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Worker Classification Rule Gets White House OK for Release

Sept. 20, 2020, 1:27 PM

The U.S. Labor Department got the go-ahead from the White House regulatory office to release its high-stakes proposal for determining whether a worker is an independent contractor under federal wage law.

The proposed rule (RIN: 1235-AA34) will set a framework for employers to designate workers as independent contractors or employees who are eligible for minimum wage and overtime protections. The issue of worker classification has taken on greater significance during the rise of the gig economy, where independent contractors are integral to the business models of leading companies such as Uber Technologies Inc., Lyft Inc., and Instacart.

The proposal’s release could be imminent now that the Office of Information and Regulatory Affairs, an agency within the White House Office of Management and Budget, has signed off. The DOL will outline terms for public comment when it publishes the rule in the Federal Register.

The regulation is a priority for DOL leadership, who view the rulemaking as an opportunity to solidify President Donald Trump’s workplace policy legacy by responding to efforts in blue states to expand the legal definition of an employee.

Gig companies and business groups have pushed for a rule that will set broad terms for classifying workers as independent contractors under the Fair Labor Standards Act. Labor unions and Democrats want it to be more difficult to apply an independent-contractor designation, contending that businesses improperly classify workers to avoid paying overtime and other benefits.

On the Fast Track

The proposal was a surprise entry when it was previewed in the administration’s spring regulatory agenda in late June. The Labor Department sent it to OIRA on Aug. 28. The legal and economic analysis OIRA conducts can often take months, but the quick turnaround reflects DOL leadership’s plan to fast-track the proposal and finalize it before the end of the year.

The emphasis on speed is rooted in election-year politics and pressure from the business lobby. If the proposed rule isn’t finalized this year and Trump loses his reelection bid, a Democratic-controlled White House could easily kill the effort or finalize it by interpreting the term “employee” much more broadly than Republican regulators envisioned.

But even if it is finalized in 2020, the administration may also be wary that if Democrats were to take control of the White House and the Senate they could repeal the rule—and any similar effort in the future—by using the Congressional Review Act.

Democratic presidential nominee Joe Biden has endorsed California’s Assembly Bill 5 that codified a rigid legal test for designating workers as independent contractors—triggering an Uber-backed state ballot initiative this fall that would roll back the measure.

With assistance from Ben Penn.

To contact the reporter on this story: Cheryl Bolen in Washington at cbolen@bgov.com

To contact the editors responsible for this story: John Lauinger at jlauinger@bloomberglaw.com; Martha Mueller Neff at mmuellerneff@bloomberglaw.com

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