This week, the United States Department of Labor proposed a new classification rule among workers. The proposed scheme would categorize workers as an employee or independent contractor based on an “economic reality test.”
The Economic Reality?
The Department of Labor said on Tuesday a way to define an employee based on the Fair Labor Standards Act. However, this new proposed change could brand gig workers as contractors, the New York Times noted. Recently, ride-hailing companies Uber and Lyft went into a battle with California’s labor commissioner over the classification of their drivers as contractors rather than employees.
A Labor Department proposal could deem millions of janitors, construction workers and gig workers to be contractors rather than employees. That would bolster the business practices of companies like Uber and Lyft.https://t.co/ncJLyK5b2v
— The New York Times (@nytimes) September 23, 2020
Basically, if a worker identifies as employees, he/she gets the benefits contractors usually don’t enjoy. For instance, employers don’t have to pay contractors a minimum wage or payment for their overtime.
The proposal from the Labor Department would classify workers based on an “economic reality test,” which looks into the economic dependence of the worker to the employer. The test would identify a worker as an independent contractor if “he or she is in business for him or herself.”
Aside from the “economic reality test,” other factors serve as “additional guideposts” for analysis in the classification of workers. According to its announcement, further considerations include:
- the amount of skill required for the work
- the degree of permanence of the working relationship between the worker and the potential employer
- whether a worker is an employee or an independent contractor
Additionally, two other factors could influence the classification. Specifically:
- the nature and degree of the worker’s control over the work
- the worker’s opportunity for profit or loss based on initiative or investment
Contractor or Employee?
Labor secretary Eugene Scalia stated: “The department’s proposal aims to bring clarity and consistency to the determination of who’s an independent contractor.”
However, the change would depend on the interpretation of employers, rather than a law. Possibly, it could further identify workers as contractors rather than employees. Meanwhile, the proposed scheme would only cover laws that the Labor Department enforced.
For critics, they consider the logic of the department as flawed, the Times reported. They noted that although workers determine when and how to work, the publication reports, many companies dependent on gig workers impose certain standards. Meanwhile, an Uber spokesperson said the company appreciates the “department’s focus on independent workers.”
Scalia added that once finalized, the proposed change could ease the process of worker identification covered by the Act. Furthermore, he said that the change would continue to respect the decision of workers “to pursue the freedom and entrepreneurialism associated with being an independent contractor.”