The Biden administration is issuing a rule that could limit “gig” work

Business

On Tuesday, the Labor Department issued a final rule that will force companies to treat some workers as employees rather than cheaper independent contractors, in a move that has angered business groups and is likely to lead to legal challenges.

The rule is widely expected to increase labor costs for industries that rely on contract or freelance work, such as trucking, manufacturing, health care and application-based “gig” services.

Most federal and state labor laws, such as those requiring minimum wage and overtime pay, apply only to company employees.

Studies show that employees can cost companies up to 30% more than independent contractors.

The rule would require workers to be considered employees, not contractors, when they are “economically dependent” on a company.

That’s short of wage laws in California and other states that place even greater restrictions on independent bargaining.

Lyft and DoorDash said they don’t expect the rule to change the way they do business. Reuters

Business groups and Republican lawmakers sharply criticized the rule Tuesday, saying it would cause millions of workers to lose earning opportunities and create confusion that would spark costly litigation.

Sen. Bill Cassidy, R-Louisiana, said in a statement that he would introduce a resolution to repeal the rule.

Cassidy said the rule would strengthen unions’ efforts to increase membership, since independent contractors and freelancers cannot join unions.

The rule replaces a regulation from the administration of former Republican President Donald Trump that made it easier to classify workers as independent contractors.

The new rule is likely to be challenged in court by trade groups and businesses.

Sen. Bill Cassidy said he would introduce a resolution to repeal the rule. AP

Under the Trump-era rule, workers who owned their own businesses or had the opportunity to work for competing companies, such as a driver who works for both Uber Technologies and Lyft, could be treated as contractors.

The new rule is due to take effect on March 11.

Acting Labor Minister Julie Suh, speaking to reporters on Monday, said the misclassification of workers as contractors rather than employees particularly hurts low-income workers, who would benefit most from legal protections such as minimum salary and unemployment insurance.

“A century of labor protection for working people is based on the employer-employee relationship,” Su said.

Acting Labor Minister Julie Su said the misclassification of workers as contractors rather than employees is particularly harmful to low-income workers. AP

Labor advocates and some Democrats praised the rule, saying it was necessary to provide basic protections for workers.

“Worker misclassification also undermines law-abiding businesses, which are forced to compete with dishonest employers who use misclassification to unfairly lower labor costs,” Congressman Bobby Scott, D-Va., said in a statement.

But some business groups say the rule tips the scales too far in favor of workers being employees rather than contractors, which will deprive millions of workers of flexibility and opportunity.

“Making matters worse, the rule is completely unnecessary as the Department continues to report success in dealing with bad actors who misclassify workers,” Mark Friedman, vice president of the U.S. Chamber of Commerce, said in a statement. He added that the chamber, the largest U.S. business group, is considering challenging the rule in court.

Labor advocates and some Democrats praised the rule, saying it was necessary to provide basic protections for workers. Reuters

Potential impact on “gig workers”

The Labor Department said the rule is designed to address industries, including construction and health care, where worker misclassification is common.

But its potential impact on app-based delivery and transportation services, whose business models depend on “gig” contract labor, has drawn the most attention.

The Chamber of Progress, a trade group that represents technology companies, said the rule could affect gig workers depending on how the Labor Department enforces it.

Reclassifying independent contractors as company employees would negatively affect about 3.4 million gig workers, resulting in $31 billion in lost revenue, the group said.

Companies including Uber and Lyft have expressed concern about the rule, but also said they don’t expect it to lead to their drivers being classified as employees.

CR Wooters, Uber’s head of federal affairs, said in a statement that the new rule “does not materially change the law under which we operate.”

The Biden administration’s new rule is likely to be challenged in court by trade groups and businesses. AFP via Getty Images

“Drivers across the country have made it abundantly clear — in their comments on this rule and in poll after poll — that they do not want to lose the unique independence they enjoy,” Wouts said.

Lyft and DoorDash, in separate statements, also said they don’t expect the rule to change the way they do business.

“The majority of Dashers already have a full-time or part-time job, or are primary caregivers, students, self-employed or retired. That’s why they’re not looking for the structure, the shifts and the hourly requirements of the business,” DoorDash said.

The Labor Department said it will consider factors such as the worker’s ability to make a profit or loss, the degree of control the company exercises over the worker and whether the work is an integral part of the company’s business to determine whether a worker should be classified as an employee or contractor.

Business groups said the long list of factors that could determine a worker’s classification would create confusion and conflicting results, which in turn could trigger costly class-action lawsuits alleging workers were misclassified.




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