(Reuters) – The U.S. Department of Labor issued a final rule on Tuesday that will require companies to treat some workers as employees rather than cheaper independent contractors, a move that has irked business groups and will likely lead to legal challenges.
This rule is generally expected to increase labor costs for industries that rely on contract labor or freelancers, such as trucking, manufacturing, health care, and “at-home” services. demand” based on applications.
Most federal and state labor laws, such as those requiring minimum wages and overtime pay, apply only to a company’s employees. Studies suggest that employees can cost businesses up to 30% more than independent contractors.
The rule will require workers to be considered employees rather than contractors when they are “economically dependent” on a company. It doesn’t go as far as wage laws in California and other states, which place even stricter limits on independent contracting.
It replaces a regulation passed by former Republican President Donald Trump’s administration that made it easier to classify workers as independent contractors. The new rule will likely be challenged in court by professional groups and businesses.
Under the Trump-era rule, workers who owned their own businesses or had the opportunity to work for competing companies, such as a driver who works for both Uber Technologies and Lyft, could be treated as contractors.
The new rule is expected to come into effect on March 11.
Acting U.S. Labor Secretary Julie Su, in a call with reporters Monday, said misclassifying workers as contractors rather than employees particularly harms low-income workers who would benefit most from protections rights granted to employees, such as minimum wage and unemployment insurance.
“A century of labor protection for workers is based on the employer-employee relationship,” Su said.
But some business groups say the rule tips the scales too far in favor of concluding that workers are employees rather than contractors, which would deprive millions of workers of flexibility and opportunity.
“Even worse, this rule is completely unnecessary as the Department continues to report success in cracking down on bad actors who misclassify workers,” said Marc Freedman, vice president of the U.S. Chamber of Commerce, in a press release. The Chamber, America’s largest business group, plans to challenge the rule in court.
The Labor Department said the rule was intended to crack down on industries, including construction and healthcare, where worker misclassifications are common. But it’s its potential impact on app-based delivery and ride-hailing services, whose business models rely on contract labor, that has gotten the most attention.
Companies like Uber and Lyft have expressed concerns about the rule, but also said they don’t expect their drivers to be 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 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 Labor Department said it would consider factors such as a worker’s potential for profit or loss, the degree of control a company has over a worker and whether the work is an integral part of the company’s business. company to determine whether a worker should be classified. as an employee or entrepreneur.
Business groups said the long list of factors that could determine a worker’s classification would create confusion and inconsistent results, which could lead to costly class-action lawsuits alleging workers were misclassified.
(Reporting by Daniel Wiessner in Albany, New York; editing by Alexia Garamfalvi and Matthew Lewis)
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