A new proposal announced by the Department of Labor (DOL) Tuesday attempts to clarify rules on classifying workers as independent contractors or employees.
But the measure is being seen as a serious threat to gig-industry companies such as Uber, Lyft and DoorDash.
According to the DOL, many workers have been the victims of misclassification, meaning companies have made arbitrary decisions on the matter. The DOL proposal would align classification with rights to full compensation under the Fair Labor Standards Act (FLSA).
The Labor Department says misclassification is serious and that it contradicts workers’ rights and protections. It also expresses concern that it presents an unfair disadvantage to companies that play by the rules and classify their employees properly.
"While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification."
Uber Says Its Drivers Prefer Contracting
Car-service company Uber insists its drivers prefer being independent contractors. It took to Twitter with a statement regarding the DOL proposal that struck a conciliatory tone.
"The Department of Labor listened to drivers, who consistently and overwhelmingly state that they prefer the flexibility that comes with being an independent contractor. Today's proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially," begins the Tweet. Below is the full text.
Shares of Uber (UBER), Doordash (DASH) and Lyft (LYFT) all fell sharply in the wake of the DOL move. The companies have been fighting a bitter and expensive battle to overturn California laws that recognize gig workers as full-time employees. Related legal cases are making their way through both state and federal courts.
Details of the Proposal
The Notice of Proposed Rulemaking (NPRM) will be published on Thursday, Oct. 13. The DOL says it would like to see a framework that better respects court precedent. It also asserts that the new rule would provide consistency.
"The department is responsible for ensuring that employers do not misclassify FLSA-covered workers as independent contractors and deprive them of their legal wage and hour protections," according to the press release. "Misclassification denies basic worker protections such as minimum wage and overtime pay and affects a wide range of workers in the home care, janitorial services, trucking, delivery, construction, personal services, and hospitality and restaurant industries, among others."
Following are the specifics of the proposed rule as listed in the press release.
- Align the department’s approach with courts’ FLSA interpretation and the economic reality test.
- Restore the multifactor, totality-of-the-circumstances analysis to determine whether a worker is an employee or an independent contractor under the FLSA.
- Ensure that all factors are analyzed without assigning a predetermined weight to a particular factor or set of factors.
- Revert to the longstanding interpretation of the economic reality factors. These factors include the investment, control and opportunity for profit or loss factors. The integral factor, which considers whether the work is integral to the employer’s business, is also included.
- Assist with the proper classification of employees and independent contractors under the FLSA.
- Rescind the 2021 Independent Contractor Rule.
