The New York Times noted that companies are required to provide certain benefits and protections to employees, but not to contractors, such as paying a minimum wage, overtime, a portion of a worker’s Social Security taxes and contributions to unemployment insurance.
According to The New York Times, the proposed rule is essentially a test that the Labor Department will apply to determine whether workers are contractors or employees for companies. The test considers factors such as how much control workers have over how they do they jobs and how much opportunity they have to increase their earnings by doing things like offering new service. Workers who have little of either are often considered employees.
The U.S. Department of Labor posted a news release in which it stated the following:
“The U.S. Department of Labor will publish a Notice of Proposed Rulemaking on Oct. 13. To help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.
The proposed rule will provide guidance on classifying workers and seeks to combat employee misclassification. Misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at-large…”
Specifically, the proposed rule would do the following:
- Align the department’s approach with courts’ FLSA interpretation of the economic reality test
- Restore the multi factor, 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 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 internal 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.
Obviously, there are some companies who want to push back against this proposed rule. Lyft was among them, and posted the following in their blog:
“Today the Department of Labor released a proposed rule. There is no immediate or direct impact on the Lyft business at this time. The release today will allow for 45 days of public comment. This is just the first step in what is likely to be a longer process before any final rule or determination is made.
Importantly, this rule:
- Does not reclassify Lyft drivers as employees
- Does not force Lyft to change our business model
- Is similar to the approach the Obama Administration used to determine employee status. This approach previously applied to Lyft and app-used companies and did not result in reclassification of drivers
- Was expected on day one of this Administration…”
CNBC reported that the proposed rule could raise costs for companies like Lyft, Uber, Instacart, and DoorDash that rely on contract workers. According to CNBC, the proposed rule sent stocks of gig companies down.
Overall, I expect this proposed rule to fail to go into affect. In 2020, California made a similar rule requiring reclassification of contract workers. Voters later approved of a ballot proposition that exempted ride-hailing companies from being affected by the rule.