The proposal would require US workers who are “economically dependent” on a company to be considered its employees and therefore entitled to more benefits and protections.
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 ride-hailing, delivery services and other industries that rely on gig workers.
Gig company stocks were hammered in the news, with Uber, Lyft and DoorDash all falling at least 10 percent.
The proposal, unveiled on Tuesday, would see workers considered employees of a company, entitled to more benefits and legal protections than contractors if they are “economically dependent” on the company. This could have far-reaching implications for corporate profits and hiring, as well as for household incomes and workers’ quality of life.
The Labor Department could restrict independent contracting and said it will consider, among other things, workers’ chances of winning or losing, the stability of their jobs and the degree of control a company exercises over a worker.
The final regulation is expected next year.
Most federal and state labor laws, such as minimum wage and overtime pay, apply only to a company’s employees. According to studies, employees can cost companies up to 30 percent more than independent contractors.
Millions of Americans work in “gig” jobs, and that work has become critical 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.
“The misclassification deprives workers of their federal labor 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 corporations against Democrats and labor groups. It would replace an ordinance by former US President Donald Trump’s administration that said workers who own their own business or have the ability to work for competing companies, such as For example, a driver working for Uber and Lyft may be treated as a contractor.
Labor attorney Seema Nanda, the department’s chief justice officer, said Tuesday that the Trump-era rule favored by business groups could not keep up with decades of decisions by federal courts.
The new proposal reflects legal guidance issued by President Barack Obama’s administration, which was withdrawn by the Labor Department under Trump.
More than a third of U.S. workers, or nearly 60 million people, have done some type of freelance work in the past 12 months, according to a December 2021 survey by freelance marketplace Upwork.
Groups representing businesses, including the US Chamber of Commerce, the largest US business lobby group, the National Association of Home Builders, the National Retail Federation and Associated Builders and Contractors, had met with White House officials to advocate a more business-friendly standard to use .
These groups have said any sweeping rule would hurt workers who want to remain independent and remain flexible.
Workers’ representatives have stated that companies are increasingly misclassifying workers as independent contractors and withholding fair wages and benefits from workers in order to bolster profits. Most worker benefits in the US—including medical insurance, sick pay, workers’ compensation, and unemployment insurance—are tied to an employment relationship.
Wedbush analyst Dan Ives said in a research note that the proposal was “a clear blow to the gig economy and a short-term problem for companies like Uber and Lyft.”
“For rideshare and other gig economy players that depend on the contractor’s business model, a classification for employees would basically turn the business model on its head and create some big structural changes if it stays that way,” Ives said.
But both Uber and Lyft dismissed the potential impact of the new rule, saying they could succeed in either scenario.
“Today’s proposed rule takes a measured approach and essentially takes us back to the Obama era, where our industry grew exponentially,” CR Wooters, Uber’s head of federal affairs, said in a statement.