WASHINGTON — The Labor Department is rescinding a rule that made it harder for gig and contract workers to argue they were entitled to minimum wage and overtime protections, part of a push to undo Trump-era decisions that favored businesses and employers.
The withdrawal of the “Independent Contractor” rule, which limited the ability of workers to argue that they were misclassified as contractors when they should have been employees, will become effective on Thursday.
Companies have increased the use of contractors in recent decades in part to lower labor costs. Employees are entitled to a range of benefits not afforded to contractors, including a minimum wage and overtime pay.
Labor advocates say that many of these workers are misclassified, and should be counted as employees. The Labor Department has the power to investigate these cases and rectify violations.
“By withdrawing the Independent Contractor Rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” Labor Secretary Marty Walsh said in a statement. “Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors. We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides.”
The rule change is likely to add to speculation about how the Biden administration plans to deal with the question of gig work — one of the most closely watched questions about labor policy in the new administration.
Companies such as Uber and Lyft typically classify the workforce their apps rely on as contractors, while aggressively pushing back against state officials, courts and Democratic lawmakers who say that their workers are misclassified.
The Labor Department could find that many gig workers are misclassified, opening up this debate on a national scale.
Jessica Looman, principal deputy administrator for the Labor Department’s Wage and Hour Division, told reporters that she didn’t consider the rule withdrawal as something that would dramatically change anything at gig companies, but added that the department would address misclassification under its rules wherever it finds it.
“When it comes to digital workers and app-based workers — they’re workers,” she said. “And so we want to make sure we continue to look at their needs, and how they are interacting with their individual employer and whether they have protection.”
The Trump administration rule, which was finalized as the administration was winding down during the first week of January, raised the bar for contractors to prove they have been misclassified, placing particular emphasis on an examination of the “worker’s opportunity for profit or loss.”
The rule was cheered by the business community and Republicans, and was seen largely as a boon for gig work companies, whose business model relies on the increasingly contested idea that their workers are contractors, not employees.
But the Biden administration wasted little time in opposing the rule, with incoming press secretary Jen Psaki announcing that the administration would block it, as well as other rules it said were passed at the last minute, as soon as Biden took office on Jan. 21.
A coalition of companies that included Uber, Lyft and Postmates sued the Biden administration in March over its decision to block the rule. And groups such as the U.S. Chamber of Commerce protested the move.
“The need for this regulation has never been greater as the use of the independent contractor model has increased substantially, most notably in the online platform context, but also in many other settings,” Marc Freedman, a vice president at the Chamber wrote in a letter to the administration last month. “This regulation sought, and the Chamber believes accomplished, to bring a consistent analytical framework and updated criteria to determining when legitimate independent contractor relationships exist.”
Labor Department officials described the decision as a reversion to the Obama-era status quo, saying they felt that the Trump rule was out of step with the Fair Labor Standards Act, which the department is sworn to uphold.