President Joe Biden’s Labor Department announced a proposed rule change on Tuesday that could discourage independent contracting, a work arrangement upon which millions of Americans rely.
The new rule, which will undergo a public comment period slated to begin Thursday and conclude in November, would prompt regulators to consider whether independent contractors are “economically dependent” on their employers or are truly conducting business for themselves. The Labor Department asserted that individuals in the former category may be more easily cheated by the companies for which they work.
“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 statement. “Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages.”
Due to a variety of labor standard laws, hiring an employee is between 25% and 40% more expensive than base salary, according to an analysis from the Massachusetts Institute of Technology. Roughly 16% of Americans have participated in gig economy and independent contracting work such as delivering groceries, cleaning homes, or delivering packages, according to a survey from Pew Research, which found that young Americans and those with low incomes are most likely to earn money through a gig platform.
The new federal rules drew comparisons to California’s Assembly Bill 5, which claims that workers are often “exploited” through their classification as independent contractors. The law went into effect earlier this year after an extensive series of court battles, inducing protests from owner-operator truckers and a subsequent rebuke from the state government to “move forward” and “comply with the law.”
The rule change also comes nearly two years after Democratic lawmakers introduced the Protecting the Right to Organize Act, also known as the PRO Act, which would likewise narrow the definition of an independent contractor and expand access to unionization. The bill passed the House of Representatives last year but is unlikely to garner enough support in the Senate to overcome the filibuster.
Opponents of such proposals argue that the reclassification of independent contractors limits economic opportunity, especially for students, stay-at-home mothers, and other individuals whose circumstances render full-time employment difficult. Americans For Prosperity Vice President Akash Chougule remarked in a statement that the federal proposal is “yet another attempt ahead of the midterm elections to benefit the administration’s political allies at the expense of everyday Americans.”
The proposed labor rule comes shortly after the White House announced a policy that would cancel $10,000 in student debt for millions of borrowers, as well as $20,000 for students who attended college via Pell Grant. Among other lawsuits, the Pacific Legal Foundation filed a complaint noting that the Department of Education failed to comply with the mandatory “notice-and-comment process” when charting the debt cancellation policy.
“Congress did not authorize the executive branch to unilaterally cancel student debt,” Pacific Legal Foundation attorney Caleb Kruckenberg said in a statement. “It’s flagrantly illegal for the executive branch to create a $500 billion program by press release, and without statutory authority or even the basic notice and comment procedure for new regulations.”