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Early last month, the Labor Department released a final rule compelling companies to categorize certain workers as employees rather than cost-effective independent contractors. This decision stirred discontent among business groups and is anticipated to lead to legal disputes.
The rule is likely to raise labor expenses, particularly impacting industries heavily reliant on contract labor and freelancers, including trucking, manufacturing, healthcare, and app-based gig services.
The majority of federal and state labor laws, encompassing minimum wage and overtime pay regulations, pertain exclusively to a company’s employees. Research indicates that employing workers can raise costs up to 30% higher than utilizing independent contractors.Â
The new rule mandates the classification of workers as employees instead of contractors if they are deemed “economically dependent” on the company. However, it falls short of the more stringent independent contracting restrictions found in wage laws in California and other states.
Business groups and Republican lawmakers opposed the rule, asserting that it would result in millions of workers losing income opportunities and create confusion, leading to expensive legal battles.
Senator Bill Cassidy, a Republican representing Louisiana, announced his intention to introduce a resolution for repealing the rule. According to Cassidy, the rule would support labor unions in expanding their membership, as independent contractors and freelancers currently cannot participate in unions.
The current rule replaces a regulation established during the administration of former Republican President Donald Trump, which had simplified the classification of workers as independent contractors. Anticipated legal challenges from trade groups and businesses are expected to contest the new rule.
Under the rule established during the Trump administration, individuals who owned their own businesses or had the flexibility to work for multiple competing companies, like a driver engaged with both Uber Technologies and Lyft, had the option to be classified as contractors.
The new rule is scheduled to come into effect on March 11.
In a media briefing, Acting Labor Secretary Julie Su emphasized that misclassifying workers as contractors instead of employees disproportionately impacts low-income workers, depriving them of crucial legal protections such as a minimum wage and unemployment insurance.
Worker advocates and certain Democratic officials lauded the rule, asserting its necessity in guaranteeing fundamental protections for employees. However, as per certain business groups, the rule leans excessively towards categorizing workers as employees rather than contractors, potentially stripping millions of workers of flexibility and opportunities. What are your thoughts?
