U.S. Labor Department Proposes to Redefine Gig Workers

The guidance is meant to help determine what constitutes an employee or an independent contractor.

October 13, 2022

ALEXANDRIA, Va.— The U.S. Department of Labor has released a proposal on how an employee is classified in an effort to help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act. The rule would replace a Trump-era standard that had made it easier to classify employees as contractors.

The proposed standard could make it difficult for companies that rely on >gig workers to deny them minimum wage and benefits, reports the Associated Press. Under the proposed rule, employers would need to decide whether an independent contractor’s work is an integral part of the business. The former ruling included more-limited criteria for which a contractor’s work impacted the business and gave more weight to other considerations such as the worker’s opportunity to make a profit or loss.

“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 Secretary of Labor Marty Walsh in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Under the new proposal, there are six “economic realities factors,” or criteria, to determine whether a worker is considered an employee or an independent contractor, without predetermining whether one outweighs the other. The criteria also include the degree of control by the employer, whether the work requires special skills, the degree of permanence of the relationship between worker and employer and the investment a worker makes, such as car payments, reports the AP.

The proposal does not overrule a law passed by Congress or state legislatures, and it does not specify whether any specific company or industry should reclassify their workers. Instead, it’s an interpretation of who should qualify for protections under the 1938 Fair Labor Standards Act.

According to Patricia Campos-Medina, executive director of the Worker Institute at Cornell University’s School of Industrial and Labor Relations, the rule could help labor advocates who are challenging worker classification in courts or state lawmakers seeking to pass stricter laws for designating workers as contractors.

“It creates a base from which to work, and it discourages predatory companies that want to lower their costs by denying basic rights to their employees,” Campos-Medina told the AP. “I don’t think it will stop the debate. The only thing the federal rule does is it creates a basic standard for evaluation.”

Dan Ives, a Wedbush analyst, wrote that the proposal would constitute a major change for workers and employers from prior years.

“A classification to employees would essentially throw the business model upside down and cause some major structural changes if this holds,” Ives wrote.

In response to the proposal, Uber wrote in a statement that the rule “takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.” Lyft said that it was anticipating this change, and that it “does not reclassify Lyft drivers as employees. Does not force Lyft to change our business model.”

The comment period for the proposal is open from now through November 28.

In late 2020, California voters overwhelmingly approved Proposition 22, a ballot measure that allows gig economy companies to continue treating drivers as independent contractors. Uber and Lyft, along with DoorDash and Postmates, collectively contributed around $200 million to support Proposition 22, a measure that lets those companies bypass a 2019 state law that would have required them to treat drivers as employees, paying for their insurance and providing other benefits.

As a concession to labor advocates, the initiative establishes a wage floor and provides some benefits to drivers. The campaign was the most expensive for any ballot measure in the state’s history.

Last year, New York City passed a package of six bills aimed to improve food delivery workers' on-the-job conditions. The bills prohibit food delivery apps and courier services from charging workers fees to receive their pay, set minimum payments per trip and mandate that apps disclose their gratuity policies. The measures also prohibit charging delivery workers for insulated food bags and stipulate that restaurant bathrooms must be available to delivery workers or otherwise subject to a fine. The bills also allow delivery workers to determine which deliveries they want to take without fear of retribution, as workers have been targeted by robbers.

Forbes recently reported that six in 10 c-suite executives expect gig workers to substantially replace full-time employees at their company in the next three years. The rise in gig workers is forcing changes in business strategies in ways that will help organizations with labor shortages, inflation and prepare for the future of work.

Here are three reasons why businesses are tapping into the gig economy.