Labor Department Ruling Classifies Gig Workers As Contractors

Gig economy companies Uber and Lyft just got support from the Labor Department, which ruled a company’s workers who clean homes don’t have to be treated as employees — which means it doesn’t have to pay the federal minimum wage, overtime or a portion of Social Security taxes.

According to a report in The New York Times, that decision by the Labor Department, which only applies to one company, could have an impact on more of the companies operating in the gig economy, including ride-hailing startups Lyft and Uber. If the likes of Uber and Lyft are required to treat their workforce as employees it could increase the labor costs for both by 20 percent to 30 percent, noted the report. It is a longstanding policy for the Labor Department not to name the companies it is making a ruling on, but speculation abounds it could be one focused on cleaning homes or conducting chores for customers. The comments Monday came as an opinion letter and only applied to the company that sought guidance. But other gig economy companies will look at it closely to gauge how the Labor Department views their treatment of employees. When President Obama was in office, the Labor Department had suggested gig economy workers should be treated as if they were employees. That decision was overruled when Donald Trump became president.

The letter by the Labor Department did face backlash among critics who contend the opinion letter reads more like setting policy than weighing in. “This doesn’t read like a normal opinion letter,” Kathleen Anderson, a partner at Barnes & Thornburg, a law firm that represents employers in cases where employees are misclassified, told The New York Times.  “You go back historically to most opinion letters and they are short, defined, with multiple disclaimers. This is expansive — it’s back to the basics, applicable to numerous situations.”

While Lyft and Uber haven’t sought guidance from the Labor Department, the letter does have positive implications for both firms. Uber said in its IPO filing with the Securities and Exchange Commission that classifying drivers as employees would result in “significant additional expenses” and would require the company to change its business model. Lyft has made similar comments.