The Biden administration issued a new rule Tuesday intended to put more contractors on company payrolls, a change that could reverberate across a range of industries, including healthcare, restaurants, construction and transportation.
The rule, which will go into effect in March, would impose a stricter test to determine whether companies can classify their workers as independent contractors. It would replace a 2021 rule implemented by the Trump administration.
The new regulation could affect millions of workers, though affected businesses could consider taking legal action to block the rule.
Some app-based companies that appear to be in the crosshairs of the Biden administration rule say that it won’t immediately change their underlying business models and that the policy would be subject to interpretation by courts.
“This rule does not materially change the law under which we operate, and won’t impact the classification of the over one million Americans who turn to Uber to make money flexibly,” Uber Technologies said in a statement.
Contractor or employee?
Independent contractors don’t receive federal labor protections such as minimum wage, workers’ compensation or unemployment benefits. Some companies improperly count their employees as contractors to avoid paying for those protections, Labor Department officials said.
Under the new rule, if a worker can be counted as a contractor would depend on factors such as whether the job is primarily permanent or temporary, how much control an employer has over work performance or how integral a worker’s job is to the overall business.
“This rule provides greater clarity and consistency in determining a worker’s status,” said acting Labor Secretary Julie Su. The policy isn’t meant to target a specific industry and officials don’t anticipate it will lead to “widespread reclassification of workers in any industry,” a department spokesman said.
The administration first proposed the rule in October 2022 and received about 55,000 comments, Labor Department officials said.
The rule could reignite a longstanding debate over how ride-share and food-delivery drivers are classified. Uber, Lyft, DoorDash and others consider their drivers independent contractors and have fought costly legal and regulatory battles to preserve that status.
California set the tone
In 2020, the companies mounted the most expensive ballot measure in California’s history that exempted them from reclassifying drivers as employees in the state. At the time, Uber told voters that such a reclassification would force it to employ a smaller pool of workers and require it to spend millions of dollars to hire additional staff that would monitor and track drivers, causing gig workers to lose the flexibility that they currently enjoy. Those costs, Uber said at the time, would push ride prices to increase between 20% and 120% in California. California voters supported the companies’ ballot initiative by an overwhelming majority.
The California vote set the tone for gig-worker legislation in the rest of the country. Washington state passed a law preserving the companies’ independent contractor model in 2022. Uber, Lyft, DoorDash and others are planning a California-like ballot initiative in Massachusetts later this year.
Business groups have generally opposed the Labor Department rule. Flex, a trade group that represents several app-based companies such as Grubhub, Instacart and Lyft, said the Labor Department move could “generate significant uncertainty for millions of small business owners and entrepreneurs.”
The AFL-CIO, a federation of labor unions, by contrast, said in 2022 that the proposed rule would protect workers from unscrupulous employers.
The full effect of the rule won’t likely be known until it has been interpreted by the court system, said Peter Norlander, a management professor at Loyola University Chicago who studies the gig economy.
“Pretty soon you’re going to have a test case or multiple cases where a worker says I’m being treated like an independent contractor and I should be treated like an employee,” he said. “I think the ultimate resolution of this is to be determined.”