Summary
- Proposed rule affecting Gig economy sends shares of Lyft, Uber, and DoorDash falling
- Requires ‘economically dependent’ workers to be employees
- Rule will need at least several months to finalize
A U.S. Department of Labor rule suggested October 11 would make it more complicated for companies to regard workers as independent contractors, a change that is supposed to shake up delivery, ride-hailing, and other industries that rely on gig workers.
Gig Company stocks were battered by the news, with Lyft (LYFT.O), Uber (UBER.N), and DoorDash (DASH.N) all sliding at least 10%.
The proposal would demand that workers be considered gig economy employees, eligible to more benefits and legal protections compared to contractors, when they are “economically dependent” on a company. It could have extensive impacts on company hiring and profits, worker quality of life and household incomes.
The final rule is awaited in 2023, after a 45-day public comment period that started on October 13.
Notably, the Labor Department said it will consider the worker’s “opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, (and) whether the work is an integral part of the employer’s business,” among other factors.
Many federal and state labor laws, such as those involving a minimum wage and overtime pay, only relate to a company’s employees, who can cost companies up to 30% more compared to independent contractors, studies show.
Millions of Americans are holding “gig” jobs and this labor has become crucial to some construction, transportation, health care, restaurant, and other industries.
U.S. Labor Secretary Marty Walsh in a statement said businesses commonly mis-classify vulnerable workers. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Walsh said.
Liz Shuler, president of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said the proposal offers the government the tools to shield workers from the “escalating problem of misclassification.”
BIDEN VS TRUMP
The proposed rule is the most recent move in a politically induced battle that has pit Republicans and companies against Democrats and worker groups over the past decade. It would amend a Trump administration regulation that states workers who have their own businesses or have the ability to work for rival companies, such as a driver who works for Lyft and Uber, can be regarded as contractors.
Solicitor of Labor Seema Nanda, the department’s top legal official, said on Tuesday that the Trump-era rule was in disagreement with decades of federal court decisions. The new proposal echoes legal guidance issued by the Obama administration, which was retracted under former President Donald Trump.
It also includes elements of rigorous tests in U.S. states including California, which demands companies to regard most workers as employees under state wage laws. Over one-third of U.S. workers, or about 60 million people, did some freelance work in the past 12 months, according to a December 2021 survey by freelancing marketplace Upwork.
Seth Harris, President Joe Biden’s former top labor adviser, said the rule will not directly affect how courts decide whether workers are employees or independent contractors.
Rather it will impact the Labor Department’s “own enforcement activities and the position it takes in litigation,” he said, enabling the department to argue for a much wider definition of employees under the Fair Labor Standards Act in court.
Buy Crypto NowBUSINESSES, WORKER GROUPS REACTED
Worker advocacy groups were pleased by the announcement, while employer groups disapproved.
Nicole Moore, the president of the group Rideshare Drivers United and a part-time Lyft driver, said it was a “really important step to clarify rules at a federal level,” that she expected would “inspire lawmakers to change laws and clarify and codify against misclassification.”
Christina Brown, who drives for Lyft and Uber in Arizona, said she earns $25 to $60 per hour, but calls what she takes home “minimum wage.” Gig workers’ (gig economy) pay is used up by expenses like gas, car payments, and insurance. Brown, however, thinks the “government needs to stay out of how the middle class makes money.”
Groups including the Associated Builders and Contractors and the U.S. Chamber of Commerce, the biggest U.S. business lobbying group, hold that any broad rule would sting workers who want to stay independent and have flexibility.
The National Retail Federation on Tuesday said it “staunchly opposes a change” and regarded the rule as unnecessary. Lyft said it would have “no immediate or direct impact” on its business at this time. Uber called on the administration to listen to workers.
Reclassification of workers as employees “would essentially throw the business model upside down and cause some major structural changes if this holds,” Wedbush analyst Dan Ives said in a research note on Lyft and Uber.
