Classifying workers as independent contractors is now tougher after a Trump-era rule is dropped

·3 min read

The Labor Department is revoking a Trump administration rule that would have made it easier to classify workers as independent contractors, reshaping the parameters of the exploding gig economy.

Worker advocates say the Trump era rule would have allowed employers to deny workers minimum wage, overtime and other benefits afforded full-fledged employees.

But labor lawyers who represent companies say scrapping the rule will lead many employers to bring on fewer workers, many of whom prefer to be freelancers in the growing gig economy.

The Trump era rule largely would have allowed employers to label workers as contractors if they, rather than the firm, controlled how their work is performed and determined whether they make or lose money based on their initiative or investment. The measure was scheduled to take effect March 8 but President Biden suspended it through an executive order.

The Labor Department will now revert to a more amorphous status quo in which officials rely on up to six factors to decide whether a company is misclassifying workers as contractors. Those include the two that were central to the Trump administration rule as well as several others, such the skill level required for the work and the permanence of the relationship between employer and worker.

“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,” U.S. 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.”

Brian Chen, a lawyer at the National Employment Law Project, a worker advocacy group, says the Trump rule "would’ve excluded many workers in low-wage industries from critical wage and hour protections, and it would’ve dramatically accelerated the problem of misclassification."

But Camille Olson, a labor lawyer at Seyfarth Shaw in Chicago, says Labor’s decision creates more legal uncertainty for businesses looking to hire contractors and freelancers.

“Businesses will be less likely to risk engaging small, independent contractors,” she says.

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Companies generally aren’t required to pay contractors a minimum wage and overtime pay and typically don’t provide them health, 401k and other benefits. Labor has sued companies it believes are misclassifying workers as contractors to recover back pay and benefits and rebrand them as employees. FedEx drivers and Microsoft programmers are among groups of workers themselves who have filed such lawsuits.

The gig economy has boomed, particularly since the Great Recession of 2007-09. Staffing Industry Analysts, a research firm, has estimated that as much as 30% of the labor force is made up of people who perform contingent work at least some of the time. Labor has said the share of people who do contingent work as their main job is far lower at around 10%.

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A controversial law passed by the California legislature in 2019 severely limited whether companies can classify workers as independent contractors. But in a referendum last November, California residents voted to approve Proposition 22, making drivers of services such as Uber and Lyft independent contractors.

This article originally appeared on USA TODAY: Independent contractor: It's now tougher to call workers contractors