The new rules uses a multifactor analysis to redefine who can be considered an independent contractor.
The U.S. Department of Labor’s new final rule redefining who can be classified as an independent contractor takes effect next month.
The Biden administration says the new rule aims to protect workers misclassified as independent contractors and denied protections under the Fair Labor Standards Act (FLSA).
Under FLSA, employees are entitled to minimum wage, overtime pay, and other protections that do not apply to independent contractors.
- The worker’s opportunity for profit or loss;
- The worker’s financial stake and nature of any resources they have invested in the work;
- The degree of performance between the business and the worker;
- The amount of control the business has over the person’s work;
- Whether the work performed is essential to the business;
- And the level of the worker’s skill and initiative.
The previous rule was based on the nature and degree of control the person had over their work and their opportunity for profit or loss.
The debate over worker classification has become more complex over the past decade, Michael Green, law professor at the Texas A&M University School of Law in Fort Worth, told The Epoch Times.
“I think part of the problem is more with technology and the digital divide,” Mr. Green said. “We see some really interesting questions created about who is an independent contractor versus who’s an employee.”
As an independent contractor, the worker has little recourse “if there is discrimination going on or wage and hour problems,” Mr. Green continued. “So, that’s really the ultimate underlying reason why this is an issue.”
Industries such as trucking, journalism, construction, marketing, and others that rely on independent contractors or freelancers fear the new rule could force them to reclassify workers as employees, increasing labor costs.
The Labor Department says the rule provides greater clarity to protect the most vulnerable workers.
Bill Webb, executive director of the Truckers Service Association, told The Epoch Times that about one-third of the trucks on the road are operated by independent contractors or owner-operators, which means they own their trucks.
Mr. Webb said his organization wants to make sure the choice to operate as a small business is not taken away.
“The labor rule-making in and of itself doesn’t change a whole lot. It just opens the door to changes,” he said, making hundreds of thousands of truckers eligible for labor unions.
Owner-operators pay for their fuel, insurance, maintenance, and other related expenses. They are paid a percentage for each load they haul.
Under the new rule, the expenses of being an independent contractor could push them into the employee category, taking away the driver’s freedom to choose the work they want and how much money they earn, Mr. Webb said.
‘Bias Against Independent Contractor Status’
The U.S. Chamber of Commerce opposes the new regulation, saying it creates uncertainty and “bias against independent contractor status.”
“The thrust of the regulation is to give the Department of Labor a stronger tool to classify more workers as employees rather than independent contractors,” Marc Freedman, vice president for employment policy at the U.S. Chamber of Commerce, wrote in a blog post in January.
“While companies will still be able to use independent contractors, the new classification analysis tilts toward an employment relationship,” Mr. Freedman added. “If a company is found to have misclassified a worker, that company will be subject to back pay and penalties under the FLSA, such as minimum wage and overtime compensation violations.”
The new rule has been compared to California’s AB5, commonly known as the gig worker bill, enacted on Jan. 1, 2020.
History of AB5
The legislation was designed to regulate app-based companies, such as Uber and Lyft, that hire large numbers of gig workers, using a three-prong test to determine a workers’ classification.
Some analysts feared AB5 would upend such app-based companies and destroy the gig-based worker business model.
Later that year, Uber, Lyft, and DoorDash joined forces to back Proposition 22, a ballot initiative declaring app-based drivers independent contractors. The proposition, which voters approved in November 2020, provided certain “engaged time” protections such as health care subsidies and accident and accidental death insurance.
But the battle continued.
In August 2021, Alameda County Superior Court Judge Frank Roesch ruled that two sections of Prop. 22 were unconstitutional, making the legislation as a whole unenforceable.
Uber and Lyft appealed the decision, and last March, justices in a California appeals court struck down a portion of Prop. 22, leaving most of the legislation in effect.
Challenging the Regulation
Last month, a group of writers and editors filed a lawsuit challenging the new rule. The case, filed in the U.S. District Court for the Northern District of Georgia, argues that the new regulation “obscures the line between contractor and employee in an impenetrable fog.” (pdf)
The plaintiffs, Karon Warren, Deborah Kaplan, Kimberley Kavin, and Jennifer Singer, founded a coalition of more than 2,500 freelancers, from writers to truckers.
Original News Source Link – Epoch Times
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