Labor Department proposes rule to reclassify contractors as employees

The Labor Department on Tuesday unveiled a proposed rule that would reclassify some independent contractors as company employees, a move that could disrupt the gig economy.

The highly anticipated rule takes aim at companies that the Biden administration says “misclassify” their employees as contractors. By becoming employees, those workers would be covered by overtime and minimum wage laws that don’t apply to contractors. 

“Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Labor Secretary Marty Walsh in a statement. 

Labor unions have been pushing the Biden administration to go after industries that rely on contractors, including ride-share companies such as Uber and Lyft, noting that those workers are losing out on key benefits and will have trouble unionizing due to their contractor status. 

The Labor Department said Tuesday that misclassification is a problem in a host of industries, including home care, janitorial services, delivery, trucking and construction. The department said the widespread issue makes it difficult for some businesses to compete with those that misclassify their workers as contractors. 

The Biden administration rule would replace Trump administration guidance that made it easier for companies to classify workers as contractors.

AFL-CIO President Liz Shuler said in a statement that the rule will “increase protections and expand benefits to so many working people who have been subjected to corporate work-arounds.”

Several business groups indicated Tuesday that they will push to either oppose the rule or ensure that it doesn’t apply to their industry.

“As this process continues, our focus remains on advocating for the millions of app-based earners who choose this work because of the flexibility it provides,” Kristin Sharp, CEO of FLEX, a trade association representing gig companies, said in a statement.

Uber and Lyft each saw their stock price fall roughly 14 percent following the announcement. Gig companies could see their labor costs increase as much as 30 percent if they were required to reclassify contractors as employees, experts say.