The U.S. Department of Labor announced it is withdrawing a rule by the previous Trump Administration affecting independent contractors that was set to go into effect Friday.
The Trump rule would have favored app-services firms like Uber, DashDoor and Instacart by narrowing the review and prioritizing certain factors to be weighed in deciding whether a worker is an employee or an independent contractor.
The Biden Administration action restores the previous approach to enforcing the Fair Labor Standards Act (FSLA) that still allows companies to classify their contractors as independent but requires a broader analysis.
The Department of Labor said it is withdrawing the rule to “maintain workers’ rights to the minimum wage and overtime compensation protections” of the FSLA and because it believes the rule “would have a confusing and disruptive effect on workers and businesses alike due to its departure from longstanding judicial precedent.”
The move is somewhat of a setback for app-based businesses models. The companies have been lobbying against proposals in California and in Congress that seek to require that some of the rights and benefits enjoyed by employees be extended to independent contractors.
Workers classified as independent contractors are not covered by federal minimum wage and overtime laws and face more difficulty forming unions than employees.
DOL said the pending independent contractor rule change was in tension with the FLSA’s text and purpose, as well as judicial precedent.
DOL said the Trump rule’s prioritization of two “core factors” for determining employee status under the FLSA would have undermined the “longstanding balancing approach of the economic realities test and court decisions requiring a review of the totality of the circumstances related to the employment relationship.”
“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” said Secretary of Labor Marty Walsh. “Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors.”
The move is not a total surprise. In an interview with Reuters last week, Walsh said that a lot of U.S. gig workers should be classified as “employees” and deserve benefits.
Uber and other gig companies argue that their contractors do not want to be classified as employees. Uber has proposed a model that would grant independent contractors some benefits.
In November, California voters supported a ballot measure that overrode a state law that would have made gig workers employees. Now, gig workers in the state have access to limited benefits.
In its withdrawal notice, DOL writes that the Supreme Court has emphasized that the “technical concepts” used to label a worker as an employee or independent contractor do not drive the analysis under FSLA, “but rather it is the ‘economic realities’ of the relationship between the worker and the employer that is determinative.”
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