A Federal Proposal Could Turn Gig Workers Into Employees. Here's What That Means

On Tuesday, the U.S. Department of Labor (DOL) announced a proposal that could drastically reframe the distinction between independent contractors and employees, potentially making it easier for millions of workers to receive federal labor protections they currently lack.

America has long relied on contract labor in some industries such as construction and health care, but gig work has now become the standard for many other kinds of app-based companies such as Uber, Lyft, and Instacart. Although gig work opens up opportunities for flexible and profitable work, gig workers are in a more precarious position than employees because their work doesn’t guarantee them protections like minimum wage or overtime pay.

“Most employment and labor laws were written half a century to a century ago and they didn’t anticipate the rise of the gig economy, so I think the law is reacting to the changes in the labor market,” Mark Gough, a professor of labor and employment relations at Pennsylvania State University, tells TIME.

The proposal would expand employment classification to include multiple new factors, including how permanent the position is, how integral the work is for the employer, and the skill levels it requires.

The Biden administration’s proposal would, however, have to endure a wave of potential backlash from companies which rely heavily on gig workers.

Here’s what to know:

Who would be affected by Biden’s new proposal?

Although it’s difficult to pinpoint exactly how many people make a living through freelance, contract or gig work—terms often used interchangeably— they’re involved in a range of industries, including the industrial, clerical, technology and health fields.

According to the Bureau of Labor, about 10% of the workforce—more than 15 million people—consisted of some form of independent contractor in 2017. According to the Pew Research Center, 16% of Americans were earning money from online gig work in 2021 during the pandemic. Pew’s research noted that many gig workers worried about contracting COVID-19 through their work and that this prompted calls for better safety and labor protections. Critics say that gig workers numbers may be even higher.

Gough explains that the defining feature of gig workers is that they set their own hours and that allows for “greater potential for higher wages.” But, gig workers may be more vulnerable to exploitation and harassment because they aren’t protected by labor laws in the same ways that workers who have employee status are. Their incomes may also be less stable. So often, Gough says, gig workers are held to the same standards as employees would be, but they end up with “very, very little to none of the profits.”

Why do gig workers want more labor protections?

Under the Fair Labor Standards Act of 1938, federal labor laws guarantee workers’ rights to fair, safe, and healthy working conditions. Some of the most notable laws cover minimum wage, overtime pay, protection against discrimination and unemployment insurance, but many of these protections don’t apply to gig workers.

“Employers use [gig workers] in substantial part because the law has excluded them from the right to collective bargaining,” Michael Gold, a professor of labor and employment law at Cornell University, tells TIME.

If the proposal delivers on its aim to loosen the standards that bar workers from qualifying for employee status, more gig workers could transition to employee status and be covered by federal labor protections.

How have labor rights activists and businesses responded?

Heeding pressure from labor activists, the proposal is the Biden administration’s second attempt to overturn Trump-era policies favored by many business groups.

If the measure is approved, “It’s not to say that every single independent contractor is going to have an easier time being classified as an employee, but I think some workers who are now considered independent contractors will have a stronger argument for employee classification,” Gough says.

Labor rights activists, particularly groups that banded together to support app-based workers at places like Uber, Doordash and TaskRabbit, have criticized Biden’s lack of effort to protect gig workers since he took office. Despite its support from these groups, the DOL said that the proposal isn’t designed to target any specific industries.

“It’s intended to provide an analysis that would apply to all industries, whether it’s newer or older, to different business models,” Seema Nanda, the U.S. Solicitor of Labor said at a press conference.

Businesses reliant on gig workers have opposed similar initiatives in the past, however, saying that they’d face soaring operating costs. “This gets to the core of their business model,” Gough says. In the hours following the proposal, Uber and Lyft’s shares fell by as much as 10%. The DOL estimates that the proposal will cost groups with misclassified workers $188.3 million.

“I’m sure that the employer community will protest the rule,” Gold says. “There’s more flexibility with a contract worker who is an at-will employee and generally, the pay is lower for a contract worker than for a permanent worker.”

What’s the future of this proposal?

Gold says that for gig workers who hope to see changes from the proposal unfold soon, “don’t hold your breath.” He explains that first, the proposal will take weeks or more likely months to get off the ground and then it may be subject to litigation from its opposition for years. “If the rule is announced, it will probably be challenged in court, and judicial proceedings on a rule could take a couple of years, easily,” Gold says.

The proposal is also somewhat limited in scope, because it would only apply to employment policies that the Labor Department enforces, such as federal minimum wage.

Other federal agencies, like the Internal Revenue Service, as well as state governments, create their own standards for classifying employment status, so the proposal won’t affect those decisions.

Still, Gough predicts that other federal agencies and states will eventually adjust their own standards to align with those in the proposal. “It will, in time, have an indirect effect on changing the way judges, different legislators and administrative bodies interpret employment status, and what workers’ rights are,” he says.

Gough specifies that the transition to protecting workers in a gig economy is going to take a lot more, and that “it’s important to recognize this is just a step towards reassessing the relationship between gig workers and the companies.”

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