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.
Gig Workers Rising, a group that advocates for more protections for platform workers, praised the proposed rule.
“Uber, Lyft and DoorDash make their money off of drivers like me and govern my pay and working conditions, yet they claim they don’t need to protect my safety or even pay me a living wage. They can’t continue to have their cake and eat it too,” Rondu Gatt, a driver and organizer with the group, said in a statement.
“Gig workers deserve all of the rights that other employees have, including the right to organize,” Gatt added.
Independent contractors are typically much cheaper to hire since they are responsible for their own payroll taxes and job expenses and don’t qualify for overtime or minimum wage. The National Employment Law Project, a pro-worker think tank, has estimated that as many as 30% of workers may be wrongly categorized as independent, lowering their pay and costing states billions of dollars in tax revenue.
The proposed rule formally 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.
Gig stocks sink
Gig company stocks plummeted on the news. Uber and Lyft fell more than 12% in early trading, while DoorDash dropped about 9% in early trading. The stocks later recovered some of their losses.
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.
However, Uber and Lyft said on Tuesday that the new rule would not damage their business model. In a statement echoing the Labor Department, Uber said the rule “takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.”
“This is just the first step in what is likely to be a longer process before any final rule or determination is made,” Lyft said in a statement noting the company had been expecting the rule change.
Tech companies with large on-demand workforces have maintained that “gig” workers prefer the flexibility that comes with being an independent contractor over what they call “traditional” employment.
“We believe that people should continue to be able to choose where, when, how often and with which companies they work,” the Flex Association, which represents gig-based employers, said in a blog post. “We’ve found that even when spread across platforms, app-based workers work an average of eight hours per week,” the group said.
However, workers who rely on these platforms to make a living often complain of long hours, inconsistent pay and seemingly arbitrary changes to apps that can affect what they earn.
The Labor Department noted that under current labor law, “employers are free to allow employees to work as little or as much as they want.”