The U.S. Department of Labor (DOL) has announced a proposal to clarify whether a worker can be classified as an independent contractor or as an employee, news that crashed the stocks of some gig-based companies.
The DOL published a Notice of Proposed Rulemaking today to "help employers and workers determine whether a worker is an employee or an independent contractor in compliance with the Fair Labor Standards Act," the agency announced on its website.
"The proposed rule would provide guidance on classifying workers and seeks to combat employee misclassification," the DOL states in the announcement. "Misclassification is a serious issue that denies workers’ rights and protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over law-abiding businesses, and hurts the economy at large."
Misclassified workers are also denied basic protections including a minimum wage and overtime pay, the DOL reports. A wide variety of workers face misclassification, especially in construction, delivery, home care, hospitality and restaurants, janitorial and personal services, and trucking industries, according to the DOL.
The proposed rule would rescind the 2021 Independent Contractor Rule and align the DOL's classification approach with the courts' interpretation of the FLSA; restore in-depth analysis of whether a worker is an employee or a contractor; and change the factors of what constitutes a contractor to more closely align with the current economy, the DOL states.
“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,” DOL Sec. Marty Walsh said in the announcement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”
The announcement caused the stocks for ride-hailing and delivery companies Uber, Lyft, and DoorDash down by at least 10 percent, on fears that reclassifying gig workers as employees could cost companies up to 30% more than having only independent contractors, Reuters reports.
The proposed change is open to public comment through Nov. 28, the DOL reports, and is expected to be finalized in early 2023.
