New rule tightens worker classification standards
Uber, Lyft say their drivers won’t be affected
The Biden administration enacted a new labor rule Tuesday that aims to prevent the misclassification of workers as “independent contractors,” a step that could bolster both legal protections and compensation for millions of 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 employees as contractors. Such workers neither receive federal minimum wage protections nor qualify for employee benefits, such as health coverage and paid sick days.
“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.”
Major business groups have opposed the new rule, saying could threaten the flexibility of many workers who want to be contractors.
The U.S. Chamber of Commerce issued a statement Tuesday saying it may challenge the new rule in court.
However, major app-based platforms have expressed confidence the new rule will not force them to reclassify their gig drivers.
“This rule does not materially change the law under which we operate, and won’t impact the classification of the over one million Americans who turn to Uber to make money flexibly,” Uber’s head of federal affairs, CR Wooters, said in a prepared statement.
Flex Association, a group that represents major app-based rideshare and delivery platforms, said it expects no immediate impact to the app-based gig economy. Still, the group said that “new guidance could generate significant uncertainty for millions of small business owners and entrepreneurs.”
“That’s why we will seek to ensure implementation of this rule does not target workers who overwhelmingly turn to app-based platforms to earn supplemental income on their own terms,” Flex Association said.
DoorDash also it was “confident that Dashers are properly classified as independent contractors” under the new guidelines. Lyft said it expects the new rule will have no immediate impact.
Financial markets appeared to shrug off leaked news of the agreement on Monday. Shares of Uber and Lyft, which dropped 10% and 12% respectively when the administration unveiled the proposed rules in October 2022, rose 2.5% and 5.8% on Monday. Shares were flat at the opening bell Tuesday.
The new rule, while will take effect March 11, directs employers to consider six criteria for determining whether a worker is an employee or a contractor, without predetermining whether one outweighs the other. The criteria also include the degree of control by the employer, whether the work requires special skills, the degree of permanence of the relationship between worker and employer, and the investment a worker makes, such as car payments.
Employers will be required to consider whether the jobs performed by such workers are an integral part of the employer’s business. However, the rule however, does not carry the same weight as laws passed by Congress or state legislatures, nor does it specify whether any specific company or industry should reclassify their workers. It offers an interpretation of who should qualify for protections under the 1938 Fair Labor Standards Act.