The Biden administration issued a new rule on Monday that seeks to make more gig economy workers classified as employees rather than independent contractors. The move could have sweeping implications across industries that rely heavily on contract labor like ride-hailing, delivery, and more.
Key Details of New Rule
The new rule from the Department of Labor aims to clarify the test used to determine whether a worker should be classified as an employee or an independent contractor under the Fair Labor Standards Act. Some key details include:
- Puts more emphasis on the nature of the worker-company relationship rather than just the specific job being performed
- Focuses on factors like how closely the work aligns with the core business, the degree of permanence of the relationship, and how much the worker earns from that company
- Aims to limit companies labeling workers as independent contractors to avoid legal obligations and costs
- Scheduled to take effect in early March
Uber, Lyft, DoorDash and others argue the rule change won’t significantly impact their business models or worker classifications. But labor advocates say it represents an important step toward getting basic rights and benefits for gig workers.
Reactions Across Industries
The rule has drawn a wide range of reactions from politicians, industry groups, companies and workers:
| Supporting the Rule Change | Opposing the Rule Change |
|---|---|
| Labor unions and worker advocacy groups | Groups representing freelancers and independent contractors |
| Democratic policymakers | Republican policymakers |
| Employment lawyers | On-demand companies (though some downplaying impact) |
| Delivery services relying less on gig workers | Fintech companies working with independent advisors |
Supporters argue it establishes clearer standards after confusion created during the Trump administration. They say properly classifying employees is crucial for ensuring worker rights and benefits.
Critics counter that the rule could eliminate flexibility and income for millions who want to remain independent contractors. Some industries say transitioning these workers to employees brings massive new costs.
What Could Change for Gig Workers
If the rule leads on-demand companies to make gig workers employees, it would transform fundamentals of their business structure while providing workers new benefits:
- Wages – Minimum wage and overtime pay protections
- Taxes – Employer responsibility for payroll taxes
- Benefits – Access to unemployment insurance, workers’ compensation, etc.
- Organizing – Strengthens capacity to unionize workforces
- Expenses – Workers would not be responsible for costs like gas, vehicle wear and tear
However, it could also reduce flexibility that attracts some to gig work. Companies may require set shifts and institute more supervision over workers. Additionally, there are questions around how easily companies can shift contractors to employees en masse.
What Happens Next
The rule takes effect in early March, but immediate impacts remain uncertain. Companies still have room for legal challenges and interpretations. Key developments to monitor:
- Legal challenges – Companies could sue to block the rule
- State action – “ABC test” laws in CA and elsewhere already establish strict contractor rules
Enforcement – Unclear how aggressively DOL will seek to enforce against violators - Business adaptations – Will companies change worker classifications? Modify business models?
- Congressional action – Bills could stall rule but divided Congress makes that unlikely
This long-awaited move will start reshaping the business landscape. But expect an extended battle over gig worker rights as companies assess options and claims work their way through courts.
Implications Across the Gig Economy
With growing reliance on contract labor, experts say the ripple effects could run far and wide if more gig workers are made employees:
- Ride-hailing/delivery – Companies like Uber, Lyft, DoorDash, Instacart utilize millions of drivers and couriers as contractors. Mass reclassification would raise their costs but they argue contractors prefer flexibility.
- Domestic work – Nannies, house cleaners and more often contractors lacking labor protections. Groups urge these vulnerables workers be covered.
- Healthcare – Many home health aides hired as contractors. Could addressing this improve retention amid shortages?
- Retail/warehousing – Contractors common for flexibility needs but does it undermine job quality?
- Professional services – Consultants, franchisees, self-employed advisors could now be deemed employees.
This partial list highlights how established and emerging industries could see growing pains. For better or worse, one thing seems clear – the nature of gig work in America is changing.
To err is human, but AI does it too. Whilst factual data is used in the production of these articles, the content is written entirely by AI. Double check any facts you intend to rely on with another source.
