The Trump administration made it easier for businesses to classify workers as independent contractors, a victory for gig-economy companies such as food-delivery and ride-sharing services and a counter to a California law that did the opposite.
The Labor Department in a final rule released on Wednesday would make it more difficult for a gig worker, such as an Uber or DoorDash driver, to be counted as an employee under federal law. That means those workers wouldn’t be covered by federal minimum-wage and overtime laws, and they could be responsible for paying the employer portion of Social Security taxes.
The rule won’t go into effect until March 8, after President-elect Joe Biden is inaugurated on Jan. 20. The Biden administration could seek to delay implementing the rule, give new enforcement guidance or seek to write a new version of the rule. The Biden administration could also opt to not defend the regulation should it be challenged in court.
DoorDash Inc. said the food-delivery company is committed to ensuring its workers can maintain flexible earnings opportunities. The vast majority work fewer than 10 hours per week, or an average of four hours a week or less. “We’re eager to continue working with lawmakers across the political spectrum at both the state and federal level,” a DoorDash spokesman said.
A spokeswoman for Mr. Biden declined to comment.
The Labor Department’s action follows a 2019 California law that required businesses to reclassify many contract and gig workers as employees, giving those workers access to the state’s minimum wage and overtime laws, workers’ compensation coverage and paid sick days. In November, California voters approved a ballot proposition that exempted Uber Technologies Inc., Lyft Inc., DoorDash and similar companies from the law, which would have reshaped their business model.
The rule “respects the time-honored American tradition of being your own boss,” Deputy Secretary of Labor Patrick Pizzella said on a call with reporters. He said the California law had skewed the definition of an independent contractor, and added the new federal rule would increase opportunity for gig workers, and give them greater control over their lives.
A separate Labor Department official said states aren’t required to follow the federal rule, but the department hopes the rule can be a model for states.
“There will be efforts in several states to pass laws for which the Labor Department rule will be the basis,” said Michael J. Lotito, co-chairman of law firm Littler Mendelson P.C.’s Workplace Policy Institute and an attorney who represents businesses. Other states have used aspects of California’s laws as a model.
Danielle Burr, Uber’s head of federal affairs, wrote in October that the then proposed rule would protect the independent worker status that “is overwhelmingly preferred by app-based drivers and delivery people.” Uber didn’t immediately respond to a request for comment on Wednesday.
Business groups, including the Chamber of Commerce, Associated Builders and Contractors and National Federation of Independent Business, also backed the rule.
Glenn Spencer, the chamber’s head of employment policy, said the rule updates a labor law passed in the 1930s for the 21st century. The regulation gives employers greater clarity on the law and “will increase the opportunities for working parents to control their schedules and raise their kids, ex-offenders to re-enter the workforce, and help military spouses generate earnings,” he said.
Labor unions, taxi drivers and workers’ advocates were among those who wrote letters protesting the plan, saying employees often have access to benefits, including health insurance and retirement plans, that independent contractors don’t have.
“The rule gives license to employers to call most of their workers independent contractors,” said Catherine Ruckelshaus, general counsel at the National Employment Law Project, which advocates for low-wage workers. “That would dramatically narrow worker protections…in the jobs that particularly need them, including construction, agriculture, janitorial and delivery jobs.”
Ms. Ruckelshaus said NELP is ready to challenge the rule in court, but added that might not be necessary, depending on the actions of the Biden administration.
—Sarah E. Needleman contributed to this article.
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