Dive Brief:
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The U.S. Labor Department Wednesday released a clarification on when people who work for a company can be classified as employees or as contractors.
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The rules aren’t new regulations or new law, but are designed to serve as guidance for companies and courts to help them with proper classification of workers.
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The issue is increasingly coming under scrutiny as disruptive startups, including retail same-day delivery companies, are relying on workers that it some cases should be classified as employees, who are privy to Federal and state benefits and certain protections, rather than contractors.
Dive Insight:
The issue of how to classify workers is of increasing concern to worker advocates and government regulators, and there are also an increasing number of lawsuits on the matter. In this clarification, the Labor Department says that workers who are ”economically dependent" on their employer should be regarded as an employee, while those in business for themselves are contractors. The guidance also says that the fact that an employer and a worker agree to a contractor arrangement isn’t relevant to determining whether that classification is proper under the law.
That’s a shift that some experts say is designed to classify more workers as employees, which would affect several new companies, including delivery startups like Deliv, Uber, and others, that rely heavily on independent contractors.
"We very much believe that misclassification is a problem that has been growing," said the department’s wage and hour division chief, David Weil. "It undermines all the legitimate employers who are doing the right thing ... but they are put at a competitive disadvantage."
The guidance pleased some workers advocates, including the Economic Policy Institute, which told the Associated Press that some 10% to 20% of workers are improperly treated as contractors and are missing out on protections and benefits. Some attorneys representing employers, however, said the rules are overly broad.
The issue may not go away any time soon. Hillary Clinton has given it particular attention in her campaign so far, for example. Regardless, the new rules could mean that several companies could be required to re-classify workers, which would no doubt increase their costs. And that could disrupt the prevailing low-cost of same-day delivery we’re seeing these days.
Recently the California Labor Commission ruled that an Uber driver was improperly treated as a contractor rather than more properly as an employee, and said she was entitled to some $4,000 in reimbursable expenses. Uber is appealing, and has defended its employment policies, saying, "The No. 1 reason drivers choose to use Uber is because they have complete flexibility and control.” But the new guidance says that mutual agreement doesn’t matter.
Earlier this month, delivery startup Shyp announced it would re-classify more of its workers as employees, saying it wanted to maintain better control of its operations as it grows.