DOL Proposal, If Adopted, Will Substantially Impact Gig Economy Which Relies Primarily On Independent Contractors

On Tuesday, the U.S. Department of Labor (DOL) proposed a rule that would make it more difficult for companies to classify workers as independent contractors.  Such a change could potentially upend the gig economy, including ride-sharing and delivery companies, and industries that rely primarily on contractor labor, such as the construction and health care industries.  

The proposed rule looks at the worker’s economic reality and analyzes various factors such as how much control employers have over the worker and how much opportunity they have to profit from their services.  

The DOL has stated that primary goal of the proposal is to protect workers from being classified improperly while providing consistency for businesses that wish to employ independent contractors. Generally, federal and state labor laws such as those providing worker protections like health care benefits, overtime and/or minimum wage pay, or protections from discrimination or the right to unionize, only apply to employees; not contractors. As a result, worker advocates have claimed that millions of workers are misclassified as independent contractors.  

However, this change could have a wide-ranging impact, including most directly on labor costs, as well as worker income and quality of life. It is anticipated that if the proposed rule holds, the gig economy will be significantly impacted as ride-sharing and other gig economy players depend on this contractor business model.  The market appeared to respond accordingly as earlier this week, shares of Lyft, Uber, and DoorDash fell approximately 10%. 

The proposal is in line with guidance issued during the Obama administration that was ultimately withdrawn by the Labor Department under former President Donald Trump.  The proposal will be published Thursday kicking off a 45-day comment period.