The US Department of Labor has proposed a rule that would make it harder for companies to treat workers as independent contractors, a change that is expected to upend ride-sharing, delivery and other industries that rely on gig workers.
Shares of Gig Company were hammered on the news, with Uber, Lyft and DoorDash all falling at least 10%.
The proposal, revealed on Tuesday, would require workers to be considered employees of a company, entitled to more benefits and legal protections than contractors, when they are “economically dependent” on the company. This could have far-reaching implications for corporate profits and employment, as well as household incomes and workers’ quality of life.
The Labor Department may restrict freelance contracts and said it will consider workers’ opportunities for profit or loss, the permanence of their employment and the degree of control a company has over a worker, among other factors. .
The final rule is expected next year.
Most federal and state labor laws, such as those requiring minimum wage and overtime pay, apply only to employees of a business. According to studies, employees can cost businesses up to 30% more than independent contractors.
Millions of Americans work in “on-demand” jobs, and this workforce has become vital to certain business models in transportation, restaurants, construction, healthcare, and others.
US Labor Secretary Marty Walsh said in a statement that companies often incorrectly classify vulnerable workers as independent contractors.
“The misclassification deprives workers of their federal labor protections, including their right to collect their full legally earned wages,” Walsh said.
The rule is the latest leg of a politically charged battle that has pitted Republicans and business against Democrats and labor groups. It would replace a regulation by former US President Donald Trump’s administration that says workers who own their own business or have the ability to work for competing companies, such as a driver who works for Uber and Lyft, can be treated as subcontractors.
Labor attorney Seema Nanda, the department’s top legal official, said Tuesday that the Trump-era rule, which was favored by business groups, was out of step with decades of federal court rulings.
The new proposal mirrors legal guidelines issued by President Barack Obama’s administration, which were withdrawn by the Labor Department under Trump.
More than a third of American workers, or almost 60 million people, have done some kind of autonomous work over the past 12 months, a December 2021 survey by independent market Upwork showed.
Groups representing businesses, including the United States Chamber of Commerce, which is the largest business lobby group in the United States, the National Association of Home Builders, the National Retail Federation and Associated Builders and Contractors, met White House officials to push for a more business-friendly standard. .
These groups said any blanket rule would hurt workers who want to remain independent and have flexibility.
Labor advocacy groups said companies are increasingly misclassifying employees as independent contractors, denying workers fair pay and benefits to boost their profits. Most benefits in the United States — including health insurance, sick pay, workers’ compensation, and unemployment insurance — are tied to an employment relationship.
“A Free Kick”
Wedbush analyst Dan Ives said in a research note that the proposal is “a blow to the gig economy and a short-term concern for Uber and Lyft.”
“With ride-sharing and other gig economy players based on the contractor business model, a classification of employees would essentially disrupt the business model and cause major structural changes if it comes to fruition,” Ives said.
But both Uber and Lyft dismissed the potential impact of the new rule, saying they could thrive in either scenario.
“The rule proposed today takes a measured approach, essentially taking us back to the Obama era, during which our industry grew exponentially,” CR Wooters, head of federal affairs at Uber, said in a statement.
In a blog post, Lyft said the company has been expecting this change since the beginning of current President Joe Biden’s administration. “It is important to note that this rule: Does not reclassify Lyft drivers as employees. Does not require Lyft to change our business model,” the company said.
The giants of the gig economy have resisted past attempts in the United States to require their workers to qualify as employees.
In 2020, California voters overwhelmingly approved a proposal to exempt drivers of app-based companies from a state law requiring them to be named as employees. Uber, Lyft and other companies had spent $200 million campaigning for the proposal. However, a judge struck down the ballot measure as unconstitutional last year, sparking a legal battle that could end in the California Supreme Court.
The Biden administration’s proposal will be officially released on Thursday, kicking off a 45-day public comment period.