Employee or contractor? U.S. Labor Department moves to clarify rules around contentious issue

WASHINGTON When are workers employees? When are they contractors?

The U.S. Labor Department has issued new guidance intended to help companies answer that increasingly fraught question. The issue has taken on greater urgency with the growth of sharing-economy firms such as Uber and Task-Rabbit, which increasingly rely on independent workers, often for short-term projects.

The guidance could make it harder for companies to use contractors, labour law experts say.

It comes amid a wave of lawsuits against companies such as FedEx, ride-hailing service Lyft and online cleaning service provider Handy, brought by workers who say they should have been treated as employees rather than contractors.

“The pendulum is swinging away from classifying workers as contractors and toward employees,” said Michael Droke, an employment law partner at Dorsey and Whitney.

“Employers should be more cautious in identifying workers as contractors.”

Labour unions and activists have for years argued that companies in many industries — construction, hotels and janitorial services, among others — have sought to hold down labour costs by calling workers independent contractors. Contractors aren’t eligible for overtime pay, unemployment insurance or workers’ compensation. They typically pay all their Social Security taxes, compared with employees, who split that cost with employers.

The issue has also emerged in the early stages of the presidential campaign, after Hillary Clinton promised earlier this week to “crack down” on companies that wrongly classify workers as contractors.

She praised the “gig economy” for “creating exciting opportunities” but also said it is “raising hard questions about workplace protections and what a good job will look like in the future.”

The guidelines don’t represent new regulations, but clarify how Labor Department officials think companies and courts should interpret the rules.

The move comes as the department steps up its enforcement of classification rules. Last year, it forced companies to pay US$79 million in back wages to 109,000 workers in the janitorial, temporary help, food services, daycare and hotel industries.

The Economic Policy Institute, a liberal think-tank, estimates that 10 per cent to 20 per cent of employers misclassify at least one worker.