Labor Department Enacts New Rule Preventing Misclassification Of Workers As Independent Contractors

The Biden administration enacted a new labor rule Tuesday to prevent workers from being misclassified as independent contractors.

The Biden administration enacted a new labor rule on Jan. 9 to prevent employees from being misclassified as independent contractors.

Fortune Magazine reports the rule could boost legal protections and compensation for millions of gig economy workers in the U.S.

App-based platforms, including Lyft, Uber, and DoorDash, are confident the new rule will not force them to reclassify their drivers as full or part-time employees. However, business groups believe the rule will create confusion for employers, and it’s still unclear how the Labor Department will enforce it.

The Labor Department rule replaces a Trump-era standard narrowing the qualification for classifying employees as independent contractors, who are not guaranteed a minimum wage and benefits, including health insurance and paid sick days.

The new rule, which will take effect on March 11, directs employers to use six qualifications to determine whether a worker is an employee or a contractor without predetermining whether one outweighs the other.

The Trump-era rule prioritized two criteria: how much control a company has over its workers and how much “entrepreneurial opportunity” the work provides.

Labor advocates are celebrating the rule, adding that employers have exploited labor rules to misclassify workers to circumvent paying them full wages and giving them benefits. It offers an improved approach to determining whether workers are truly in business for themselves.

In a press briefing, Acting Secretary of Labor Julie Su told reporters that misclassified workers “sometimes work side by side with individuals who are properly classified, doing the same work.”

“But misclassified employees don’t get paid for all of their hours,” Su said. “They’ve seen their economic security eroded because of misclassification.”

According to Fortune, Service Employees International Union President Mary Kay Henry said in a statement that the new rule “takes direct aim” at the practices of corporations like Uber and Lyft that have taken “advantage of misclassifying workers to shirk accountability as employers, avoid paying their fair share and game a system already rigged in their favor.”

The L.A. Times reports the U.S. The Chamber of Commerce is considering challenging the new rule in court. According to the chamber’s Vice President of Workplace Policy, Marc Freedman, the new guidelines make it difficult for companies to know whether they are giving enough importance to any of the six criteria.

“It leaves employers in the dark about whether they made the right decision,” Freedman said. “The only time they can be confident is if they call a worker an employee.”