In a surprising move, the Biden administration has rolled out a new labor rule that mandates certain workers to be treated as employees rather than independent contractors. This decision, expected to stir legal challenges, is set to impact various sectors, including trucking, healthcare, and gig work.
The rule, effective March 11, aims to increase labor costs for businesses reliant on contract labor, freelancers, and app-based gig services. Historically, federal and state labor laws applied mainly to employees, and studies indicate that employees can cost companies up to 30% more than independent contractors.
Under the new regulation, workers are to be considered employees when “economically dependent” on a company, overturning a Trump-era rule that favored business groups. The revised standard scrutinizes factors such as the level of control companies exert over workers and the integral nature of the work to a company’s business.
While the Department of Labor doesn’t foresee widespread reclassification, it believes the rule will enhance enforcement against businesses deliberately misclassifying workers for cost savings. However, critics argue that the rule may lead to confusion and costly litigation.
Republican lawmakers and business groups strongly oppose the rule, asserting that it could limit opportunities for millions of workers and potentially increase labor union influence. Senator Bill Cassidy plans to introduce a resolution to repeal the rule.
Acting U.S. Labor Secretary Julie Su highlighted the negative impact of misclassifying workers on low-income individuals, emphasizing the importance of legal protections such as minimum wage and unemployment insurance.
Despite criticism, worker advocates and some Democratic officials support the rule, emphasizing the need for basic protections. U.S. Rep. Bobby Scott stated that worker misclassification undermines law-abiding businesses forced to compete with dishonest employers exploiting misclassification to cut labor costs.
While the rule targets industries where misclassification is common, its potential effects on gig workers, particularly in app-based delivery and ride-hailing services, have drawn significant attention. Tech companies, including Uber and Lyft, expressed concerns about the rule but don’t expect a shift in their business models.
In a statement, the Chamber of Progress, a trade group representing tech companies, estimated that reclassifying independent contractors as employees could negatively impact around 3.4 million gig workers, resulting in a staggering $31 billion in lost income.
As companies assess the implications, the rule’s enforcement and legal challenges may reshape the landscape of worker classification in the United States.
