Dive Brief:
- The Labor Department issued new guidance Wednesday that could limit the ability of many companies to designate their workers as contractors, reported the Associated Press.
- That could spell trouble for sharing-economy firms such as Uber and TaskRabbit, which rely on independent workers, often for short-term projects, the AP said.
- It comes amid a wave of lawsuits against companies such as FedEx, ride-hailing service Lyft and online cleaning service provider Handy, brought by workers who say they should have been treated as employees rather than contractors.
Dive Insight:
Employers, whether they deploy the "sharing economy" model or just use independent contractors, have been waiting for more clarity from the DOL on this issue.
The guidance issued by the Labor Department's wage and hour division is intended to clarify how companies and courts should interpret the rules. Basically, the department's directive emphasizes that a worker who is "economically dependent" on the employer should be treated as an employee. By contrast, a worker must be in business for himself or herself to be an independent contractor, according to the AP.
That is a broader standard than guidelines followed by many states and the IRS, Michael Droke, an employment law partner at Dorsey and Whitney, told the AP. They generally focus on how much control a company has over how a worker does the job.
Richard Alfred, a partner at Seyfarth Shaw, a law firm that typically represents employers, called it an "unapologetic effort to restrict the use of independent contractors." He added that the guidance "ignores many of the realities of the modern workplace, and different relationships that workers and businesses want to have."
