DOL releases proposal on gig worker classification under minimum wage, OT law

By Rebecca Rainey 09/22/2020 10:35 AM EDT

WASHINGTON — The Department of Labor released a proposal Tuesday that would clarify whether gig workers are independent contractors or employees under federal minimum wage and overtime law.

The proposed rule, which is expected to be published in the Federal Register later this week or early next week, would create an “economic realities” test to determine independent contractor status under the Fair Labor Standards Act.

The federal law requires that “employees” are paid the federal $7.25 hourly minimum wage and receive time- and-a-half pay for working more than 40 hours in a week, among other protections. Independent contractors are not covered under the FLSA.

The rulemaking will be closely watched by app-based companies like Uber, Lyft and DoorDash, as their workers are generally classified as independent contractors. Those companies are currently battling a new law in California that would make most of their drivers employees, warning that the change would upend their business model.

What’s in the rule: Specifically, the test created under the proposal would weigh whether workers are economically dependent on an employer or in business for themselves by analyzing how much control workers have over their job duties and their opportunities for profit or loss.

If a worker’s status is still unclear after reviewing those two factors, the test then considers the skill required for the job, “the degree of permanence of the working relationship” and whether the work is “part of an integrated unit of production.”

Background: The Trump administration proposal would create a stricter test for determining whether a gig worker is an “employee” under the FLSA, compared with the Obama administration. The Obama DOL took the position that “most workers” should be considered employees under federal wage and hour laws.

The administration clarified that policy in a 2015 administrative guidance document, in an effort aimed at limiting misclassification of employees as independent contractors. But it drew sharp pushback from businesses, who argued that the Obama DOL’s interpretation of the law would increase litigation against employers. The Trump administration withdrew the guidance in June 2017.

Timing: Senior administration officials said during a press call Tuesday that they plan to finalize the rule before the end of the year. But the timing of the rule would make it vulnerable to repeal under the Congressional Review Act if Democrats were to win the White House and take control of the Senate. Under that law, Congress can use a fast-track procedure to overturn a regulation issued within the prior 60 legislative days via simple majority votes.

What now? Once published in the Federal Register, the public will have 30 days to comment on the proposal.

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