New Biden labour rule would make some contractors employees

If approved, regulation could shake up companies reliant on gig workers

Taxis line up next to an Uber pick-up area along with Uber and Lyft drivers. Reuters

The US Department of Labour proposed a rule on Tuesday that would make it more difficult for companies to treat workers as independent contractors.

The change is widely expected to shake up the business models of the ridesharing, delivery and other industries that rely on gig workers.

The proposal would require that workers be considered as company employees, who are entitled to more benefits and legal protection than contractors, when they are "economically dependent" on the company.

The Labour Department said it would consider workers' opportunity for profit or loss, the permanency of their jobs and the degree of control a company exercises over a worker, among other factors.

Most federal and state labour laws, such as those requiring a minimum wage and overtime pay, apply to a company's employees only. This means employees can cost companies up to 30 per cent more than independent contractors that many industries have come to rely on, according to some studies.

US Labour Secretary Marty Walsh said in a statement that businesses often misclassify vulnerable workers as independent contractors.

“Misclassification deprives workers of their federal labour protections, including their right to be paid their full, legally earned wages," Mr Walsh said.

The rule, which will take at least several months to finalise, would replace a Trump administration regulation stipulating that workers who own their own businesses or have the ability to work for competing companies, such as a driver who works for Uber and Lyft, can be treated as contractors.

Shares in Uber and Lyft traded downwards on Tuesday morning.

The proposal adopts a broader definition of who counts as an employee, mirroring legal guidance issued by the Obama administration that was withdrawn by the Labour Department under Mr Trump.

More than one third of US workers, nearly 60 million people, performed some sort of freelance work in the past 12 months, a December 2021 survey by freelancing marketplace Upwork showed.

Groups representing businesses including the US Chamber of Commerce, which is the largest US business lobbying group, the National Association of Home Builders, the National Retail Federation and Associated Builders and Contractors had met White House officials to lobby for a more business-friendly standard.

Those groups have said any broad rule would hurt workers who want to remain independent and have flexibility.

But many worker advocacy groups have said companies are increasingly misclassifying employees as independent contractors, depriving workers of fair pay and benefits to pad their profits.