The U.S. Department of Labor recently adopted a rule that strengthens the Fair Labor Standards Act (FLSA)—our federal law that establishes a federal minimum wage, overtime wage rights, and child labor protections—for workers. The rule, which just went into effect, will help ensure that only truly independent contractors—individuals who run their own businesses—are excluded from the FLSA's basic minimum wage and overtime protections, rather than gig economy companies and others Allowing sectors such as construction, janitorial services and home care affect workers' rights.
While this was a new victory for workers, powerful corporations are as determined as ever to undermine the new regulation in order to lower labor standards. As these actors prepare for further litigation, it is important to take stock of why they are so determined to undermine workers' rights and protections.
A 2020 analysis found that between 10 and 30 percent of employers misclassify workers as independent contractors. These misclassification systems are a way for employers to evade compliance with labor laws—such as minimum wage and state paid leave laws—and to evade their obligations to provide employment benefits such as workers' compensation and unemployment insurance. As a result, misclassification results in lower labor costs while also leading to greater wealth for investors and CEOs.
Misclassification is strikingly racist and often occurs in low-paying, labor-intensive jobs. Historically, misclassifications have occurred most frequently in the trucking, home care, construction and janitorial sectors, where black and immigrant workers are overrepresented and workers lack the bargaining power to counter corporate exploitation. More recently, app-based companies such as Uber, Lyft, and DoorDash have used technology to hire, assign, pay, and monitor workers and otherwise set and control working conditions, but without responsibility for compliance with labor rights and protections to take over.
The Department of Labor's new rule aims to prevent these abuses by eliminating a long-standing six-factor test for determining whether a worker is an employee or independent contractor under the FLSA. All six factors aim to answer a reasonable question: Is a worker an independent contractor or is he dependent on finding work in someone else's company? If they rely on finding work at other people's businesses, they are employees under the FLSA and are entitled to the federal minimum wage and overtime. The rule's factors apply flexibly to the many types of employment relationships that exist today, meaning that true independent contractors and the companies they work with are not affected.
When it comes to the misclassification of independent contractors in the gig economy, some are quick to point to the benefits of so-called flexibility and argue that it is a worthwhile trade-off. While the ability to use an app whenever you want is technically a given in gig work, in many cases this scheduling flexibility is also monitored, brokered, monitored and carefully managed by the app companies, putting pressure on employees to when and when to work As long as the app companies want. And despite the misconception that gig jobs are a side hustle, studies of app-based rideshare and delivery workers have found that while a third to half of these workers work full-time in these jobs, they often earn less than the on-site minimum wage.
CHICAGO, ILLINOIS – FEBRUARY 14: Rideshare drivers gather at a gathering point near O'Hare International Airport during a labor strike on February 14, 2024 in Chicago, Illinois. The demonstration hosted by Uber, Lyft and DoorDash…
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Flexibility makes little sense without economic security. As one motorist put it: “When you have to work more than 50 hours a week to make ends meet, when you have to weigh every hour you don't work against the loss of income, when you have just one accident or illness “Ruin, flexibility and independence mean nothing.”
Not to be forgotten are the consequences this has for small businesses and employers who follow the rules. When companies are able to shirk their obligations to their workers, a race to the bottom occurs, creating unfair competition with employers who properly follow the rules. It creates incentives for bad behavior and leaves small businesses having to choose between skirting regulations or going out of business.
Workers who are victims of misclassification often earn less than minimum wage and lack access to benefits. Because Black, Latino, and other workers of color are disproportionately represented in occupations where misclassification is prevalent, this practice creates a second workforce that is predominantly people of color and operates without a wage floor and other basic rights and protections, exacerbating racial inequities.
Unless we address the growing problem of worker misclassification, which is driving down wages and eliminating protections for immigrant and black workers, we cannot achieve workplace equality and realize the vision of a good jobs economy.
There are many misunderstandings surrounding the rule of interpretation. Some claim that this results in the loss of the ability to engage in freelancing and entrepreneurship. That's not true – it's just ensuring that companies don't exploit and misclassify their workers to avoid basic protections and fair compensation.
The DOL rule is a clear step forward to ensure that all people who work for someone else – regardless of who they are, where they work or what they do – have access to our basic minimum wage and overtime protections, and is a Victory for the work of people helping to combat growing inequalities.
Rebecca Dixon is President and Chief Executive Officer of the National Employment Law Project, a leading advocacy group working to build a fair and inclusive economy.
The views expressed in this article are the author's own.
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Newsweek strives to challenge conventional wisdom and find connections in the search for common ground.
Newsweek strives to challenge conventional wisdom and find connections in the search for common ground.
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