The Biden administration on Tuesday adopted a new labor rule that aims to prevent the misclassification of workers as “independent contractors,” a move that could strengthen both legal protections and compensation for many in the U.S. workforce.
The Labor Department rule, which the administration proposed 15 months ago, replaces a scrapped Trump-era standard that lowered the bar for classifying workers as contractors. Such employees do not receive federal minimum wage protections nor are they eligible for employee benefits such as health coverage and paid sick days.
The changes have long been seen as particularly bad news for companies like Uber and DoorDash — pioneers of the so-called gig economy, in which companies essentially rely on armies of freelance drivers, delivery workers and others to provide services without traditional labor protections. Some gig workers say they prefer it this way and praise the freedom to set their own hours and schedules. But others complain of exploitation by the companies.
Financial markets appeared to shake off the leaked news about the deal on Monday. Shares of Uber and Lyft, which fell 10% and 12% respectively when the government unveiled proposed rules in October 2022, rose 2.5% and 5.8% on Monday.
A major change in the new rules, which take effect March 11, concerns how the Labor Department — and federal judges — decide whether workers are properly classified as independent contractors. In particular, employers will need to consider whether the jobs performed by such employees are an integral part of the employer's business.
That could impact app-based businesses that rely almost entirely on freelancers to provide their services. In such cases, that provision could lead to such people being classified as regular employees rather than contractors.
The new rule requires employers to consider six criteria to determine whether a worker is an employee or a contractor, without determining in advance whether one outweighs the other. The criteria also include the degree of control by the employer, whether the job requires special skills, the degree of permanence of the employee-employer relationship, and the investments an employee makes, such as car payments.
However, the rule does not carry the same weight as laws passed by Congress or state legislatures, nor does it specify whether a specific company or industry must reclassify its workers. In fact, it merely provides an interpretation of who should qualify for protection under the Fair Labor Standards Act of 1938.
