The U.S. Department of Labor (DOL) has finalized a controversial new rule that seeks to extend employee benefits and protections to millions more American gig workers by more strictly defining who can be classified as an independent contractor.
What the New Rule Changes
The rule, which was first proposed in late 2021, introduces a new “economic realities” test that makes it much harder for companies to classify workers as independent contractors rather than employees. Key aspects include:
- Putting the burden on companies to prove that workers are properly classified as contractors rather than employees
- Five distinct factors used to determine classification, with no single factor being determinative on its own
- Greater focus on whether the work being done is “integral” to the company’s business
As explained by Secretary of Labor Marty Walsh, “This new rule takes aims at the inequalities in bargaining power workers face, targets outdated exclusions of protections for people who clearly are working for someone else’s company, and helps stop rampant misclassification in our country.”
The rule is slated to take effect in early April following a 60-day implementation period.
Fierce Pushback from Gig Companies
The rule has faced fierce opposition from gig economy giants like Uber, Lyft, and Doordash. With millions of drivers currently classified as independent contractors, the tech companies warn that being forced to reclassify them as employees threatens their business models.
Other critics argue the rule does not reflect today’s more flexible, technology-driven approach to work and limits opportunities for those who want to be their own boss. Some conservative groups have even called it an “assault on American workers.”
Uber spokesperson Ashley Adams captured the sentiment of many gig platforms: “Reclassification as employees could jeopardize flexible work opportunities for millions and decimate small businesses who rely on independent contractors.”
However, Labor Secretary Walsh asserts the rule does not outright eliminate the contractor business model, but rather ensures companies cannot misclassify employees as contractors against their will or best interests.
What Happens Next
Legal challenges seeking to block the rule are almost certain once it takes effect in April. Groups like the U.S. Chamber of Commerce argue that the DOL has overstepped its authority with an overly expansive definition of what constitutes an employee.
If upheld, companies will need to abruptly restructure operations and shoulder substantial new costs. DoorDash spokesperson Taylor Bennett estimated an additional $3.2 billion in annual operating expenses to meet basic employment standards.
Drivers and other gig contractors face a period of great uncertainty about their income and work opportunities while companies navigate reclassification. However, new employee benefits like minimum wage, insurance, and reimbursement of work expenses may offset financial impacts for some.
Many experts say state and even Congressional action is likely in response to the seismic labor shift initiated by the Biden administration’s rule. Simply put, this issue remains far from settled with all sides digging in for a long fight.
What Supporters & Critics Are Saying
| Supporters | Critics |
|---|---|
| “This action will promote dignity and equity in our economy.” – Sen. Elizabeth Warren | “Jeopardizes flexible earning opportunities relied upon by millions.” – Uber spokesperson |
| “Ensures corporations can’t exploit worker misclassification.” – Economist Heidi Shierholz | “Overly expansive intrusion by bureaucrats.” – U.S. Chamber of Commerce |
| “Critical step toward livable incomes for gig workers.” – Gig Workers Rising | “Assault on the right of Americans to be their own bosses.” – Goldwater Institute |
This table summarizes some notable reactions to the DOL’s new labor rule from prominent lawmakers, advocacy groups, and industry representatives.
Background
Classifying workers has become increasingly complex with the growth of the gig/on-demand platform economy over the last decade. Companies like Uber avoid significant costs by treating drivers as independent contractors rather than employees.
However, contractors lack protections like minimum wage, insurance, and collective bargaining rights. Misclassification also costs federal and state governments billions in lost payroll tax revenue.
The issue rose to the national spotlight in 2019 when California enacted controversial legislation known as AB5 to crack down on alleged contractor misclassification, only to later exempt platforms like Uber and Lyft after intense lobbying.
President Biden firmly aligned with worker advocates during his campaign, arguing contractors deserved employment safeguards. After taking office, his administration moved swiftly to advance that priority through the newly finalized DOL rule.
So while politically and legally contentious, the action seeks to address genuine concerns about inequality, misclassification, and weakened labor standards in the modern economy. But exactly what it ends up changing remains anyone’s guess.
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