WASHINGTON, Oct 11 (Reuters) – A U.S. Department of Labor rule proposed Tuesday would make it more difficult for companies to treat workers as independent contractors, a change that is expected to shake up ride-hailing, delivery and other industries that rely on gig workers.
Gig company stocks were hammered by the news, with Uber (UBER.N), Lyft (LYFT.O) and DoorDash (DASH.N) all falling at least 10%.
The proposal would require that workers be considered employees, entitled to more benefits and legal protections than contractors, when they are “economically dependent” on a company. It could have wide-ranging impacts on company profits and hiring, household incomes and worker quality of life.
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The final rule is expected next year, after a 45-day public comment period that begins Thursday.
The Labor Department said it will consider the worker’s “opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, (and) whether the work is an integral part of the employer’s business,” among other factors.
Most federal and state labor laws, such as those requiring a minimum wage and overtime pay, only apply to a company’s employees, who can cost companies up to 30% more than independent contractors, studies suggest.
Millions of Americans are working “gig” jobs and this labor has become vital to some transportation, restaurant, construction, health care and other industries.
U.S. Labor Secretary Marty Walsh in a statement said businesses often misclassify vulnerable workers. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Walsh said.
Liz Shuler, president of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said the proposal gives the government the tools to protect workers from the “escalating problem of misclassification.”
BIDEN VS TRUMP
The proposed rule is the latest move in a politically charged battle that has pitched Republicans and companies against Democrats and worker groups over the past decade. It would replace a Trump administration regulation that says workers who own their own businesses or have the ability to work for competing companies, such as a driver who works for Uber and Lyft, can be treated as contractors.
Solicitor of Labor Seema Nanda, the department’s top legal official, said on Tuesday that the Trump-era rule was out of step with decades of federal court decisions.
The new proposal mirrors legal guidance issued by the Obama administration, which was withdrawn under former President Donald Trump.
It also incorporates elements of strict tests in U.S. states including California, which require companies to treat most workers as employees under state wage laws.
More than one-third of U.S. workers, or nearly 60 million people, did some freelance work in the past 12 months, a December 2021 survey by freelancing marketplace Upwork showed.
Seth Harris, President Joe Biden’s former top labor adviser, said the rule will not directly impact how courts determine whether workers are employees or independent contractors. Instead it will influence the Labor Department’s “own enforcement activities and the position it takes in litigation,” he said, allowing the department to argue for a much broader definition of employees under the Fair Labor Standards Act in court.
BUSINESSES, WORKER GROUPS REACT
Worker advocacy groups welcomed the…
Read More: Biden labor proposal shakes up gig economy that relies on contractors