The Biden administration implemented a new rule on Tuesday that will tighten standards for when “gig economy” workers at companies like Uber, Lyft, and Grubhub must be considered employees who are entitled to labor protections rather than independent contractors.
The Labor Department finalized a new rule that will replace a Trump-era standard that narrowed the criteria for classifying workers as employees under the Fair Labor Standards Act.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” acting Secretary of Labor Julie Su said in a press statement. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
Contractor status means the people in question would not receive protections related to overtime pay and minimum wages. The new rule has been anticipated by labor advocates but received pushback from gig economy employers such as Uber and Lyft.
“This rule does not materially change the law under which we operate, and won’t impact the classification of the over one million Americans who turn to Uber to make money flexibly,” Uber’s head of federal affairs, CR Wooters, said in a prepared statement.
“This new guidance creates additional complexities and ambiguities for companies and courts alike across the country,” Lyft said in a blog post.
The Department of Labor set relaxed criteria for what is considered a contractor in 2021 by only focusing on two of the six criteria used by the department to determine if a staffer is a contractor. The new rule will now have Labor focus on all six criteria when considering whether an employee is a contractor.
These six criteria include whether the employee can make a profit based on their managerial skills, whether the employee had to invest in the company, the permanence of the relationship, how much control the company has over the employee’s operations, the skill level of the employee, and additional factors.
One complexity will be how it relates to different states. The rules won’t override California’s policies on contractors, for example, which are significantly more restrictive than those of other states.
The rule is also expected to increase costs for some industries, including trucking and retail.
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It could also lead to more restrictive policies on contractors in the future. “Depending upon how the political winds blow, this could mark the beginning of much stricter regulation of the gig economy by the [Department of Labor],” Aaron Goldstein, a labor lawyer with Dorsey & Whitney, told the Washington Examiner in an email.
Sen. Bill Cassidy (R-LA) said on Tuesday that he would introduce a resolution to repeal the rule, arguing that it is an example of the Biden administration “prioritizing unions over Americans who choose to earn a living without participating in a union.”
The policy will go into effect on March 11.
