February 22, 2024

The Biden administration is proposing a rule that could result in more “gig” workers being considered full-time employees, a potentially major shift in the nation’s labor laws that could disrupt ride-sharing, delivery, construction and other companies that employ independent contractors.

The draft rule, to be formally published on Thursday, is a test that the Department of Labor uses when it determines if employers broke wage and hour laws. It formally directs the agency to consider six factors when determining if a worker is an employee — and therefore entitled to minimum wage, overtime and the right to unionize — or an independent contractor, which is essentially a self-employed individual in business for themselves.

“We continue in our enforcement work to identify workers who are not properly classified, in construction, health care, even in restaurants, where we found that dishwashers were improperly classified as independent contractors to avoid paying them overtime,” Jessica Looman, principal deputy wage and hour administrator with the Labor Department, told reporters on Tuesday. 

After the Labor Department proposal is published, the rule will remain open for public input for 45 days, officials said.

Independent contractors are typically much cheaper to hire since they are responsible for their own payroll taxes and don’t qualify for overtime or minimum wage.

The proposed rule replaces a Trump administration regulation that made it easier for companies to legally classify workers as independent contractors. Labor Secretary Marty Walsh maintains that thousands of workers, including gig workers who drive cars, deliver food and clean houses, are actually employees, because the companies that hire them set their hours and pay.  

The National Employment Law Project, a pro-worker think tank, has estimated that as many as 30% of workers may be wrongly categorized as as independent, costing states billions of dollars in tax revenue. 

Gig stocks sink

Gig company stocks plummeted on the news. Uber and Lyft fell more than 12% while DoorDash was down about 9%.

The proposal is “a clear blow to the gig economy and a near-term concern for the likes of Uber and Lyft,” Dan Ives, an analyst with Wedbush, said in a note.

“With ride-sharing and other gig economy players depending on the contractor business model, a classification to employees would essentially throw the business model upside down and cause some major structural changes if this holds,” he wrote.

Ride-hailing companies, which are not consistently profitable, have said they can’t afford to pay drivers as employees, while spending hundreds of millions of dollars to win legislative carve-outs from state worker protection laws.

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