US Labor Department proposes rule to curb misclassification of workers as independent contractors News
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US Labor Department proposes rule to curb misclassification of workers as independent contractors

The US Department of Labor (DOL) Tuesday published a proposed rule clarifying when workers should be classified as independent contractors or employees entitled to minimum wage, over time and other Fair Labor Standards Act (FLSA) protections.

The rule rescinds a January 2021 rule, which inquired into whether the worker was dependent on a particular individual, business or organization for work to determine labor classification. The new rule institutes a multifactor test to determine labor classification. The DOL published the following graphic to help illustrate the multifactor test:

Secretary of Labor Marty Walsh explained the reasoning behind the new 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. Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.

Companies such as Uber and Lyft rely heavily on classifying their workers as independent contractors to avoid employer obligations under the FLSA. While the DOL officials said the rule is not likely to result in a large shift in labor classification, shares of Uber and Lyft fell following the announcement of the rule. A survey from Pew Research found that 16 percent of US adults earned money through an online gig platform, such as Uber or Lyft.

This is not the first time government entities have attempted to curb the gig economy’s abuse of classifying workers as independent contractors. In 2019, California Governor Gavin Newsom signed AB5 into law, requiring companies like Uber and Lyft to treat their workers as employees. Gig economy companies pushed back and managed to get Proposition 22 onto the ballot in November 2020. Proposition 22 passed, and exempted gig economy companies from state labor law by classifying their workers as independent contractors. Later, a California court held Proposition 22 was unconstitutional and struck down the measure.

The public and interested parties have 45 days to comment on the proposed rule before it is finalized.

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