Biden Cracks Down On Misclassification Of Workers As Independent Contractors

The administration has rolled out a proposed rule that the gig companies are not going to like.

The Biden administration introduced a new regulation Tuesday that would make it harder for employers to misclassify workers as “independent contractors” to avoid minimum wage and overtime laws.

The proposal from the White House would replace an earlier, more business-friendly rule created by the Trump administration that set looser guidelines around who could be considered a contractor in the workplace. Labor Department officials said the previous administration’s rule increased the likelihood of workers being exploited.

Employers often mislabel their workers as contractors in order to evade workplace laws or shift certain costs of employment onto workers. Gig companies like Uber and Lyft have been fighting misclassification lawsuits for years and have battled both state and federal officials over tighter regulations.

“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,” Labor Secretary Marty Walsh said in a statement.

The rule must undergo a public comment period before officials can finalize and implement it.

The proposal essentially articulates how the Labor Department views the independent contractor issue. It pertains only to the Fair Labor Standards Act, the New Deal-era law that created a federal minimum wage and ensured workers receive premium pay for working extra hours. It would not apply to other federal workplace laws or make it easier for workers labeled contractors to form unions.

But the new federal guidelines, if implemented, could make it easier for more workers to pursue complaints or lawsuits against their employers if they believe they’ve been shorted on their paychecks. It could also impact the way state and local officials craft legislation aimed at cracking down on misclassification.

The White House says Trump made it too easy for companies to misclassify workers and get away with dodging minimum wage and overtime laws.
The White House says Trump made it too easy for companies to misclassify workers and get away with dodging minimum wage and overtime laws.
Chip Somodevilla via Getty Images

Although the gig platforms may be the best-known users of independent contractors, the practice has been ingrained in the transportation and health care sectors for many years.

The Labor Department estimates that 22 million people are labeled as contractors. In the proposal, officials pointed to an assessment from the National Employment Law Project that anywhere from 10% to 30% of them are misclassified and should be considered employees. Workers of color are hurt more by the practice because of the industries where it’s most prevalent, like agriculture, construction and trucking.

Seema Nanda, the Labor Department’s solicitor, said on a call with reporters Tuesday that the Trump regulation had made it too easy to get away with misclassifying workers when it comes to the Fair Labor Standards Act.

“The 2021 independent contractor rule is out of sync with what the courts have been saying for decades,” she said. “And we believe that disconnect ... increases the likelihood of misclassification, which hurts workers and their families.”

The new rule would broaden the criteria that could be considered when determining whether someone is a legitimate contractor or a misclassified employee, like how much control they have over their schedule and work, whether they have the ability to work for other companies and how permanent the working relationship is.

“To be an independent contractor ... a worker must be in business for themself,” Jessica Looman, the acting head of the Labor Department’s Wage and Hour Division, said on the call.

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