Employers’ Gig Worker Win May be Short-Lived Under Biden

The Trump administration cemented a long-anticipated final rule that gives businesses a clearer path to classify workers as independent contractors, forcing President-elect Joe Biden‘s team to make early decisions on a critical employment policy debate.

The U.S. Labor Department on Wednesday established a simpler legal standard for when employers may classify workers as independent contractors rather than as employees, who are covered by federal minimum wage and overtime law. This regulation has been a priority of the business lobby and DOL political leaders who are eager to slow Democrats’ momentum behind policies that force businesses to reclassify independent contractors as employees.

In effect, the rule gives employers a tool to defeat or avoid expensive class actions accusing them of shorting workers on pay because they’ve been misclassified as contractors. That would be a boon for employers in several economic sectors, including the gig economy, where independent contractors are central to the business models of leading companies such as Uber Technologies Inc., Lyft Inc., and Instacart.

But a release two weeks before President Donald Trump leaves office puts the rule’s shelf life in doubt. Biden’s incoming press secretary cited the independent contractor regulation on Dec. 30 as one of the “midnight” rules that could be frozen from taking effect in a memo on Inauguration Day. Technically, the rule is slated to take effect in early March but a Biden memo would stall that date.

Biden’s DOL would then have to decide whether to allow the rule to take effect, at least temporarily, or rely on an outside party to challenge it in court. The agency also could reopen the rulemaking by requesting public input on whether to take independent contractor status in a different direction.

The Biden campaign’s labor platform included a commitment to restore the Obama administration’s aggressive wage-hour misclassification agenda. This would entail a more rigid test for qualifying workers as contractors than what Trump’s DOL just issued.

Five Factors

The final rule considers five factors to determine whether a worker is economically dependent on an employer, and therefore an employee—not a contractor.

Formulating an updated economic reality test, DOL gives greatest weight to two core factors: the nature and degree of the worker’s control over the work, and the worker’s opportunity for profit or loss based on personal initiative or investment.

They’re complemented by three additional “guideposts,” which would be useful in the analysis when the initial two core factors are conflicting. Those three criteria are the amount of skill required in the work, the degree of permanence in the work relationship, and whether the work is part of an integrated unit of production.

The rule also stated that an employer’s actual practices will receive greater weight in the test than what may be contractually or theoretically possible.

Industry representatives hail the rule as particularly necessary during the pandemic, and are urging Biden not to reverse course.

The regulation “is urgently needed as COVID has wreaked havoc on jobs and required employers to reimagine how they meet new needs of customers,” Evan Armstrong, vice president of workforce issues at Retail Industry Leaders Association, said in a statement. “We implore the Biden Administration to review the final rule objectively and hope to see it implemented as soon as possible.”

Worker advocates are optimistic that the Biden administration will beef up misclassification enforcement, regardless of what mechanism it uses to overturn the independent contractor measure and how long it takes.

“There’s hope in a Biden administration that they could do more widespread enforcement. You can look at any industry and see large swaths of employees classified as independent contractors for no good reasons,” said Mark Hanna, founding partner of plaintiff firm Murphy Anderson PLLC.