WASHINGTON, Oct 11 (Reuters) – The U.S. Labor Department on Tuesday 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 and other businesses. The industry relies on odd jobs.
Shares of Gig Corp. were hit by the news, with Uber (UBER.N), Lyft (LYFT.O) and DoorDash (DASH.N) all down at least 10 percent. Groups representing employers were quick to criticize the rule.
The proposal would require workers to be considered employees of the company, entitled to more benefits and legal protections than contractors when they are “economically dependent” on the company. It could have wide-ranging effects on company profits and hiring, household incomes and workers’ quality of life.
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The Labor Department said it would consider workers’ “profit or loss opportunities, investments, permanence, the level of control the employer has over the worker,[and]whether the job is an integral part of the employer’s business,” among other factors.
A final rule is expected next year.
Most federal and state labor laws, such as those requiring minimum wages and overtime pay, apply only to a company’s employees. Research shows that employees can cost up to 30% more than independent contractors.
Millions of Americans are employed in “gig” jobs, a workforce vital to some transportation, restaurants, construction, health care and other industries.
Labor Secretary Marty Walsh said in a statement that companies often misclassify vulnerable workers as independent contractors. “Misclassification deprives workers of their federal labor protections, including their right to full legal wages,” Walsh said.
Liz Shuler, president of the American Federation of Labor and Conference of Industrial Organizations (AFL-CIO), said the proposal gives the government the tools to protect workers from “the escalating problem of misclassification.”
Biden vs Trump
The proposed rules are the latest in a politically charged battle that has seen Republicans and companies battle Democrats and workers’ groups since the inception of Uber and others. It would replace a Trump administration rule that says workers who own their own businesses or have the ability to work for competing companies, such as drivers for Uber and Lyft, can be considered contractors.
The department’s top legal official, Labor lawyer Seema Nanda, said on Tuesday that the Trump-era rules, favored by business groups, were at odds with decades of federal court rulings.
The new proposal reflects legal guidance issued by the Obama administration that was withdrawn by the Labor Department under former President Donald Trump.
According to a December 2021 survey by freelance marketplace Upwork, more than one-third of U.S. workers, or nearly 60 million people, have engaged in some kind of freelancing in the past 12 months.
Seth Harris, a former senior labor adviser to President Joe Biden, said the rule would not directly affect how courts determine which workers are employees and which are independent contractors. Instead, it will affect the Labor Department’s “own enforcement activities and its position in litigation.”
The proposed rule would also help the Labor Department indirectly influence courts by advocating a broader definition of an employee under the Fair Labor Standards Act.
Responses from businesses, workers’ groups
Worker advocacy groups recently met with White House officials and welcomed the announcement.
Nicole Moore, a part-time Lyft driver and group president of Rideshare Drivers United, called the move a “very important step in clarifying the rules at the federal level,” adding she hoped it would “incentivize lawmakers to change the law and clarify and codify to prevent misclassification.”
Groups including the U.S. Chamber of Commerce, the nation’s largest business lobbying group, the National Association of Home Builders, the National Retail Federation, and related builders and contractors have pressured White House officials to develop a more business-friendly standard that considers any Broad rules hurt workers who want to remain independent and flexible.
The National Retail Federation said on Tuesday it was “firmly opposed to change” and said the rule was unfounded and unnecessary. The Flex Association, which represents Uber, Lyft and DoorDash, said it was still reviewing the proposed rules and would “work to ensure that any final policy preserves” the independence that gig workers want.
In a separate statement, Lyft said it currently has “no direct or immediate impact” on its business, while Uber said it “is critical that a Biden administration continues to listen to the more than 50 million people who are in the company” Find opportunities to make money like ours.”
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.”
“Because ride-sharing and other gig economy players rely on contractors’ business models, categorization of employees would essentially upend the business model and lead to some major structural changes,” Ives said.
The proposal will be officially released on Thursday, opening a 45-day public comment period.
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Reporting by David Shepardson and Nandita Bose in Washington and Daniel Wiessner in Albany, New York; Editing by Heather Timmons, Mark Porter and Lisa Shumaker
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