New Worker Classification Rule Could Disrupt the US Gig Economy

Uber drivers and other gig economy workers could be legally classified as employees under a new Department of Labor rule that goes into effect in March. The new rule already faces at least one lawsuit, filed by freelance writers who want to remain "independent contractors" rather than employees. Employees are entitled to overtime pay, minimum wage, and other benefits not available to contractors.While people who work as contractors value the flexibility, employment law experts say there's no reason employers couldn't offer flexible hours alongside employee status and the benefits that go along with it. App-based ride-sharing services such as Uber (UBER) and Lyft (LYFT) earned the title of “disruptors” for the way they drove traditional cab companies out of business. Now, they’re trying to fend off the disruption that could be coming for them, in the form of a new federal labor rule. A new regulation on worker classification released this month is already facing at least one legal challenge, and will likely see more pushback from gig economy companies whose business model it threatens.

The new law could turn the gig economy upside down, and affect many of the estimated 22.1 million Americans who work as independent contractors, employment experts say. Earlier this month, the Department of Labor released details on a rule setting standards on when a worker counts as an employee as opposed to an independent contractor, entitling them to overtime pay, unemployment insurance, and a slew of other benefits under the law. The new rule, first proposed in 2022, is set to go into effect in March.This week, a group of freelancers, including three New Jersey-based writers, sued the Department of Labor to overturn the new rule. At least one major business lobbying group is also considering legal action. Should the government give “employee” status to workers currently classified as contractors, it would threaten the business models of companies such as Uber, Lyft, and Doordash (DASH), whose contract workers cost their employers much less than traditional employees would.Uber and the Flex Association—a trade group representing gig economy companies—both released statements last week saying that the rule would have no immediate impact on their businesses. “This rule does not materially change the law under which we operate, and will not impact the classification of the over one million Americans who turn to Uber to earn money flexibly,” Uber’s statement reads.