The gig is up? New federal rule may turn 'contractors' into employees
Matt Gillette, an Instacart shopper classified as a gig worker, fulfills a grocery order at a Washington, D.C., market in 2020. Credit: The Washington Post via Getty Images/The Washington Post
The U.S. Department of Labor recently issued a proposed rule that could lead to more workers being classified as employees rather than independent contractors under federal wage and hour law.
The rule, which would rescind one issued in the last days of the Trump administration, is aimed at combating employee misclassification, “a serious issue that denies workers’ rights and protections under federal labor standards,” according to the DOL
Some critics argue the proposed rule creates greater confusion and provides a more restrictive approach to independent contractor classification.
“This rule makes the whole analysis much more complex and creates more ambiguity,” says G. Roger King, senior labor and employment counsel at the Virginia-based HR Policy Association, a public policy organization made up of chief human resource officers.
He thinks the proposed rule would have a substantial impact on businesses, making it harder for them to classify a labor force as independent contractors, also known as gig workers.
The Trump-era rule lays out multiple factors to determine worker status, but places greater emphasis on two core factors: the nature and degree of control over the work (i.e. how much the employer controls the performance of work such as the worker’s schedule) and the worker's opportunity for profit or loss (i.e. can the worker decline certain jobs or ask for a higher rate), says Domenique Camacho Moran, a partner at the law firm Farrell Fritz in Uniondale.
Domenique Camacho Moran, a partner at Farrell Fritz in Uniondale. Credit: Jim Lennon Photography/Farrell Fritz
The proposed rule is broader. King explains that it uses an “economic realities” test with six factors to determine a worker’s status:
- opportunity for profit or loss;
- investment by the worker and employer;
- degree of permanence of the working relationship;
- nature and degree of control;
- extent to which the work is an integral part of the employer’s business; and;
- degree of skill and initiative the worker exhibits.
With the proposed rule, Camacho Moran says, “It’s not clear the amount of weight each will hold in a specific analysis or situation.” So even one factor being met could potentially mean the worker needs to be reclassified, she says.
The DOL maintains that "the factors do not have a predetermined weight and are considered in view of the economic reality of the whole activity."
Camacho Moran said the test that looks at the extent to which the work’s an integral part of the employer’s business “has the possibility of being a game changer.”
She said the proposed rule can impact almost any business that uses gig workers, from ride-sharing firms to travel agencies.
For example, one can argue that without drivers, ride-sharing companies like Lyft wouldn’t have a business, Camacho Moran says. As a result, there likely will be litigation under the new rule arguing that drivers should be classified as employees, she says.
Meanwhile, Lyft in a statement downplayed the impact of the proposed rule on its business, noting it's similar to the Obama administration approach and the majority of their workers work limited hours.
Camacho Moran expects litigation in courts if the rule’s finalized.
The proposed rule may be less impactful for New York businesses because courts in New York when evaluating worker classification for wage and hour purposes generally rely on a test similar to this proposed DOL rule, she says.
Jose Santiago, general counsel at Farmingdale-based Alcott HR, a professional employer organization, agrees, but noted that in the remote work environment, New York businesses that hire independent contractors outside of New York in states that already had more employer-friendly classification interpretations, like the Trump-era rule, would now have to contend with the more stringent proposed federal rule.
Employers have until Nov. 28 to weigh in on the proposed rule with the Department of Labor, he says. Comments may be submitted online or in writing to the Division of Regulations, Legislation and Interpretation, Wage and Hour Division, U.S. Department of Labor, Room S-3502, 200 Constitution Ave. NW, Washington, D.C. 20210.
Jose G. Santiago, human resources compliance manager and corporate counsel at Alcott HR Credit: Newsday/J. Conrad Williams Jr.
Santiago said employers that rely heavily on independent contractors may want to seek a professional opinion on how this rule can impact them.
The HR Policy Association says while it does not support worker misclassification, it thinks the federal government would be better served with a legislative proposal that would create a new independent worker category under federal wage and hour law that would bring with it “basic social and safety nets,” King says.
Jacquelyn Wideman, co-founder of the Long Island Uber and Lyft Network, a Facebook group with 882 drivers, agrees that such a category would be desirable.
Jacquelyn Wideman, co-founder of the Long Island Uber and Lyft Network, a Facebook group with 882 drivers. Credit: Jacquelyn Wideman
She feels this proposed rule would lead to many independent contractors losing that status and the independence that comes with it.
“For a gig worker, putting them into the category as an employee can take away the freedom of being called an independent contractor,” Wideman says, such as the ability to choose assignments and make their own schedule.
Such flexibility “is what most of them got into it for,” Wideman says.
Fast Facts:
- Estimated U.S. independent contractor population: 22.1 million
- Estimated cost of the rule change in what the DOL describes as "regulatory familiarization" costs for affected parties: $188.3 million
