Critics of a new proposed rule introduced this week argue it would allow companies to pay subminimum wages for some workers and avoid overtime pay.
The Trump administration proposed a new rule this week that could make it more difficult for some workers, including janitors, construction workers, and home-care aides, to be classified as employees. Labor experts say it could make it easier for companies to misclassify workers and avoid paying health insurance and other benefits.
The proposal would make it more difficult for contract workers, which also includes gig workers like Uber drivers and Instacart shoppers, to be classified as employees, a designation that comes with many more job protections.
The number of independent contractors has grown in recent years, and labor advocates claim a large portion of this group has been wrongly classified and are actually employees. By designating them as contractors, however, companies can avoid costs associated with official employees, who are covered by employment and labor laws and typically receive benefits such as paid time off and health insurance. Contractors are not covered by federal overtime or minimum wage laws, or even child labor protections. Nor are they eligible for unemployment insurance or workers’ compensation in most cases.
Under the proposed rule, the Department of Labor—which can investigate worker complaints about misclassification—said it would implement guidelines to determine how workers should be categorized. This framework would determine whether a worker is really in business for themselves, like a contractor, or whether they are “economically dependent” on their employer, as an employee. It would also assess how much control a worker has over their work and whether their income came from their initiative or investment.
The department also identified other factors that could serve as “guideposts” for how workers are classified, including the amount of skill required for the work and whether the relationship between the worker and employer was temporary or permanent.
“The Department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor under the Fair Labor Standards Act,” Secretary of Labor Eugene Scalia said in a statement. “Once finalized, it will make it easier to identify employees covered by the Act, while respecting the decision other workers make to pursue the freedom and entrepreneurialism associated with being an independent contractor.”
Critics of the rule have argued it will only amplify the issue of worker misclassification. Rebecca Dixon, executive director of the National Employment Law Project, an advocacy group for workers, denounced the proposal, calling it “anti-worker.”
“This proposal would give employers and corporations far more leeway in classifying workers as independent contractors, thereby allowing them to pay subminimum wages, hire child labor, and avoid overtime pay,” Dixon said in a statement. “This is yet another example of the Trump Administration’s relentless push to stack the deck against workers at every turn.”
She also said the rule would harm small businesses. “Large corporations that misclassify their workers can underbid their competitors, creating a race to the bottom where jobs don’t pay and companies skirt payroll and unemployment insurance taxes that workers and public coffers rely on.”
“Large corporations that misclassify their workers can underbid their competitors, creating a race to the bottom where jobs don’t pay and companies skirt payroll and unemployment insurance taxes that workers and public coffers rely on.”
Rep. Robert C. “Bobby” Scott (D-Virginia), the chairman of the House’s labor committee, also blasted the rule and said it would prove devastating for workers.
“The pervasive trend of employers misclassifying their employees as independent contractors has had severe consequences for workers and our economy. It strips workers of basic wage and hour protections, leaves law-abiding businesses at a competitive disadvantage, and robs state and local government of billions in lost revenues,” Scott said in a statement. “The Department’s proposal would leave workers even more vulnerable to misclassification by upending longstanding guidance on who is considered an employee.”
The consequences of being a contract worker have been amplified during the coronavirus pandemic, as these workers have been working on the frontlines as “essential workers,” often without job protections, employer-sponsored health insurance, or access to paid sick leave. While Congress did expand unemployment insurance to contractors and gig workers during the pandemic, those benefits are set to expire at the end of December, long before the pandemic ends.
The Labor Department’s new proposal will only make it more difficult for these workers to obtain better wages and protections, according to Dixon.
“This action hurts the very workers who have been organizing on the frontlines for better wages and more protections, including construction laborers, janitors, home care workers, and those called essential workers during the COVID-19 pandemic, who clean homes, care for children and elderly individuals, and deliver groceries,” she said. “These workers must not be left to earn subminimum wages and work more than 40 hours per week without getting any overtime pay.”
The proposal also comes as some Democrats have fought to make it more difficult for companies to categorize workers as contractors if the company relies on the workers’ labor.
California’s AB5 law, passed in 2019, seeks to force “gig” companies like Lyft, Uber, and Postmates to treat their workers as employees. The law is currently the subject of a court case and contentious ballot proposition. Gig companies have poured more than $180 million into their effort to continue classifying drivers and couriers as independent contractors.
AB5 was celebrated as a win for most workers, but Scalia blasted the law in an op-ed for Fox News, calling it “unworkable” and “radical” for its efforts to classify more independent contractors as employees.
The Labor Department’s rule would not invalidate AB5 or other existing state laws that aim to provide protections for workers, but could act as a baseline for future efforts of categorizing workers.
The federal agency will now collect public comments on the proposed rule for the next 30 days.