because markets do not self-correct when power is uneven. When one party controls access to work, sets the terms of pay, and can unilaterally end the relationship, the law intervenes—not to eliminate flexibility, but to prevent predictable abuse. That logic does not disappear simply because a worker receives a 1099 instead of a W-2.
Historically, independent contractors have always been subject to regulation. Truck drivers, construction workers, taxi drivers, farm laborers, and freelancers have long operated under legal frameworks that impose minimum standards for pay, safety, transparency, and retaliation—even when they were not classified as employees. Employment classification determines which protections apply, not whether any do.
This distinction is especially important in the gig economy, where companies insist that workers are not employees, while implying that this places their business practices beyond meaningful regulation.
Cities and states can regulate companies without reclassifying workers. They can set minimum standards for how work is offered, how pay is calculated, how compensation mechanisms operate, and how access to work can be withdrawn. These rules regulate conduct, not labels.
The Reclassification Battle
Some states have taken a more direct approach: reclassifying gig workers as employees outright.
California’s AB5, passed in 2019, was the most ambitious attempt. The law established a strict “ABC test” that made it much harder for companies to classify workers as independent contractors. Under this test, a worker is presumed to be an employee unless the company can prove the worker is free from company control, performs work outside the company’s usual business, and operates an independently established trade.
Gig companies responded with Proposition 22, a 2020 ballot measure backed by over $200 million in corporate spending—the most expensive in California history. Prop 22 carved out app-based drivers and delivery workers from AB5, keeping them as independent contractors while offering limited benefits like a wage floor and healthcare subsidies.
The legal fight continued for years. A California court ruled Prop 22 partially unconstitutional in 2021, but the California Supreme Court upheld it in 2024. Prop 22 remains in effect, preserving independent contractor status for app-based drivers while mandating certain benefits like earnings floors and healthcare subsidies.
This matters because reclassification and conduct regulation are different strategies with different tradeoffs. Reclassification forces companies into the full employment framework—minimum wage, overtime, unemployment insurance, workers’ compensation. But it also triggers fierce resistance, massive lobbying campaigns, and ballot measures that can undo legislative victories.
Conduct regulation sidesteps that fight entirely. It accepts contractor status while still imposing meaningful constraints on how companies treat workers.
Other Models Are Emerging
Reclassification and conduct regulation are not the only approaches. Other models are gaining traction—and the United States is actually an outlier in treating employment as a strict binary.
In 2021, the UK Supreme Court ruled that Uber drivers are “workers”—a middle category between employee and independent contractor that carries rights like minimum wage and holiday pay without full employment status. This wasn’t a regulatory experiment; it was a court recognizing that the binary categories failed to capture how gig work actually functions.
In 2024, Massachusetts voters passed Question 3, allowing transportation network drivers to unionize and bargain collectively while remaining independent contractors. This sectoral bargaining approach creates a middle path—workers gain collective power without triggering the reclassification wars that derailed AB5.
Some scholars advocate for a “dependent contractor” category that extends protections based on economic dependence and control rather than formal employment status. Under this framework, a worker who depends on a single platform for most of their income and operates under algorithmic control would receive meaningful protections regardless of their 1099 status.
These approaches share a common insight: the relevant question is not what workers are called, but how power is exercised over them. The American insistence on a strict W-2 versus 1099 binary is not a universal truth. It is a policy choice—and other countries have chosen differently.
New York City Shows How This Works
New York City’s approach to app-based delivery work is a good example. The city did not declare delivery workers to be employees. It did not mandate benefits or traditional employment relationships. Instead, it regulated the companies that control access to delivery work by setting minimum pay standards, requiring transparency, protecting tips as worker compensation, and limiting arbitrary deactivation.
As of 2025, the city’s minimum pay rule stands at $21.44 per hour before tips, with annual inflation adjustments. This policy has delivered significant earnings increases for tens of thousands of workers without forcing reclassification.
The tip protections are particularly instructive. Traditional New York tip laws—like NY Labor Law § 196-d—apply to employees. They protect employee tips from employer theft, regulate tip pooling, and govern tip credits against minimum wage. Independent contractors have historically fallen outside this framework.
Rather than reclassifying gig workers as employees to bring them under existing tip law, NYC created a parallel set of protections that apply specifically to independent contractors. The city’s laws explicitly cover workers who are classified as independent contractors and do deliveries for apps—not employees.
These contractor-specific tip rules require platforms to tell workers how much the customer tipped for each delivery, disclose total pay and tips for the previous day, show tip amounts before workers accept a delivery, and provide a tipping option in apps before or at the time an order is placed.
This matters because even when employees and independent contractors share a common protection—like tip transparency—the rules governing that protection may differ. The city did not try to squeeze gig workers into the existing employee framework. It built a new framework that addresses the same problem through conduct regulation of platforms.
The same applies to retaliation. Traditional labor law protects employees from being fired or punished for exercising their rights. NYC extended this to gig workers: deactivating a contractor for exercising rights under the delivery worker laws—like setting a maximum trip distance—is illegal retaliation. The city has already settled cases against platforms that violated this rule.
But platforms have found ways to respond to regulations without triggering retaliation claims. When the minimum wage law took effect in December 2023, DoorDash and Uber moved tipping options to post-checkout. The business logic can be considered straightforward: customers who feel obligated to tip are more likely to do so at checkout, when they’re already committed to the order. By hiding the tip option until after checkout, platforms reduced visible prices, quietly shifting the burden of the new minimum pay onto workers. This enabled them to keep prices competitive while preserving margins (and hence profits).
This was ostensibly retaliatory in spirit—a collective punishment for the law passing (a presumed complaint by the workers)—but it targeted no specific worker for any specific protected activity.
While the minimum wage law added an estimated $1.2 billion in pay, a January 2026 report from the NYC Department of Consumer and Worker Protection estimates the tipping change cost workers over $550 million in lost tips, with average tips plummeting from $3.66 per delivery to just 76 cents—compared to $2.17 on platforms like Grubhub that kept pre-checkout tipping. Platforms captured nearly half the intended benefit through interface manipulation.
Conduct regulation works, but it requires ongoing adaptation as platforms find new pressure points.
A follow-on article will examine this situation in detail.
Why This Matters
This clarification matters because without it, debates about the gig economy stall immediately. If people believe that independent contractor status places work outside labor law entirely, then any attempt at regulation appears illegitimate. Once that misunderstanding is corrected, the real debate can begin: how labor law should adapt to new forms of control without eliminating flexibility or innovation.
The gig economy is here to stay. Flexible work is here to stay. But neither requires pretending that independent contractors exist in a legal vacuum. They never have.
Understanding that is a prerequisite for understanding everything else that follows—including how gig work actually operates, and why regulating platforms increasingly means regulating the systems they use to manage labor.
Disclosure: The author holds small positions in Uber, Upwork, and DiDi Global Inc.
This essay is intended as a clarification and foundation for a broader series examining how labor law is adapting to the gig economy.