The U.S. Department of Labor proposed a new labor rule on Tuesday that would make it harder for companies to treat workers as independent contractors, a change that is expected to shake the business models of companies like Uber.
The proposal will require workers to be considered employees of a company, entitled to more benefits and legal protections than contractors, when they are “economically dependent” on the company. The rule can have far-reaching impacts on companies’ results and on company hiring, family income and workers’ quality of life.
The US Department of Labor said it will consider workers’ opportunity for profit or loss, whether they stay in their jobs and the degree of control a company has over a worker’s activity, among other factors.
Most US federal and state employment laws, such as those requiring minimum wage and overtime pay, apply only to employees employed by a company. Employees can cost companies up to 30% more than self-employed workers, studies suggest.
Millions of Americans work temporary jobs, and this cheaper labor has become the foundation of some transportation, healthcare and other business models.
US Labor Secretary Marty Walsh said in a statement that companies often misclassify vulnerable workers as independent contractors.
“This misclassification deprives the worker of legal protections, including the right to receive full wages,” Walsh said.
The Biden administration’s proposed rule, which will take at least several months to finalize, will replace a Trump administration regulation that says 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, may be treated as a third party.
More than a third of U.S. workers, or nearly 60 million people, have performed some form of freelance work in the last 12 months, a December 2021 survey by hiring firm Upwork showed.
Groups like the American Chamber of Commerce, which is the largest lobby group in the US, were pushing for a more business-friendly rule. These groups say broad legislation like the proposal will hurt workers who want to remain independent and have flexibility.
The proposal will be formally published on Thursday, starting a 45-day public comment period.
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