The US Department of Labor has proposed a rule that would make it harder for companies to treat workers as independent contractors, a change expected to shake up trucking, delivery and other industries that rely on freelancers.
Shares of gig companies took a hit on the news, with Uber, Lyft and DoorDash down at least 10 percent.
The proposal, unveiled Tuesday, would require workers to be considered employees of a company, entitled to more benefits and legal protections than contractors, when they are “economically dependent” on the company. It could have far-reaching impacts on business profits and hiring, household income, and workers’ quality of life.
The Labor Department could restrict independent hiring and said it will consider workers’ opportunities for profit or loss, the permanence of their jobs and the degree of control a company has over a worker, among other factors.
The final rule is expected next year.
Most federal and state labor laws, such as those requiring minimum wage and overtime pay, only apply to employees of a business. Employees can cost companies up to 30 percent more than independent contractors, studies suggest.
Millions of Americans are working temporary jobs, and this work has become vital to some transportation, restaurant, construction, healthcare, and other business models.
US Secretary of Labor Marty Walsh said in a statement that companies often misclassify vulnerable workers as independent contractors.
“Misclassification deprives workers of their federal employment protections, including their right to be paid their full legally earned wages,” Walsh said.
The rule is the latest move in a politically charged battle that has pitted Republicans and business against Democrats and labor groups. It would replace a regulation by former US President Donald Trump’s administration that says workers who own their own businesses or have the ability to work for competing companies, such as a driver working for Uber and Lyft, can be treated as contractors.
Labor attorney Seema Nanda, the department’s top legal official, said Tuesday that the Trump-era rule, which was favored by business groups, was out of step with decades of federal court decisions.
The new proposal mirrors legal guidance issued by President Barack Obama’s administration, which was withdrawn by the Labor Department under Trump.
More than a third of US workers, or nearly 60 million people, did some form of freelance work in the past 12 months, a December 2021 survey by freelance marketplace Upwork showed.
Groups representing businesses, including the US Chamber of Commerce, which is the largest business lobbying group in the US, the National Association of Home Builders, the National Federation of Retailers, and Associated Builders and Contractors they met with White House officials to push for a more business-friendly standard. .
Those groups have said any blanket rule would hurt workers who want to remain independent and have flexibility.
Worker advocacy groups have said companies are increasingly misclassifying employees as independent contractors, depriving workers of fair wages and benefits to boost their profits. Most worker benefits in the US, including health insurance, sick pay, workers’ compensation, and unemployment insurance, are tied to an employment relationship.
‘A clear hit’
Wedbush analyst Dan Ives said in a research note that the proposal is “a clear blow to the gig economy and a near-term concern for companies like Uber and Lyft.”
“With rideshares and other gig economy players relying on the contractor business model, a classification for employees would essentially change the business model and cause some major structural changes if this holds,” Ives said.
But both Uber and Lyft dismissed the potential impact of the new rule, saying they could thrive in either scenario.
“Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially,” CR Wooters, Uber’s head of federal affairs, said in a statement.
In a blog post, Lyft said the company had been expecting this change since the beginning of current President Joe Biden’s administration. “Importantly, this rule: Does not reclassify Lyft drivers as employees. It does not force Lyft to change our business model,” the company said.
The gig economy giants have resisted previous attempts in the US to require their workers to be classified as employees.
In 2020, California voters overwhelmingly approved a proposal to exempt app-based business drivers from a state law requiring them to be designated as employees. Uber, Lyft and other companies had spent $200 million campaigning for the proposal. However, a judge struck down the ballot measure as unconstitutional last year, starting a legal fight that could end up in the California Supreme Court.
The Biden administration’s proposal will be formally released on Thursday, kicking off a 45-day public comment period.