by The Biden administration is proposing a rule that could lead to more workers being considered full-time, a potentially major change in the nation’s labor laws that could disrupt ridesharing, delivery, construction and other companies that employ independent contractors .
The draft rule, to be officially released Thursday, is a test the Labor Department uses when determining whether employers have violated wage and hour laws. It formally directs the agency to consider six factors when determining whether a worker is an employee — and therefore entitled to minimum wage, overtime and the right to unionize — or an independent contractor, who is essentially self-employed in business for himself.
“We continue our law enforcement work to identify misclassified workers in construction, health care and even restaurants where we found that dishwashers were improperly classified as independent contractors to avoid overtime pay,” Jessica Looman, principal deputy pay and hour administrator at the labor ministry, told reporters on Tuesday.
After the Labor Department’s proposal is published, the rule will remain open for public comment for 45 days, officials said.
Independent contractors are usually much cheaper to hire since they are responsible for their own payroll taxes and do not qualify for overtime or minimum wage.
The proposed rule replaces a Trump administration regulation which made it easier for companies to legally classify workers as independent contractors. Labor Secretary Marty Walsh argues that thousands of workers, including workers who drive cars, deliver food and clean houses, are actually employees because the companies that hire them set the hours and pay them.
The National Employment Law Project, a pro-worker think tank, has estimated that up to 30% of workers may be misclassified as independent, costing states billions of dollars in tax revenue.
Concert stocks are sinking
Shares of the Gig company tumbled on the news. Uber and Lyft were down 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 companies like Uber and Lyft,” Wedbush analyst Dan Ives said in a note.
“With ride-sharing and other gig economy players depending on the contractor’s business model, a worker classification would essentially turn the business model upside down and cause some significant structural changes if it were to happen,” he wrote.
Ride-hailing companies, which are not consistently profitable, have said they cannot afford to pay drivers as employees while spending hundreds of millions dollars to win statutory variances from state worker protection laws.
