The administration of US President Joe Biden on Tuesday proposed new standards that could make it more difficult to classify millions of US workers as independent contractors, and deny them minimum wage and benefits.
The US Department of Labor rule, which could take months to take effect, would replace a scrapped standard implemented by Biden’s predecessor that lowered the bar for classifying employees as contractors — workers who are not covered by federal minimum wage laws, and are not entitled to benefits including health insurance and paid sick days.
The reaction in markets for major gig companies was immediate. Shares of ride-hailing company Lyft fell 12 percent while Uber tumbled about 10 percent, although both firms dismissed the significance of the new proposal and its potential to affect their business.
Photo: AFP
In one key change, employers are required to consider whether the work provided is an integral part of their business. That could affect app-based companies that rely almost entirely on freelance workers to provide their services.
The previous rule narrowed that criteria to whether the work is part of an integrated unit of production, and gave more weight to other considerations such as the worker’s opportunity to make a profit or loss.
The new rule directs employers to consider six criteria for determining whether a worker is an employee or a 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 vehicle payments.
Photo: AFP
However, the rule does not carry the same weight as a law passed by the US Congress or state legislatures, nor does it specify whether any specific company or industry should reclassify their workers. Rather, it offers an interpretation of who should qualify for protections under the US Fair Labor Standards Act.
The rule could bolster labor advocates seeking to challenge worker classification in courts, or state lawmakers seeking to pass stricter laws for designating workers as contractors, said Patricia Campos-Medina, executive director of the Worker Institute at Cornell University’s School of Industrial and Labor Relations.
“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,” she said.
Still, there is room for interpretation, as some companies might meet one set of criteria for contractor designation, but not others.
“I don’t think it will stop the debate,” Campos-Medina said. “The only thing the federal rule does is it creates a basic standard for evaluation.”
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