WASHINGTON -- The Labor Department is rescinding a rule that made it harder for gig and contract workers to argue they were entitled to minimum wage and overtime protections.
The withdrawal of the "independent contractor" rule, which limited the ability of workers to argue that they were misclassified as contractors when they should have been employees, will take effect today.
Companies have increased the use of contractors in recent decades in part to lower labor costs. Employees are entitled to a variety of benefits not afforded to contractors, including a minimum wage, overtime pay, health insurance and paid sick days.
The scrapped rule would have identified two "core factors" to determine whether a worker is an employee or independent contractor: the degree of control over the work and the person's earnings opportunity based on initiative or investment. The Labor Department said the rule "narrowed the facts and considerations," undermining worker protections under the fair labor law.
"Legitimate business owners play an important role in our economy but, too often, workers lose important wage and related protections when employers misclassify them as independent contractors," Labor Secretary Marty Walsh said in a statement. "We remain committed to ensuring that employees are recognized clearly and correctly when they are, in fact, employees so that they receive the protections the Fair Labor Standards Act provides."
The Labor Department's decision came just two days before the Donald Trump-era rule was supposed to take effect. The move means the department will continue to use existing rules under the 1938 Fair Labor Standards Act to determine whether a worker should be classified as an independent contractor.
In a statement, the ride-hailing company Uber reiterated its stance that the 1938 employment regulations are outdated and impose "a binary choice upon workers: to either be an employee with more benefits but less flexibility, or an independent contractor with more flexibility but limited protections."
With the Biden administration announcing no new rules, the ride-hailing firm Lyft "sees this as an opportunity to refocus the conversation on what drivers need and want, which is independence plus benefits," said spokeswoman Julie Wood.
The rule's withdrawal is likely to add to speculation about how the federal government plans to deal with the question of gig work -- one of the most closely watched issues about labor policy in the new administration.
Jessica Looman, principal deputy administrator for the Labor Department's Wage and Hour Division, told reporters that she didn't consider the rule withdrawal as a move that would dramatically change anything at gig companies, but she added that the department would address misclassification under its rules wherever it finds it.
"When it comes to digital workers and app-based workers -- they're workers," she said. "And so we want to make sure we continue to look at their needs, and how they are interacting with their individual employer and whether they have protection."
The Trump administration rule was cheered by the business community and Republicans, and it was seen largely as a boon for gig work companies, whose business model relies on the increasingly contested idea that their workers are contractors, not employees.
But the Biden administration wasted little time in opposing the rule, with press secretary Jen Psaki announcing that the administration would block it, as well as other rules it said were adopted at the last minute, as soon as Biden took office.
A coalition of companies that included Uber, Lyft and Postmates sued the Biden administration in March over its decision to block the rule. And groups such as the U.S. Chamber of Commerce protested the move.
Labor Department officials described the decision as a reversion to the Barack Obama-era status quo, saying they felt that the Trump rule was out of step with the Fair Labor Standards Act, which the department is sworn to uphold.
Information for this article was contributed by Eli Rosenberg of The Washington Post and by staff members of The Associated Press.