Labor Department claws back Trump-era rule regarding gig-worker classification

The Department of Labor announced the move on Wednesday, and the rollback will be effective as of Thursday. The regulation it is repealing made it more challenging for gig workers, such as delivery drivers, to be counted as employees rather than independent contractors under federal law.

“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” said Labor Secretary Marty Walsh. “Legitimate business owners play an important role in our economy, but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors.

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The Fair Labor Standards Act requires companies to pay employees at least federal minimum wage, although the FLSA protections do not apply to independent contractors.

The Labor Department said in a Wednesday statement it was withdrawing the regulation for several reasons, including that it was “in tension” with the FLSA and judicial precedence and that it “narrowed the facts and considerations” determining if a worker was an employee or contractor resulting in loss of FLSA protections.

The regulation that Wednesday’s decision repealed was finalized in January before then-President Donald Trump departed the White House. It was set to go into effect in March but did not because it was under review by Biden’s revamped Labor Department.

Walsh, the former mayor of Boston who is known for his staunch union support, made waves when he told Reuters last week that “in a lot of cases” gig workers should be reclassified as employees and provided work benefits. “These companies are making profits and revenue, and I’m not (going to) begrudge anyone for that, because that’s what we are about in America. But we also want to make sure that success trickles down to the worker.”

Employee classification affects other industries as well, including the trucking and construction industry.

The Trump-era rule that was repealed had previously received plaudits from ride-hailing giant Uber. In a statement provided to the Washington Examiner on Wednesday, Uber said that the current employment system is “outdated” and forces a binary choice upon workers to either be an independent contractor with more flexibility but limited protections or be an employee with less flexibility but more benefits.

“Uber believes that we can combine the best of both worlds by offering independent work opportunities to the hundreds of thousands of workers that use the Uber platform while also providing these workers with meaningful benefits.”

A spokesperson at Lyft told the Washington Examiner that the company sees the decision “as an opportunity to refocus the conversation on what drivers need and want, which is independence plus benefits.”

Elizabeth Jarvis-Shean, vice president of communications and policy at DoorDash, told the Washington Examiner after the Wednesday decision that workers at the food delivery company largely favor more flexibility. She pointed out that the average driver doesn’t work anywhere near the level of a full-time employee.

“Dashers work fewer than four hours per week on average and they overwhelmingly tell us how important the flexibility to earn on their own schedule is to them, which is exactly why we remain committed to protecting their independence while providing greater benefits and security,” she said in a statement.

Jarvis-Shean said that DoorDash looks forward to working with the Biden administration and lawmakers from both sides of the aisle to develop a new benefits framework that still preserves flexibility for the workers.

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Uber’s stock was down 1.25% after the Wednesday announcement, Lyft was down 3.77%, and DoorDash fell 2.37% upon the news.