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President Joe Biden’s Labor Department on Wednesday rescinded a Trump-era rule that would have made it easier for businesses in the United States to classify workers as independent contractors instead of employees under the federal Fair Labor Standards Act.
“By withdrawing the independent contractor rule, we will help preserve essential worker rights and stop the erosion of worker protections that would have occurred had the rule gone into effect,” Labor Secretary Marty Walsh said in a statement.
“Too often, workers lose important wage and related protections when employers misclassify them as independent contractors,” he said.
Shares of companies that employ gig labour such as Uber, Lyft and DoorDash immediately pared gains in pre-market trading.
Walsh told Reuters news agency in an interview last week that a lot of US gig workers should be classified as “employees” who deserve work benefits. His comments signalled a shift in policy and hurt stocks of companies that employ gig labour.
Gig workers are independent contractors who perform on-demand services, such as ride-hailing and food delivery drivers, and childcare providers. Gig workers are one-third more likely to be Black or Latino, according to an Edison Research poll.
Walsh said in the interview that his department would have conversations in coming months with companies that employ gig labour to make sure workers have access to consistent wages, sick time, healthcare, and “all of the things that an average employee in America can access”.
The rule by former President Donald Trump’s administration, finalised in early January before he left office on January 20, would have hampered workers’ ability to earn a minimum wage and overtime compensation – protections offered under the Fair Labor Standards Act (FLSA).
It was supposed to take effect in March, but did not because it was being reviewed by Biden’s Labor Department. The withdrawal will be effective on Thursday.
An Uber spokesman said last week that an overwhelming majority of app-based workers want to stay independent because it allows them to work when, where and how they want with flexibility no traditional job can match.
The FLSA includes provisions that require covered employers to pay employees at least the federal minimum wage for every hour they work and overtime compensation at not less than 1-1/2 times their regular rate of pay for every hour they work over 40 in a workweek.
FLSA protections do not apply to independent contractors.
“The independent contractor rule was in tension with the FLSA’s text and purpose,” the Labor Department said.