WASHINGTON, Oct 11 (Reuters) – The US Labor Department on Tuesday proposed a rule that would make it harder for companies to treat workers as independent contractors, a change expected to include ride-along, delivery and other Industry shakes up Rely on gig workers.
Gig company stocks took a hit on the news, with Uber (UBER.N), Lyft (LYFT.O), and DoorDash (DASH.N) all falling at least 10%.
The proposal would require workers to be treated as employees of a company, entitled to more benefits and legal protections than contractors if they are “economically dependent” on the company. This could have far-reaching implications for corporate profits and hiring, as well as for household incomes and workers’ quality of life.
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The Labor Department could restrict independent contracting and said it will consider, among other things, workers’ chances of winning or losing, the stability of their jobs and the degree of control a company exercises over a worker.
The final regulation is expected next year.
Most federal and state labor laws, such as minimum wage and overtime pay, apply only to a company’s employees. According to studies, employees can cost companies up to 30% more than independent contractors.
Millions of Americans work in “gig” jobs, and that work has become critical to some transportation, restaurant, construction, healthcare, and other business models.
US Secretary of Labor Marty Walsh said in a statement that companies often misclassify vulnerable workers as independent contractors.
“The misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Walsh said.
The rule is the latest move in a politically charged battle that has pitted Republicans and corporations against Democrats and labor groups. It would replace a Trump administration regulation that says workers who own their own business or work for competing companies, such as For example, a driver working for Uber and Lyft may be treated as a contractor.
Labor attorney Seema Nanda, the department’s chief justice officer, said Tuesday that the Trump-era rule favored by business groups could not keep up with decades of decisions by federal courts.
The new proposal reflects legal guidance issued by the Obama administration, which was withdrawn by the Labor Department under former President Donald Trump.
More than a third of U.S. workers, or nearly 60 million people, have done some type of freelance work in the past 12 months, according to a December 2021 survey by freelance marketplace Upwork.
Groups representing businesses, including the US Chamber of Commerce, the largest US business lobby group, the National Association of Home Builders, the National Retail Federation and Associated Builders and Contractors, had met with White House officials to advocate a more business-friendly standard to use .
These groups have said any sweeping rule would hurt workers who want to remain independent and remain flexible.
Workers’ representatives have stated that companies are increasingly misclassifying workers as independent contractors and withholding fair wages and benefits from workers in order to bolster profits. Most employee benefits in the United States, including medical insurance, sick pay, workers’ compensation, and unemployment insurance, are employment-related.
Wedbush analyst Dan Ives said in a research note that the proposal was “a clear blow to the gig economy and a short-term problem for companies like Uber and Lyft.”
“For rideshare and other gig economy players that depend on the contractor’s business model, a classification for employees would basically turn the business model on its head and create some big structural changes if it stays that way,” Ives said.
The proposal will be officially released on Thursday and will begin a 45-day public comment period.
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Reporting by David Shepardson and Nandita Bose in Washington and Daniel Wiessner in Albany, New York; Edited by Heather Timmons, Mark Porter and Lisa Shumaker
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