Close-up of a vertical sign with logos for ride-hailing companies Uber and Lyft.
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The U.S. Labor Department issued a final rule on Tuesday that will force companies to treat some workers as employees rather than cheaper independent contractors, a move that will anger trade groups and likely trigger legal challenges.
The rule is widely expected to increase labor costs in industries that rely on contract or freelance labor, such as trucking, manufacturing, healthcare and app-based “gig” services.
Most federal and state labor laws, such as laws requiring minimum wages and overtime pay, apply only to company employees. Studies suggest that employees can cost a company up to 30% more than independent contractors.
The rule will require workers to be considered employees rather than contractors if they are “economically dependent” on the company. It does not go as far as wage laws in California and other states, which place even greater restrictions on independent contracting.
It replaces an order from former President Donald Trump’s Republican administration that made it easier to classify workers as independent contractors. Trade groups and businesses are likely to challenge the new rule in court.
In the Trump era, workers who owned their own businesses or had the ability to work for competing companies, such as a driver who works for both Uber technology and Lyftthey could be considered suppliers.
The new rule is set to take effect on March 11.
Acting U.S. Labor Secretary Julie Su said during a call with reporters Monday that the misclassification of workers as contractors rather than employees particularly hurts low-income workers who would benefit most from legal protections provided to workers, such as the minimum wage and unemployment insurance.
“A century of labor protection for working people is based on the employer-employee relationship,” Su said.
But some business groups say the rule tips the scales too far in favor of finding workers to be employees rather than contractors, depriving millions of workers of flexibility and opportunity.
“Worse, the rule is completely unnecessary as the Department continues to report success in cracking down on bad actors who misclassify workers,” Marc Freedman, vice president of the U.S. Chamber of Commerce, said in a statement. He added that the Chamber, America’s largest business group, is considering challenging the rule in court.
The Labor Department said the rule was designed to hit industries, including construction and health care, where worker misclassification is common. But its potential impact on app-based delivery and ride-hailing services, whose business models depend on contract “gig” work, has drawn the most attention.
Companies including Uber and Lyft have expressed concern about the rule, but also said they don’t expect it to result in their drivers being classified as employees. CR Wooters, Uber’s head of federal affairs, said in a statement that the new rule “does not materially change the law under which we operate.”
“Drivers across the country have made it abundantly clear — in their comments on this rule and in survey after survey — that they do not want to lose the unique independence they enjoy,” Wooters said.
The Department of Labor said it will consider factors such as the worker’s opportunity to make a profit or loss, the degree of control the company has over the worker and whether the work is an integral part of the company’s business to determine whether the worker should be classified. as an employee or contractor.
Trade groups said the long list of factors that could determine a worker’s classification would cause confusion and inconsistent results, which in turn could fuel costly class-action lawsuits alleging workers were misclassified.