Labor Department makes it tougher to classify gig workers as contractors
Companies that have created business models that rely on the use of independent contractors to perform as personal shoppers, handle deliveries and other jobs may find it legally more difficult to avoid paying these workers a baseline minimum wage or overtime pay going forward.
The U.S. Labor Department has withdrawn a rule put in place during the Trump administration right before President Joe Biden took office that gave companies such as DoorDash, GrubHub, Instacart, Lyft, Postmates, Shipt, Uber and others the ability to employ so-called gig workers on a part- or full-time basis without having to classify them as employees.
The debate over when an independent contractor is, in fact, a company employee deserving of the same protections and benefits as those receiving W-2s has been ongoing in state capitals and Washington, D.C. for years.
In making the move to withdraw the rule, the federal government said that it was incompatible with the Fair Labor Standards Act that established minimum wage, timekeeping, overtime pay, record keeping and child labor regulations governing all public and private workers.
The timekeeping provision could prove a point of legal contention going forward as companies such as Amazon.com in the past have avoided having to pay warehouse workers for time spent waiting to go through security checks at the end of shifts.
The Trump administration’s rule put the onus on contractors to legally prove they should be classified as employees with the determination based on a “worker’s opportunity for profit or loss,” according to a Washington Post report.
Secretary of Labor Marty Walsh called the decision to withdraw the rule a necessary step.
“Business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” he said in a statement. “We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”
The current Labor Department’s decision has been criticized by companies with an interest in the move and the U.S. Chamber of Commerce.
A letter written by the Chamber vice president, workplace policy, Marc Freedman, said it supported the previous rule, which provided “a consistent analytical framework and updated criteria” used in “determining when legitimate independent contractor relationships exist.”
- U.S. Department of Labor to withdraw Independent Contractor Rule – U.S. Department of Labor
- Wages and the Fair Labor Standards Act – U.S. Department of Labor
- RE: Independent Contractor Status Under the Fair Labor Standards Act: Withdrawal; RIN 1235–AA34; 86 Fed. Reg. 14027 (March 12, 2021) – Chamber of Commerce of the United States of America
- Trump era rule that made it harder for gig and contract workers to get minimum wage is withdrawn – The Washington Post
- Classifying workers as independent contractors is now tougher after a Trump-era rule is dropped – USA Today
- Biden’s Labor Department rescinds Trump-era rule affecting gig workers – NBC News
DISCUSSION QUESTIONS: Will the decision by the Labor Department to withdraw the Trump administration rule that favored companies classifying workers as third-party contractors affect retailers, restaurants and their vendors? Do rules governing employment classifications need to be reconsidered?