Millions of gig workers could be qualified as employees
Millions of gig workers, janitors, home-care workers, construction workers, and truckers could be considered employees rather than independent contractors under a final rule announced Tuesday 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 right to the minimum wage, overtime pay, unemployment insurance, and Social Security benefits — which employers are not required to provide to independent contractors.
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,” acting labor secretary Julie Su told reporters on a call Monday.
The rule is to be published Wednesday and would take effect on March 11, officials said.
The federal ruling is not expected to have an impact on the court case, legislation, and proposed ballot measures involving the employment status of gig drivers in Massachusetts, where state employment law makes it even more difficult to classify workers as independent contractors.
Backed by labor advocates, the rule is expected to face an onslaught of legal challenges from companies. 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 Trumpera 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 self-employed under the Fair Labor 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 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 launched a second attempt to nominate Su as labor secretary on Monday, 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 impact 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.
The Labor Department rule expands the reach of federal laws requiring employers to extend benefits to workers classified as employees.