Oct 11, 2022
The millions of workers whose labor is central to the success of large companies like Uber and Lyft will have more protections and rights under a new rule proposed Tuesday by the Biden administration, which takes aim at corporations that misclassify workers as independent contractors.
U.S. Labor Secretary Marty Walsh announced the administration's proposed rule, which would establish a "multifactor, totality-of-the-circumstances" framework under the Federal Labor Standards Act to determine whether a worker is truly an independent contractor--a status which exempts people from minimum wage and overtime laws as well as tax contributions from their employers.
"Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages."
Under the proposed framework, when classifying people as employees or independent contractors, companies would be required to consider whether the work being performed is essential to their business and whether a worker has to make large investments--such as buying and maintaining equipment--in order to do their job.
The Labor Department said the rule would restore a standard that was originally proposed by the Obama administration and which federal courts have upheld despite former Republican President Donald Trump's weakening of the rule.
"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 Walsh. "Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages."
Under Trump, employers were directed to consider the extent to which they controlled how a worker performs their job and whether a worker has the opportunity to control how much they earn rather than just earning a steady wage.
Companies including Uber and Lyft have aggressively lobbied to be able to classify more of their workers as independent contractors. After California lawmakers passed Assembly Bill 5 in 2019, classifying at least a million workers in the gig economy as employees, the companies spent about $200 million to pass a ballot measure to limit benefits for the workers their business models rely on and exempt them from employee status.
The proposed rule "could bring an end to gig companies' exploitation of millions of workers," said national economic justice group Jobs With Justice.
"All work has value, all workers deserve fair compensation and legal protections from exploitation on the job," said Council 4 AFSCME, a union of 30,000 state and local government workers affiliated with the American Federation of State, County and Municipal Employees in response to the rule.
The Labor Department's announcement follows an executive order signed by President Joe Biden to require federal contractors to pay a minimum of $15 per hour, his vocal support of union organizers at Amazon, and his push for an infrastructure law and the Inflation Reduction Act, which are expected to create hundreds of thousands of union jobs.
"In rules, orders, and appointments," said Institute for Policy Studies associate fellow Michael Paarlberg after the gig economy rule was announced, Biden "is miles ahead of any past Democratic president in a generation."
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