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Gig Economy May See Tougher Contractor Rule After Court Victory

March 17, 2022, 1:08 PM

A legal win on an independent contractor rule for Uber Technologies Inc., Lyft Inc. and other gig economy companies may wind up sparking a regulatory defeat, as the Biden administration eyes a new approach.

Judge Marcia Crone of the U.S. District Court for the Eastern District of Texas ruled March 14 that the Department of Labor’s move to rescind a business-friendly Trump-era rule on worker classification violated government rulemaking procedures. Although the decision favored employers, it could spur the agency to develop a new independent contractor rule that cements a more pro-worker standard.

“The district court decision is both surprising and disappointing,” Solicitor of Labor Seema Nanda said in a statement. “When employers misclassify workers as independent contractors, workers lose key rights and protections, hurting labor standards across the board and making it harder for law-abiding employers to compete on an even playing field.”

“The Department is evaluating all legal options, including the potential need for rulemaking,” Nanda said.

The Trump administration rule established a simpler standard for when employers may classify workers as independent contractors who aren’t owed the same overtime and minimum wage protections as full employees under the Fair Labor Standards Act. It was then axed by the Biden administration.

It’s unclear whether the agency would rewrite its standard for determining independent contractor status in a rulemaking, or simply try to undo the Trump-era rule again. But it’s expected to take a much stricter approach to defining independent contractors if President Joe Biden’s pick to lead the Wage and Hour division, David Weil, is confirmed.

“It does kind of prod the department into doing something now,” said Glenn Spencer, senior vice president of the Employment Policy Division at the U.S. Chamber of Commerce, about the court decision. “So as much as we like the Trump rule, does this decision suddenly steer the department in a harmful direction?”

Revived Rule

Crone’s ruling Monday gave new life to the signature Trump administration workplace regulation that was strongly championed by gig-economy corporations such as Uber and Lyft, as well as other businesses that seek to limit labor costs by relying on an independently contracted workforce.

The court made clear with its decision that any new agency rulemaking would have to involve more public input and weighing of alternatives than its earlier effort.

“Now you’ve got the decision and you know what the judge has to say, and it sets some parameters with respect to how the rulemaking was going to have to play out. So I think from that perspective, it’s extremely helpful. Does it accelerates the rulemaking process? It may,” said Michael Lotito, co-chair of Littler Mendelson P.C.'s Workplace Policy Institute.

Catherine Ruckelshaus, general counsel and legal director at the National Employment Law Project, a worker advocacy group, added that the ruling on some level “gives the department a roadmap for how to undo or amend the Trump rule that the judge has now put back on.”

Full Agenda

The agency’s Wage and Hour Division, which would promulgate a new rule, has already embarked on two major rulemakings this year: one to expand overtime protections, and another to overhaul how the agency calculates wages paid to construction workers on federally funded projects. It’s unclear whether it will start a new independent contractor rulemaking before Weil is confirmed.

Weil, who led the division in the Obama administration, issued an administrator’s interpretation in 2015 taking the position that most workers should be considered employees under the FLSA. Under that law, employees are entitled to overtime, minimum wage, and other workplace protections, unlike independent contractors.

“If David Weil were to be confirmed, there’s little doubt as to how he feels about the independent contractor issue with respect to the AI that he issued,” Lotito said.

While the agency’s day-to-day work under acting administrator Jessica Looman doesn’t depend on a Senate-confirmed leader, the absence of a permanent administrator can slow down the agency’s ability to advance large policy changes.

“I do expect the Biden administration is going to put out their own rules setting the standard” when it comes to independent contractors, said Ed Egee, the National Retail Federation’s vice president of government relations and workforce development. “At the same time, of course, the same division is going forth on these stakeholder meetings about overtime. So, I think there’s a lot on Jessica’s plate right now.”

— With assistance from Ben Penn.

To contact the reporter on this story: Rebecca Rainey at rrainey@bloombergindustry.com

To contact the editors responsible for this story: Keith Perine at kperine@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Jo-el J. Meyer at jmeyer@bloombergindustry.com