The Biden administration is proposing a new rule that could eliminate “gig” work

The Biden administration is proposing a rule that could lead to more “gig” workers being considered full-time employees, a potentially major shift in the nation’s labor laws that could disrupt ride-sharing, delivery, construction and other companies that hire independent contractors.

The draft of the rule, which will be formally published on Thursday, is a test that the Ministry of Labor uses when it decides whether employers broke wage and hour laws. It formally directs the agency to consider six factors when determining whether a worker is an employee — and therefore entitled to minimum wage, overtime, and the right to organize — or an independent contractor, who is essentially a self-employed person in business for himself self.

“We are continuing our enforcement efforts to identify misclassified workers in construction, health care, and even restaurants where we found that dishwashers were being misclassified as independent contractors to avoid paying them overtime,”[ads1]; Jessica Looman, principal by salary. and hours administrator at the Ministry of Labour, told reporters on Tuesday.

After the Labor Department proposal is published, the rule will remain open for public input for 45 days, officials said.

Gig Workers Rising, a group that advocates for more protections for platform workers, praised the proposed rule.

“Uber, Lyft and DoorDash make their money off drivers like me and control my wages and working conditions, but they claim they don’t have to protect my safety or pay me a living wage. They can’t keep having their pie and eat it too,” Rondu Gatt, a driver and organizer with the group, said in a statement.

“Gig workers deserve all the rights that other workers have, including the right to organize,” Gatt added.

Independent contractors are usually much cheaper to hire since they are responsible for their own payroll taxes and job expenses and do not qualify for overtime or minimum wage. The National Employment Law Project, a pro-worker think tank, has estimated that as many as 30% of workers may be miscategorized as independent, depressing wages and costing states billions of dollars in tax revenue.

The proposed rule formally replaces one Trump administration regulation which made it easier for businesses to legally classify workers as independent contractors. Labor Minister Marty Walsh maintains that thousands of workers, incl gigs driving a cardeliver food and clean houses, are actually employees, because the companies that employ them set hours and pay.

Gig shares drop

The gig company’s shares fell on the news. Uber and Lyft fell more than 12% in early trading, while DoorDash fell about 9% in early trading. Shares later recovered some of their losses.

The proposal is “a clear blow to the gig economy and a near-term concern for the likes of Uber and Lyft,” Dan Ives, an analyst at Wedbush, said in a note.

“With ride-sharing and other gig economy players depending on the contractor’s business model, a classification of employees would essentially turn the business model upside down and cause some major structural changes if this holds,” he wrote.

Companies that are not consistently profitable have said they cannot afford to pay drivers as employees, while using hundreds of millions of dollars to win legislative waivers from state worker protection laws.

However, Uber and Lyft said Tuesday that the new rule will not harm their business model. In a statement Uber said the rule “takes a measured approach, essentially returning us to the Obama era, where our industry grew exponentially.”

“This is just the first step in what will likely be a longer process before any final rule or decision is made,” Lyft said in a statement, noting that the company had expected the rule change.

Tech companies with large on-demand workforces have argued that “gig” workers prefer the flexibility that comes with being an independent contractor over what they call “traditional” employment.

“We believe that people should still be able to choose where, when, how often and with which companies they work,” Flexforbundet, which represents gig-based employers, said in a blog post. “We found that even when spread across platforms, app-based workers work an average of eight hours per week,” the group said.

However, workers who rely on these platforms to make a living often complain about long hours, inconsistent pay, and seemingly arbitrary changes to apps that can affect what they earn.

The Department of Labor noted that under current labor laws, “employers are free to allow employees to work as little or as much as they want.”