A new draft proposal released by the Department of Labor (DOL) Tuesday (Oct. 12) aims to rescind a Trump-era rule that made it easier for firms to classify workers as independent contractors.
The department’s goal is to curb the “misclassification” of workers, which can lead to the denial of basic worker protections such as minimum wage, overtime pay, medical leave, and other protections provided under the Fair Labor Standards Act (FLSA).
Sound in theory, the rule likely won’t come into play without attempts to water it down from businesses, like Uber and DoorDash, that save massively on labor costs thanks to the gig system.
The labor department will take public comment on the rule for 45 days, until Nov. 28, 2022.
“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers. Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.” —Secretary of labor Marty Walsh
Raising the gig worker bar
The labor department proposed using a six-pronged “multifactor economic reality test,” which will assess:
- the extent to which the services in question are an integral part of the “employer[’]s” business;
- the amount of the so-called “contractor’s” investment in facilities and equipment;
- the nature and degree of control by the principal;
- opportunities for profit and loss;
- the amount of initiative judgment or foresight required for the success of the claimed independent enterprise;
- and the permanency of the relation.
…at a federal level
Jan. 7, 2021: President Donald Trump signs a rule that makes it easier to classify workers as independent contractors just weeks before leaving office.
Feb. 5, 2021: DOL publishes a proposal to delay the Independent Contractor Rule’s effective date until May 7, 2021—60 days after the original effective date.
March 4, 2021: DOL publishes a final rule locking in the postponement.
March 12, 2021: the labor department publishes a notice of proposed rulemaking (NPRM) to withdraw the Independent Contractor Rule.
May 5, 2021: President Joe Biden finally blocks the Trump-era rule, claiming it’s “in tension” with the FLSA.
June 3, 2022: DOL announces that it is developing a proposed rule on determining employee or independent contractor status under the FLSA, and started holding forums to hear what stakeholders have to say.
Meanwhile, in California…
2019: A landmark bill, AB5, passes in California, setting a new standard for determining whether workers are properly classified as independent contractors. Companies have to pass an “ABC test” to classify workers as contractors, proving they (a) are free from the company’s control, (b) are doing work that isn’t central to the company’s business and (c) have an independent business in that industry.
2020: After intense lobbying from industry bigwigs like Uber, Lyft, and DoorDash, California voters overwhelmingly approve Proposition 22, which exempts drivers for app-based companies from the state law requiring them to be designated as employees.
2021: As workers in the sector start suffering and seeing the move as a case of “corporate bait and switch,” a judge strikes down the ballot measure as unconstitutional, rendering it unenforceable.
Gig firms take a hit
The rule could have sweeping implications, affecting workers in the home care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others.
Shares of ride-hailing and food-delivery companies, who have in the past opposed similar efforts, tumbled on the news. Among the losers were Uber (12%), Lyft (10%), and DoorDash (6%).
In a bid to calm investors’ nerves, Lyft said “There is no immediate or direct impact on the Lyft business at this time,” emphasizing that the rule does not “reclassify Lyft drivers as employees” nor does it “force Lyft to change our business model.” DoorDash, too, said it does not “anticipate any changes” to its business model.
Uber played it cool and expressed its eagerness to discuss the issue further with the White House. “In a time of deep economic uncertainty, it’s crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours,” Uber’s head of federal affairs CR Wooters said. “We look forward to continued and constructive dialogue with the Administration and Secretary Walsh as this process progresses.”
If the past is a precedent, bigwigs like Uber won’t bow down, though. Instead, they’ll take the fight to court, Veena Dubal, a professor at the University of California Hastings College of Law, told the Wall Street journal. The companies that’ll really hurt are smaller businesses such as construction companies or nail salons, “because they cannot withstand that kind of scrutiny and the financial risks and legal costs,” she said.
By the digits
92%: Lyft drivers who support a policy proposal under which drivers “would remain independent contractors, maintain the current flexibility they enjoy, and be given some, but not all, of the benefits that employees receive,” according to Lyft’s own research
60%: US adults who believe ride-hailing drivers should be considered independent contractors
$200 million: how much Uber, Lyft, and other companies spent on campaigning in favor of Prop 22 in California. They promised some perks like health insurance for drivers who work 15 hours or more a week and occupational-accident insurance coverage and 30 cents for every mile driven—but nothing to match benefits awarded to full-time employees.
20%-120%: how much more Uber estimated it would need to spend to build a framework to monitor drivers, including tracking their meals and rest breaks, and hire additional staff to oversee day-to-day operations, to comply with the 2019 California law
15% to 30%: how much the federal-rule change could increase labor costs for gig-economy players, according to Wedbush Securities analyst Dan Ives
🕊️ How Washington state brokered a truce between Uber and its drivers
🔓 The gig economy is quietly undermining a century of worker protections
📜 Regulators around the world are coming for the gig economy