On Tuesday, the Department of Labor (DOL) announced the proposal of a rule that could pave the way for millions of workers in the gig economy to be classified as employees in a significant win for labor advocates who have been fighting for better standards for gig workers for years.
The new rule will allow millions of people working for companies like Uber and Lyft — along with those working in construction, janitorial services, home care, and more — to be classified as employees if they are “economically dependent” on their work for the company. While it isn’t a binding law, which would likely have to be issued by Congress, the guidance will likely be used by judges and employers to determine worker classification.
In announcing the rule, labor officials rescinded a Donald Trump-era rule that expanded the pool of workers who could be classified as contractors or freelancers; the rule had allowed employers to deny those workers benefits that are required by the federal government, like a guaranteed minimum wage rate, overtime pay, the right to unionize, and more.
“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.”
Labor unions and progressive economists have long advocated against conditions in the gig economy, saying that gig companies not only exploit workers, but also threaten to erode or have already eroded working conditions for workers across the economy.
A 2020 survey of gig workers found that about 1 in 7 such workers make an hourly rate less than the federal minimum wage of merely $7.25 an hour. They are also more susceptible to wage theft: over 60 percent of respondents reported losing earnings due to an inability to clock in or out, compared with about 20 percent of service sector employees.
“This is a long-awaited determination that will empower essential workers to assert their basic wage and hour, health and safety, and compensation rights,” Patricia Campos-Medina, who directs the Worker Institute at Cornell University’s School of Industrial and Labor Relations, told The Washington Post. “All workers are entitled to these rights, but employers easily avoid them by making arbitrary decisions on independent contractor rules.”
Corporations in the gig economy have saddled their business models on paying their workers as little as possible, with companies like Amazon and DoorDash going as far as to steal workers’ tips. These corporations are desperate to keep the status quo for gig workers; in California, gig companies spent over $200 million on their campaign to pass Prop 22 in 2020, a ruling that allowed them to keep workers from accessing employee benefits.
The new rule is a major blow to such companies; officials at some such corporations have estimated that reclassification could raise their labor costs by 20 or 30 percent, and Uber, Lyft and DoorDash have taken hits to their share prices as a result of the announcement.