By Eric Morath 

The Biden administration blocked a Trump-era regulation that would have made it easier for businesses to categorize gig workers and others as independent contractors, and signaled it would take a tougher enforcement stance against employers on worker classification.

The Labor Department said Wednesday it is nullifying a rule it completed in early January that sought to make it more difficult for a gig worker, such as an Uber or DoorDash driver, and other workers to be counted as an employee under federal law. Having status as an employee, rather than a contractor, means those workers are covered by federal minimum-wage and overtime laws.

Jessica Looman, principal deputy administrator for the Labor Department's Wage and Hour Division, said the Trump rule would have narrowed which workers were counted as employees across the economy, not only gig workers, allowing more employees to be classified as contractors.

"Misclassification of employees as independent contractors presents one of the most serious problems facing workers today," she said on a call with reporters.

The department recently took action against a restaurant classifying its dishwashers as contractors and found 70 home-health aides who were misclassified as contractors, Ms. Looman added. She said the department will look for opportunities to enforce existing laws, especially as they apply to lower-wage workers.

Ms. Looman said Wednesday's announcement shouldn't dramatically change how the department regulates app-based services but said the department is engaging with those companies and others about labor-law enforcement.

The Biden administration is "just going backwards with what they've done and not helping resolve the misclassification problem to the extent they think it is one," said Maury Baskin, co-chairman of the law firm Littler Mendelson PC's Workplace Policy Institute and an attorney who represents businesses. "They're just leaving the situation in the chaotic state it's been."

Mr. Baskin is serving as counsel to business groups, including the Associated Builders and Contractors, which in March filed a federal lawsuit against the Labor Department challenging the Biden administration's plan to delay and withdraw the earlier Trump action.

Gig-economy companies were among the most vocal proponents of the Trump-era rule, seeking to cement drivers and similar workers as contractors after California's legislature passed a law requiring the companies to reclassify their drivers as employees, eligible for broad employment benefits.

In November, voters in California exempted Uber Technologies Inc., Lyft Inc., DoorDash Inc. and others from the state law.

While the exemption allowed the companies to preserve their business models in the most populous U.S. state, they did concede some new benefits such as health insurance for drivers who worked 15 hours or more a week, occupational-accident insurance coverage and 30 cents for every mile driven.

At the time, the companies said they would lobby to make this model -- flexibility for drivers with limited benefits -- the national standard.

Uber spokesman Noah Edwardsen on Wednesday said the company views the current federal employment system as outdated. Workers must choose to be an employee with more benefits and less flexibility, or an independent contractor with more flexibility and limited protections, the spokesman said.

"Uber believes that we can combine the best of both worlds by offering independent work opportunities to the hundreds of thousands of workers that use the Uber platform while also providing these workers with meaningful benefits," he said.

In January, Uber said the Trump rule recognized the flexibility gig workers sought. Trump administration officials said their rule made it easier for Americans to be self-employed and set their own hours.

Elizabeth Jarvis-Shean, vice president for communications and policy at DoorDash, said its drivers on average work fewer than four hours a week and value flexible schedules.

"We look forward to continuing to work with the Biden administration and lawmakers across the political spectrum to help develop a new portable, proportional, and flexible benefits framework," she said in a statement.

Lyft spokeswoman Julie Wood said the company sees the regulatory action as an "opportunity to refocus the conversation on what drivers need and want, which is independence plus benefits."

The Labor Department acted this week to block the rule before it was implemented Friday, following a common practice of presidents of different parties undoing the prior president's pending rules early in a new administration.

Nullifying the Trump rule maintains the decadeslong status quo, which has largely allowed app-based services to not count drivers and other providers as employees. The Labor Department at this time isn't planning to offer new regulations for independent contractors, Ms. Looman said on a Tuesday call.

By blocking the Trump rule, the Labor Department will continue to use its previous regulation to enforce the Fair Labor Standards Act, which was enacted in 1938. While Wednesday's action doesn't immediately change how gig workers are classified, it leaves ambiguity about how a Depression-era law will be applied to a smartphone economy.

Labor Secretary Marty Walsh, in an April interview with The Wall Street Journal, said that legitimate independent contractors are an important part of our economy, but the Trump-era rule made it too easy to deny workers employee status. Employees are also better positioned than contractors to organize into labor unions. The Biden administration has made creating union jobs a priority.

"We've seen employers are increasingly misclassifying their workers as independent contractors in order to reduce labor costs and take a lot of protections away from workers, including minimum wage and overtime," Mr. Walsh said.

Amara Omeokwe contributed to this article.

Write to Eric Morath at eric.morath@wsj.com

 

(END) Dow Jones Newswires

May 05, 2021 17:24 ET (21:24 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.