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Labor Proposal Could Upend Rules for Contractors, Companies

Labor Proposal Could Upend Rules for Contractors, Companies

By MICHELLE CHAPMAN, AP Business Writer
(further comments from the Associated Builders and Contractors below)

The Biden administration published a new proposal Tuesday regarding 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.

The new U.S. Department of Labor regulations would replace a Trump-era rule that lowered the bar for classifying employees as contractors, workers who are not covered by federal minimum wage laws and are not entitled to benefits including health insurance and paid sick days.

The reaction in markets for major gig companies was immediate. Shares of of the ride-hailing companies Lyft and Uber tumbled about 8%, although both companies dismissed the significance of the new proposal and its potential to affect their business.

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 Labor 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.

The Labor Department argued that the Trump administration’s rule did not comport with the 1938 Fair Labor Standards Act and decades of case law applying it.

One key change that could affect app-based companies is a requirement that employers consider whether the employee’s work is an integral part of their business. The Trump-era rule had narrowed that criteria to whether the work is part of an integrated unit of production, and gave more weight to two other considerations: the degree of control by the employer over the worker and the worker’s opportunity to make a profit or loss.

The new rule directs employers to consider the totality of five criteria traditionally used to determine whether a worker is an independent contractor, without predetermining whether one outweighs the other. Those criteria also include the degree of permanence of the relationship between a worker and the employer and the amount of skill required for the job.

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.

But both Uber and Lyft dismissed the potential impact of the new rule, saying that they could thrive in either scenario.

“Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially” CR Wooters, head of federal affairs at Uber, said in a statement.

In a blog post, Lyft said the company had expected this change since the start of the Biden administration.

“Importantly this rule: Does not reclassify Lyft drivers as employees. Does not force Lyft to change our business model,” the company said.

Both companies had applauded the Trump administration rule, arguing that the Depression-era Fair Labor Standards Act law was outdated and did not provide the flexibility demanded by the digital era.

Gig economy giants have weathered past attempts in the U.S. to require their drivers to be classified as employees.

In 2020, California voters overwhelmingly approved a proposition to exempt drivers for app-based companies from a state law requiring them to be designated as employees. Uber, Lyft and other companies had spent $200 million campaigning in favor of the proposition. However, a judge struck down the ballot measure as unconstitutional last year, setting up a legal fight that could end up in the California Supreme Court.

The proposed Labor Department rule will likely not take effect for months, including a 45-day period ending Nov. 28 during which stakeholders can submit comments. Once it does take effect, it does not carry the same weight as a law passed by Congress or state legislators but rather offers an interpretation of how the Fair Labor Standards Act should be applied.

Still, it has the potential to change the circumstances of workers beyond those employed by app-based companies. Misclassification has negatively affected delivery workers, custodians, truck drivers, waiters, construction workers, and others, according to the Labor Department.

“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.”

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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ABC OPPOSES THE BIDEN ADMINISTRATION’S NEW INDEPENDENT CONTRACTOR PROPOSED RULE 

TUESDAY, OCTOBER 11, 2022 1:40 PM

WASHINGTON, Oct. 11 — Associated Builders and Contractors today responded to the U.S. Department of Labor’s announcement of a proposed rule to rescind and replace a commonsense, ABC-supported final regulation on independent contractors.

“ABC is deeply disappointed that the Biden DOL is moving forward with a proposed rule that will disrupt legitimate independent contractors, which are an essential component of the construction industry,” said Ben Brubeck, ABC vice president of regulatory, labor and state affairs. “Independent contractors provide specialized skills, entrepreneurial opportunities and stability during fluctuations of work common to construction. Rescinding the commonsense 2021 final rule will increase the confusion and litigation chaos that has bedeviled the regulated community for years. Any effort by DOL to undermine the use of independent contractors in the rulemaking will likely be challenged by ABC and other stakeholders.”

ABC is one of the co-plaintiffs that successfully sued the Biden administration’s DOL for attempting to delay and rescind the commonsense 2021 independent contractor final rule. Under the March 2022 decision issued by the U.S. District Court for the Eastern District of Texas, the 2021 final rule went into effect as scheduled on March 8, 2021, and is currently in effect.

ABC continues to review the Biden administration’s 184-page proposed rule and analyze its effects on its contractor members and the regulated community, and will request an extension to DOL’s Nov. 28, 2022, comment deadline.

“A comment period deadline of 45 days is not enough time to properly evaluate this proposal and to ensure DOL has complied with the district court’s order, which remains in effect,” said Brubeck.

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