Labor Department Blocks Gig Economy Rule

Gig Companies Lose a Layer of Protection

The US Labor Department blocked a Trump Era rule which makes it easier for gig companies like Uber (UBER) and Lyft (LYFT) to qualify workers as independent contractors.

The Labor Department said the rule, which was completed in early 2021, is being nullified before it goes into effect tomorrow. If the rule went into effect it would make it harder for gig workers to reclassify themselves under federal law as employees and get access to paid sick leave, health insurance, and a minimum wage.

Status Quo Remains

The Labor Department said withdrawing the rule will “stop the erosion of worker protections,” but it does not plan to offer any new protections for gig workers. Instead, the Labor Department will continue to enforce the Fair Labor Standards Act, which was put on the books in 1938. The department will also identify opportunities to enforce labor laws, particularly ones which apply to low-wage workers.

The decision to block the employment rule was criticized by some gig economy companies which called the current system outdated. They said workers should not be forced to choose between extra benefits or flexibility. Uber said it can deliver the best of both worlds by increasing benefits offered to independent contractors.

Flexibility Plus Some Benefits

The Biden Administration recognizes the importance of gig workers to the US economy but said if the Trump rule had been passed it would have been too easy for companies to deny workers benefits. The Labor Department said it has seen an increase in companies misclassifying workers to reduce labor costs.

Conflicts surrounding how gig workers should be classified have been heating up ever since California implemented a rule that would have required gig companies to reclassify workers as employees. Uber, Lyft, and others were exempted from that law in November. In return the companies agreed to provide health benefits to some workers and occupation accident insurance coverage. Many companies are hoping that this model of flexibility and some benefits will become a national standard.

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