The U.S. Department of Labor has published a new proposal on how workers should be classified saying that thousands of people have been incorrectly labeled as contractors rather than employees, potentially curtailing access to benefits and protections they rightfully deserve.
Misclassifying workers as independent contractors denies those workers protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over businesses, and hurts the economy, the department said Tuesday.
The reaction in markets for major gig companies was immediate. Shares of Lyft and Uber tumbled about 13%. in early trading.
The misclassification of workers has negatively impacted delivery workers, custodians, truck drivers, waiters, construction workers and more, according to the department.
“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” said Secretary of Labor Marty Walsh in a prepared statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”
The Labor department’s proposed rule would help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.
“This is a long-awaited determination that will empower essential workers to assert their basic wage and hour, health and safety, and compensation rights,” said Patricia Campos-Medina, executive director of the Worker Institute at Cornell University’s School of Industrial and Labor Relations. “All workers are entitled to these rights, but employers easily avoid them by making arbitrary decisions on independent contractor rules.”
Wedbush analyst Dan Ives said the proposal would constitute a major change for workers and employers from previous years.
“A classification to employees would essentially throw the business model upside down and cause some major structural changes if this holds,” Ives wrote.
Last year the Biden administration repealed a Trump-era rule that would have made it easier to classify workers as independent contractors. The repeal meant the Labor Department was able to continue using existing rules under the 1938 Fair Labor Standards Act to determine whether a worker should be classified as an independent contractor.