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Labor Department Reinstates Rule to Classify Additional Gig Workers as Employees

 |  January 14, 2024

The US Department of Labor announced the issuance of a final rule compelling companies to treat certain workers as employees rather than independent contractors, a decision that has sparked controversy among business groups and is anticipated to trigger legal challenges.

The rule, which is set to have far-reaching implications, is expected to drive up labor costs for businesses operating in sectors heavily reliant on contract labor or freelancers. This includes industries such as trucking, manufacturing, healthcare, and app-based “gig” services.

According to Reuters, Most federal and state labor laws, including minimum wage and overtime pay regulations, typically apply exclusively to a company’s employees. Research indicates that employing workers can incur costs up to 30% higher than those associated with independent contractors.

Under the new rule, workers will be considered employees rather than contractors if they are deemed “economically dependent” on a company. This represents a departure from the previous Trump administration regulation, which favored business groups and allowed workers who owned their own businesses or freelanced for competing companies to be treated as contractors.

Related: EU States Introduce Regulations That Protect Gig Economy Workers

The recently adopted standard aligns with the criteria that courts have historically employed to determine the proper classification of workers. Factors taken into consideration include the level of control exercised by companies over their workers and whether the work performed is integral to the company’s business.

The U.S. Department of Labor has clarified that the rule is not anticipated to prompt widespread reclassification of workers by companies or entire industries. However, it is expected to empower more effective enforcement against businesses that deliberately misclassify workers to cut costs.

Business groups have expressed concern over the potential impact on their operations, citing increased labor costs and potential legal challenges as a result of the rule change. Critics argue that while the rule aims to protect workers’ rights, it could also stifle flexibility in the workforce and hinder the growth of certain industries.

As the new rule takes effect, the business landscape is likely to witness shifts in how companies engage with their workforce, particularly in industries heavily reliant on contract labor. Legal challenges and debates surrounding the balance between workers’ rights and business flexibility are expected to unfold in the coming months.

Source: Reuters