Labor Department proposal may lead to gig workers gaining employee status

It may become harder for companies like Uber and Lyft to classify drivers as contractors.

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The Department of Labor has issued a proposal that could make it more likely for millions of people to be classified as employees rather than independent contractors. Should the proposal become a formal rule, gig workers (such as Uber and Lyft drivers) would likely gain benefits and protections afforded to employees if they're reclassified. Those may include a minimum wage, overtime, unemployment insurance contributions and their employer paying a share of Social Security taxes, as The New York Times notes.

Last year, the Department of Labor rescinded a Trump-era rule that made it easier for companies to classify gig workers as contractors. However, a federal court in Texas reinstated that rule in March, as Bloomberg notes.

Under the latest proposal, the Department of Labor plans to implement a test to determine if workers should be classed as employees or contractors. Factors such as how much control workers have over how they carry out tasks and how much bandwidth they have to increase their earnings by offering other services would be assessed. Other considerations include whether workers need to buy their own equipment and if their work is critical to a company's business. There would be a lower threshold for requiring employee status than the current test.

Even if the proposal does become a final rule, it wouldn't directly affect the guidelines that states and other federal agencies have for determining employment status. It would have more of a direct impact on laws that the Department of Labor enforces, including the federal minimum wage. However, as the Times points out, many employers, regulators and judges may defer to the agency's criteria on worker classification.

“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,” Secretary of Labor Marty Walsh said in a statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages. The Department of Labor remains committed to addressing the issue of misclassification.”

Some states have attempted to have gig workers classified as employees, but the likes of Uber and Lyft have fought against such requirements. In 2020, California voted to pass a ballot measure backed by ride-hailing and delivery companies. The passage of Proposition 22 stripped app-based drivers of employee protections by classifying them as independent contractors. A judge ruled last year that Prop. 22 was unconstitutional, but that decision has been appealed.

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