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Biden labor proposal shakes up gig economy that relies on contractors

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WASHINGTON — The U.S. Department of Labor proposed a rule on Tuesday that would make it more difficult for companies to treat workers as independent contractors, a change that is expected to shake up ride-hailing, delivery and other industries that rely on gig workers.

Gig company stocks were hammered on the news, with Uber , Lyft and DoorDash all falling at least 10%. Groups representing employers quickly criticized the rule.

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The proposal would require that workers be considered a company’s employees, entitled to more benefits and legal protections than contractors, when they are “economically dependent” on the company. It could have wide-ranging impacts on company profits and hiring, household incomes and worker quality of life.

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The Labor Department said it will consider the worker’s “opportunity for profit or loss, investment, permanency, the degree of control by the employer over the worker, (and) whether the work is an integral part of the employer’s business,” among other factors.

The final rule is expected next year.

Most federal and state labor laws, such as those requiring a minimum wage and overtime pay, only apply to a company’s employees. Employees can cost companies up to 30% more than independent contractors, studies suggest.

Millions of Americans are working “gig” jobs and this labor has become vital to some transportation, restaurant, construction, health care and other industries.

U.S. Labor Secretary Marty Walsh in a statement said businesses often misclassify vulnerable workers as independent contractors. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Walsh said.

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Liz Shuler, president of the American Federation of Labor and Congress of Industrial Organizations (AFL-CIO), said the proposal gives the government the tools to protect workers from the “escalating problem of misclassification.”

BIDEN VS TRUMP

The proposed rule is the latest move in a politically charged battle that has pitched Republicans and companies against Democrats and worker groups since companies like Uber were created. It would replace a Trump administration regulation that says workers who own their own businesses or have the ability to work for competing companies, such as a driver who works for Uber and Lyft, can be treated as contractors.

Solicitor of Labor Seema Nanda, the department’s top legal official, said on Tuesday that the Trump-era rule, which was favored by business groups, was out of step with decades of federal court decisions.

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The new proposal mirrors legal guidance issued by the Obama administration, which was withdrawn by the Labor Department under former President Donald Trump.

More than one-third of U.S. workers, or nearly 60 million people, performed some sort of freelance work in the past 12 months, a December 2021 survey by freelancing marketplace Upwork showed.

Seth Harris, President Joe Biden’s former top labor adviser, said the rule will not directly impact how courts determine which workers are employees and which ones are independent contractors. Instead it will influence the Labor Department’s “own enforcement activities and the position it takes in litigation.”

The proposed rule will also help the Labor Department indirectly influence the courts by arguing for a much broader definition of employees under the Fair Labor Standards Act.

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BUSINESSES, WORKER GROUPS REACT

Worker advocacy groups recently met White House officials and welcomed the announcement.

Nicole Moore, a part-time Lyft driver and the president of the group Rideshare Drivers United, called the move a “really important step to clarify rules at a federal level,” adding she hoped it would “inspire lawmakers to change laws and clarify and codify against misclassification.”

Groups including the U.S. Chamber of Commerce, the largest U.S. business lobbying group, the National Association of Home Builders, the National Retail Federation and Associated Builders and Contractors, pressed the White House officials for a more business-friendly standard, arguing that any broad rule would hurt workers who want to remain independent and have flexibility.

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The National Retail Federation on Tuesday said it “staunchly opposes a change” and called the rule unwarranted and unnecessary. The Flex Association, which represents Uber, Lyft, DoorDash, said it is still reviewing the proposed rule and will “work to ensure that any final policy preserves the independence” gig workers want.

Lyft said in a separate statement “there is no immediate or direct impact” on its business at this time, while Uber said “it’s crucial that the Biden administration continues to hear from the more than 50 million people who have found an earning opportunity with companies like ours.”

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

“With ride-sharing and other gig economy players depending on the contractor business model, a classification to employees would essentially throw the business model upside down and cause some major structural changes if this holds,” Ives said.

The proposal will be formally published on Thursday, kicking off a 45-day public comment period.

(Reporting by David Shepardson and Nandita Bose in Washington and Daniel Wiessner in Albany, New York; Editing by Heather Timmons, Mark Porter and Lisa Shumaker)

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