The Department of Labor announced (October 11) a proposed rule to enable a broader set of factors for determining the employment status of so-called “gig workers” that is likely to undermine the ability of some companies to treat such workers as independent contractors instead of employees.
Under the proposal, groups of gig workers could be considered employees of a company after a “totality of circumstances analysis,” that the Department says is consistent with “longstanding judicial precedent” relied upon for determining the classification of workers under the Fair Labor Standards Act. The classification of a worker as an employee of a business means that he/she should receive within current Federal and state laws guarantees on minimum wages and overtime pay, among other types of employee protections.
This proposed rule would formally replace one that was put into place during the final days of the Trump Administration. That prior rule was intended to minimize the factors considered for determining employee status by elevating certain factors above others: i.e., the nature and degree of control that a worker exercised over key aspects of the performance of the work and the worker’s opportunity for profit or loss based on the exercise of initiative and/or management of investment. The prior rule, if enforced, would have had the effect of permitting most gig workers to remain as independent contractors.
If the new rule is finalized in its current form, the Department will be able to make employee classification determinations based on a multitude of factors, some of which could include the extent to which services rendered are an integral part of the principal's business, the permanency of the employment relationship, and the nature and degree of employee control by the company, among other things.
The central key for determining a worker/business relationship under Federal law is the economical dependence of the worker as determined by an “economic reality test” – i.e., if the worker is dependent on the business or is in business for themselves.
Some of the largest gig worker companies that potentially could be impacted by any final rule:
Uber & Lyft - riding services Instacart, Postmates, Shipt - grocery delivery
Amazon Flex - package delivery Care.com - healthcare/home services providers Doordash - food delivery Taskrabbit - home projects Wag - pet care
The proposed rule will undergo a public comment period for most of the rest of this year. Any final rule would likely not be completed, and implemented, until later in 2023 at the earliest. A process for making each individual employee group determination, and administratively adjudicating each decision, could take years.
That being the case, for some large and small companies the rule could have a significant impact on their ability to operate, which could in turn eventually compel Congress to make adjustments in law to accommodate such businesses.