New labor rule redefines employees
The Biden administration announced a new labor rule Tuesday to redefine “independent contractors,” a step that could bolster both legal protections and compensation for millions in the U.S. workforce.
Janitors, home-care workers, construction workers and truckers could be considered employees rather than independent contractors under the final rule announced by the Labor Department.
The rule effectively expands the reach of federal labor laws that require employers to extend certain benefits and protections to workers classified as employees. Those include the minimum wage, overtime pay, unemployment insurance and Social Security benefits — which employers are not required to provide to independent contractors.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” said Acting Secretary of Labor Julie Su. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
The rule will “help create a level playing field for businesses, protect workers from being denied the right to fair pay and affirm the vital role true independent contractors play in our economy by allowing them to thrive,” Su said.
The rule is to be published today and would take effect on March 11, officials said.
Backed by labor advocates, the rule is expected to face legal challenges. It has faced extensive criticism from businesses and industry groups, including those representing Uber, Lyft, DoorDash, and other ride-share and delivery platforms. But labor officials say they have carefully considered possible litigation and are confident that the rule would withstand a court challenge.
The new rule rescinds a Trump-era rule from 2021 that made it easier for employers to classify workers as independent contractors, marking one of the most expansive regulatory actions taken by the Biden Labor Department so far.
It revives a test for determining whether a worker is
an employee or an independent contractor who is selfemployed under the Fair La- bor Standards Act of 1938. The review considers six factors, including how much control an employer has over working conditions, a worker’s financial investment in their job and any opportunities a worker has for turning a profit.
The new rule comes at time when more states are passing laws that guarantee a minimum wage and other benefits for app-based workers, including New York last year.
The measure is a win for Su, who has faced an uphill battle in securing confirmation in the Senate. Industry groups have fiercely opposed her, especially her position about who qualifies as an independent contractor. In California, where she served as labor commissioner, she oversaw changes making it harder to classify workers as independent contractors.
The Biden administration announced on Tuesday a second attempt to nominate Su as labor secretary, though her path forward remains uncertain.
When the Biden administration first announced the rule in October 2022, Uber and Lyft’s market values fell on investor fears that higher labor costs would eat into company profits.
In a statement, CR Wooters, head of federal affairs at Uber, said the new rule will not affect the classification of the more than 1 million Americans who drive for the company.
“Drivers across the country have made it overwhelmingly clear — in their comments on this rule and in survey after survey — that they do not want to lose the unique independence they enjoy,” Wooters said. “As this rule is implemented, we look forward to working with the Biden administration and making sure they continue to hear directly from drivers.”
Lyft said in a statement that it expected “no immediate impact” on its business and also highlighted surveys finding the majority of its drivers work on the platform because of “the flexibility and independence it provides.”
But the Labor Department could take enforcement action against both companies under the new rule. The law also gives individual workers the right to sue if they believe they’ve been misclassified.
Jessica Looman, the Labor Department’s administrator of the wage and hour division, told reporters that the division, which enforces the independent contractor rule, would focus on protecting “the most vulnerable, essential workers.”
Nicole Moore, a Lyft driver and president of Rideshare Drivers United, an advocacy organization for Uber and Lyft drivers in California, said she is excited to see the new rule’s effect on gig workers.
“This is absolutely what needs to happen in the jobs where basically an algorithm is our boss,” Moore said. “Anytime the company wants to profit more, they cut our pay. A lot of the rides right now pay us less than the cost of operating our vehicles.”
David Weil, who led the Obama administration’s enforcement of the independent contractor rule, said the agency currently doesn’t have enough resources to catch all employers who violate the law, and will depend on companies to adjust and “understand that they’re subject to monetary consequences if they don’t obey the law.”
He noted that many online platform-based companies that have cropped up in recent years that classify their workers as independent contractors “don’t satisfy the basic terms” of the final rule, which is backed up by decades of legal precedent, including a Supreme Court decision.
One of the biggest changes from the Trump administration’s rule has to do with the factors that get priority in determining a worker’s status. Under the 2021 rule, two factors mattered most — how much control a company has over its workers and how much “entrepreneurial opportunity” factored into the job.
The Biden administration called that way of looking at workers “not consistent with the law and long-standing judicial precedent” and restored the Obama-era rule. In effect, the new rule will make it easier for a wider range of workers to gain employee status, including nail salon technicians, landscaping workers, home health aides, retail workers, call center workers and security guards.