Joe Biden to Upend Millions of Americans' Jobs Under New Rule

The Biden administration is expected to announce a new contractor rule this week, which could impact millions of American workers who are employed in the gig economy and potentially misclassified as independent contractors.

The new U.S. Department of Labor (DOL) rule is an answer to the massive growth experienced by the gig economy in recent years. It employed an estimated 36 percent of American workers, or about 57.2 million people, before the pandemic, according to Gallup and Statista. In 2023, the latter estimated the number of freelancers in the U.S. to be 73.3 million.

The new rule would make it more difficult for companies to treat workers as independent contractors rather than employees, who are generally entitled to more benefits and legal protections. It would replace the Trump administration's rule that said any workers who own their own business or have the ability to work for competing companies can be treated as contractors.

The Biden administration says that this rule violated the U.S. wage laws, allowing companies to spend much less on their independent contractors than they would on their regular employees.

"Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages," then-U.S. Labor Secretary Marty Walsh said in October, when the rule was proposed.

The department does not, for the most part, anticipate the widespread reclassification of workers in any industry. Neither do most industry stakeholders.

In a statement released on Tuesday, CR Wooters, Uber's head of federal affairs, said that they believe that the new rule "does not materially change the law under which we operate." More than 1 million Americans drive for the company. In a similar statement issued by competitor Lyft, the company said it expected "no immediate impact" on its business.

But in October 2022, when the draft rule was first proposed, shares of Uber Technologies (UBER.N), Lyft (LYFT.O) and DoorDash (DASH.O) plunged by at least 10 percent.

The new rule is inspired by California's state law, Assembly Bill 5 (AB5), which forced companies to reclassify independent contractors as employees, with few exceptions. Known as the gig worker bill, the California law came into effect on January 1, 2020. It entitled gig workers to a minimum wage, employee benefits and other perks enjoyed by regularly contracted employees.

But the rule was also criticized by cross-partisan groups for the potential loss of flexibility in hours for gig workers, many of whom might be attracted by working outside of a fixed schedule, and the potential higher cost redistributed to customers after reclassifying workers. In September of the same year, 2020, California changed the law to exempt a long list of categories from AB5 involving occupations in several sectors.

The Freedom Foundation, a Washington-based free market conservative think tank, criticized the California law as a "job killer," making it harder for the "regular person trying to find work" in the Golden State to do so. Newsweek contacted the Freedom Foundation for comment by email on Tuesday.

The U.S. DOL rule is likely to face just as much backlash, although it is widely supported by trade unions and some workers' rights advocates. It is certainly a bold move for President Joe Biden, who is seeking reelection in November, to pass a measure with the potential to upend completely the U.S. job market.

"The Department of Labor's new regulation is part of the Biden administration's so-called 'whole of government' approach to promoting the labor unions that are such an important pillar of the president's political base," Maxford Nelsen, director of Research and Government Affairs at the Freedom Foundation, told Newsweek.

"The White House Task Force on Worker Organizing and Empowerment called for increasing restrictions on independent contract work as part of its strategy to 'promote worker organizing and collective bargaining,' since independent contractors generally can't unionize," he continued. "Unfortunately, the 100-year-old factory floor model of employment that unions prefer is a poor fit for modern workers accustomed to the flexibility, independence, and empowerment that gig economy opportunities can provide."

But many have also spoken to Newsweek in favor of the proposed change.

The Washington-based non-profit think tank Economic Policy Institute (EPI) praised the DOL's final rule issued on Tuesday in a statement shared with Newsweek, saying that it will "ensure that more workers can enjoy the rights and protections they are already legally entitled to."

A previous analysis by EPI found that 11 commonly misclassified occupations—including lowest-wage jobs such as nail salon workers, truck drivers, health aides and janitors—lose out on thousands of dollars in earnings and benefits per year, compared with workers doing the same job with employee status.

Gregory DeFreitas, professor of Economics and Director at the Center for Study of Labor and Democracy at Hofstra University in New York, told Newsweek that the DOL's new rule "is a common-sense update of a decades-old approach to fighting harmful misclassification of workers as independent contractors."

He explained: "Instead of the narrow criteria adopted by the Trump administration, it gives equal weight to six factors in deciding whether a worker is an employee or self-employed. These include whether a worker has access to profits, the degree of her control over the work process and the permanence of the work relationship."

According to DeFreitas, both workers and employers stand to benefit from the new rule.

"As employers in many industries have increasingly mislabeled their employees as independent contractors, workers have lost overtime pay, benefits, union rights and legal protections against unsafe or discriminatory job conditions," he said.

"If DOL actively enforces the new rule, the improved compensation and job rights will enable employers to attract more skilled and motivated workers. And the resulting decline in inequality and rise in consumer spending could have widespread economic benefits."

The U.S. DOL rule is set to come into effect on March 11.

Do you work as an independent contractor in the U.S.? If so, let us know about your experience and your opinion about the new rule by contacting g.carbonaro@newsweek.com.

Update and correction 1/10/24, 3:15 a.m. ET: This article was updated to include comments from EPI, Freedom Foundation and Gregory DeFreitas. The new DOL's rule was previously described as legislation but it did not come from the legislative branch.