Legal challenges could hamper US rule to limit freelance contracts

Oct 12 (Reuters) – Business groups will almost certainly file lawsuits in an attempt to delay or derail a rule proposed by the Biden administration on Tuesday that would limit companies’ use of independent contractors, experts said.

The US Department of Labor’s proposal drew immediate criticism from groups representing a range of industries and sent shares of companies that depend on on-demand workers, such as Uber (UBER.N) and Lyft ( LYFT.O), due to expectations. that this will greatly increase their labor costs.

Business groups will push for changes to the proposal before it is finalized in the coming months, but ultimately will have to argue in court that the rule is not valid, officials said. legal experts.

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“There’s going to be years of litigation about this,” said Michael Lotito, a San Francisco-based attorney who represents employers and business groups. “This has the Supreme Court written all over it.”

The proposal states that when workers are “economically dependent” on a business, they should be classified as employees entitled to minimum wage, overtime pay and other legal protections, not as independent contractors. .

The current worker classification rule, which was passed under the Trump administration and is favored by business groups, states that workers who operate their own business and are free to work for multiple companies can be considered workers. subcontractors. Under this standard, many more workers can qualify as contractors, which studies show can cost companies around 30% less than employees.

The department’s abrupt departure from the Trump-era norm will likely lead to lawsuits challenging the new rule, which is expected to be finalized next year, legal experts say. Federal law requires agencies to adequately explain their decision to withdraw and replace existing rules.

In a call with reporters on Tuesday, labor attorney Seema Nanda said the Trump-era rule is out of step with standards applied by federal courts for decades and has increased the risk of error by classification of workers.

Nanda said the new proposal makes it clear that workers are only independent contractors when they are truly in business for themselves rather than depending on a company for work.

But Lotito and others said the department’s decision to abandon the Trump administration’s rule altogether, rather than identify specific problems and aim to fix them, could make a new settlement vulnerable to legal challenges.

Any legal action would likely seek to prevent the rule from taking effect while challenges work their way through the appeals courts, which could take years.

Companies and trade groups are also likely to attack the substance of the new rule once it is finalized, arguing that the way it defines employment is inconsistent with federal wage law and creates uncertainty about to the legal status of many workers, said Roger King, a veteran. employment lawyer and senior counsel at the HR Policy Association, a group of companies.

Individual businesses, workers and business groups could also bring closer legal challenges to the new rule. These lawsuits could argue that the rule cannot be applied to industries with their own set of regulations, such as trucking, or that it violates the constitutional rights of specific companies by targeting their industry.

A strict worker classification test adopted by California in 2019 has faced distinct challenges from companies in the gig economy, the trucking industry and groups representing freelance writers and photographers. So far, these challenges have failed.

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Reporting by Daniel Wiessner in Albany, New York; Editing by Alexia Garamfalvi and Lisa Shumaker

Our standards: The Thomson Reuters Trust Principles.

Daniel Wiessner

Thomson Reuters

Dan Wiessner (@danwiessner) reports on labor and employment and immigration law, including litigation and policy development. He can be contacted at [email protected]

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