With the midterm elections dominating headlines across Washington, D.C., the Biden administration has unveiled a proposed rule affecting who is considered an employee and who works independently, setting up a battle that could last well into next year.
The Department of Labor’s proposal seeks to tip the scales in favor of classifying workers as employees rather than independent contractors, fulfilling a goal of Biden’s labor-friendly White House that it says would prevent the “misclassification” of workers.
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“While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation’s most vulnerable workers,” Secretary of Labor Marty Walsh said in a release when the rule was announced Oct. 11.
“Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages,” Walsh continued. “The Department of Labor remains committed to addressing the issue of misclassification.”
The independent contractor rule could affect more than 57 million people who work as freelance or “gig” workers, such as truck drivers, graphic designers, accountants, or others who are self-employed, if it takes effect. Proponents argue that many workers classified as independent contractors should rightfully be employees, but business groups say freelancing allows for more flexibility and freedom, a big factor for many who choose self-employment.
The public comment period for people to weigh in was recently extended until Dec. 13, after which a finalized rule will be announced that could take place sometime in 2023.
Conservatives are sounding the alarm about the effect it could have, and groups like Heritage Action for America are launching websites dedicated to securing more comments.
“Regulation almost always helps big businesses who can more easily afford the compliance costs while hurting the small businesses or independent workers who can’t afford to comply,” said Jessica Anderson, executive director of Heritage Action. “These proposed rules are just more examples of the Biden administration prioritizing political interests over the success of American families and entrepreneurs.”
Critics say rules making it harder to work as an independent contractor will hurt job growth and workers alike. They point to data from the Bureau of Labor statistics showing that, as of 2017, 79% of independent contractors preferred their employment arrangement to a traditional one.
But Democrats and progressives counter that corporations can save up to 30% on labor costs by classifying workers as independent contractors, giving them a huge incentive to do so. Independent contractors do not receive benefits and also have no guaranteed minimum wage or overtime, unemployment insurance, or workers’ compensation.
“This sort of lawbreaking (misclassification) puts companies that respect their workers and the law at a competitive disadvantage,” said Kayla Walter, senior director of employment policy at the Center for American Progress. “The new rule will strengthen the [Department of Labor’s] hand to enforce the federal minimum wage law when corporations are cheating workers out of the wages by reestablishing long-standing precedent that allowed courts to analyze all factors that contribute to a workers’ status.”
Walter said the idea that the rule change amounts to a total ban on independent contracting is “just plain wrong.”
The Trump administration changed the rules outlining who qualifies as an independent contractor in early 2021, making it easier to classify workers that way. The Biden administration then withdrew the rule upon taking office, but a federal judge in Texas ruled in March it had not followed the proper procedure for doing so and reinstated it, setting up the current battle.
Regardless of how the rule is worded, it won’t have an enormous impact either way, argues Dan Bowling, who teaches labor and employment courses at Duke University.
“The independent contractor rule was put in place by congressional Republicans in 1947,” Bowling said. “It has been a bone of contention ever since.”
The new rule is widely seen as a nod toward labor unions, which are among President Joe Biden’s biggest donors. Biden repeatedly calls himself the most pro-union president in history and talks up the need to create more union jobs when making speeches.
Nonetheless, Bowling calls it a gross exaggeration to say the new Department of Labor rule would ban or even severely curtail independent contracting.
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“This is part of an ongoing effort by pro-union forces to limit or independent contractor law,” Bowling acknowledged. “The law has been in existence since 1947. Has work changed? Of course, but the law has not been eliminated. … I don’t think it’ll have a major effect on labor law jurisprudence as it stands today.”
