Yahoo Finance Businesses escalate fight against Biden rule on gig worker pay
A vast array of U.S. businesses escalated their legal battle against the Biden administration’s new worker protections on Tuesday, arguing that the federal rules - meant to help provide better pay - are costly, improper and could decimate the gig economy.
The legal challenge could prevent more ride-sharing drivers, home-health aides, janitors and truckers from being treated as employees, rather than independent contractors, which would ultimately deny these workers access to a minimum wage and overtime pay.
The dispute concerns one of the more significant regulatory actions taken by the Labor Department since President Biden took office pledging to reinvigorate workers’ rights. Finalized in January, the government’s new rules spell out the process by which companies must determine how a worker is classified, and as a result, the benefits they should receive.
But many of the companies that rely on independent contractors - from delivery apps like DoorDash to lesser-known firms that retain janitors, truckers and others - have fiercely opposed the Biden administration’s approach. They have argued that the rules put pressure on them to treat more of their workers as employees, which could carry steep costs they can’t afford, potentially even forcing them to slash their labor force.
With the new rules set to take effect next week, these industries banded together to file a broadened and revised version of a previously pending lawsuit Tuesday, warning that the Labor Department threatens to “irreparably harm not just companies employing independent contractors nationwide, but the workers themselves.”
At the forefront of the case is the Coalition for Workforce Innovation, a lobbying organization whose members include retail, technology and transportation giants such as Uber and Lyft. The U.S. Chamber of Commerce, the National Retail Federation, the National Federation of Independent Businesses and the American Trucking Associations also signed onto the fight, hoping to invalidate the Biden administration’s rules.
Together, these groups represent much of the U.S. economy: The Chamber alone counts executives from Caterpillar, FedEx, Facebook, Hilton and other major businesses on its board of directors. (In 2022, Amazon disclosed that it paid dues to the organization; the company’s executive chairman, Jeff Bezos, owns The Washington Post.)
“This regulation will make it very difficult, if not impossible, for employers to maintain the legitimate use of independent contractors” under federal labor law, said Marc Freedman, vice president of workplace policy at the U.S. Chamber.
The intense opposition has greatly troubled workers’ advocates, many of whom have called on Biden to take more aggressive action to ensure companies do not mischaracterize workers as independent contractors simply to save money - denying them better pay and other rights in the process.
“Congress intended this law to be applied very broadly,” said Laura Padin, director of work structures at the National Employment Law Project, an advocacy group that found in a 2020 analysis that between 10 and 30 percent of employers misclassify their employees as independent contractors to save money.
“For decades now, we have seen employers misclassify people as independent contractors as a way to avoid complying with minimum wage and overtime pay, and to pass more of the risks and costs to workers,” she said.
It is unclear how the new litigation might affect the way Biden’s aides implement the rules starting March 11. In a statement, the Labor Department said its approach would “help address the misclassification of workers as independent contractors, ensuring they receive the benefits and protections they deserve.” The agency added that it is “based on decades of judicial precedent.”
Spokespeople for Uber and Lyft did not immediately respond to requests for comment.
The case reflects the vast uncertainty surrounding one of the more burgeoning, and least regulated, aspects of the U.S. economy. For decades, state and federal officials have tried to set rules that enumerate the rights of independent contractors, only to encounter stiff corporate opposition that has stymied legislatures and resulted in a patchwork of confusing laws and court decisions.
The latest saga began under President Barack Obama, whose administration first aimed to crack down on companies that deny employee benefits to their workers. At the time, the government established updated guidance for determining a worker’s status under the Fair Labor Standards Act, a New Deal-era law that creates a national right to a minimum wage and overtime pay for employees.
Obama’s successor, President Donald Trump, later reversed the policy in a way that granted more latitude to employers to classify workers as they saw fit. But the Biden administration sought to scrap Trump’s approach starting in 2021, touching off a lengthy and contentious effort that ultimately revived the Obama-era standards.
“This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned,” acting Labor Secretary Julie Su said in a statement announcing the final plan in January.
Labor activists heralded the rule as an important development that might help the most financial unstable workers, including immigrants or people of color. Under the policy, the Labor Department can take action against companies that misclassify their workers.
Some advocates also saw the government’s stance as an important legal and political marker that might influence other state and federal laws, including the possible provision of unemployment insurance and Social Security benefits to independent contractors who otherwise are not typically eligible for those benefits.
But a vast swath of industry vigorously opposed the Biden administration’s plans when they were first announced, fearing implementation would prove confusing and expensive. The American Trucking Associations blasted it as “un-American,” pledging at the time to “defeat this ill-advised rule.” The Associated Builders and Contractors, meanwhile, said it would cause construction workers to “lose opportunities for work.”
Uber and Lyft each said at the time they did not believe they would be affected by the changes. But the two companies still lobbied against the new rules: Writing the Labor Department in 2022, the ride-hailing giants each argued that many independent contractors do not want to be treated as employees, preferring to preserve flexibility in their hours and pay.
Uber even estimated that it would have to slash the number of drivers on the platform if it were forced to employ them rather than treat them as independent contractors. It shared with the government a 2020 analysis that estimated “two-thirds of people currently driving with Uber would be denied their ability to work” if they were categorized as employees.
Many of those opponents struck quickly in January, essentially reviving a dormant federal case they first filed against the Biden administration over an earlier version of its worker classification rules. In a petition to the U.S. Court of Appeals for the Firth Circuit, lobbying groups including the Coalition of Workforce Innovation reaffirmed their belief that the Labor Department again had violated federal law in the way it processed public feedback.
“We compare it to the policy that was finalized under the prevision administration, which broadly had the support of the business community,” said Evan Armstrong, chair of the coalition, who said of the Labor Department’s work: “You don’t know how this rule is going to be applied.”
The court ultimately agreed, sending the case back to the Eastern District of Texas, seen as a friendly venue for businesses challenging federal regulations. The U.S. Chamber and other groups then intervened, arguing that the government’s rules are confusing and biased toward finding workers to be employees.
In their new complaint, filed Tuesday, those businesses said the Biden administration’s directive “inflicts heavy costs on businesses and workers,” warning that the results may be “wage cuts, benefits reductions and layoffs” if workers are classified differently than the companies think they should be. They also argued that the Labor Department had acted in an “arbitrary and capricious” manner in issuing the rules this year.
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Lauren Kaori Gurley contributed to this report.
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