COMP NEWS – Federal regulators are clamping down on employee classification rules which allowed companies like Uber and Lyft to classify their workers as independent contractors, opening up the door for companies of the “gig economy” to be required to pay their workers’ employee benefits.

With federal regulators set to tighten Trump-era labor standards that let Uber and Lyft, as well as food-delivery services like Doordash, treat gig workers as independent contractors with few protections under labor law, shares dropped sharply last week. But while a shift, the Department of Labor proposal doesn’t immediately transform gig workers into employees entitled to overtime pay, unemployment insurance and other benefits.

What’s clear is that the ongoing conflict over how these on-demand companies treat their drivers isn’t going away, since an estimated one in six Americans has worked in the gig economy in one way or another. Analysts and pundits following the rideshare industry think the future holds some series of compromises that will give drivers at least limited benefits — a model known as independent contractor-plus — with some believing that the Biden administration’s pro-union stance will lead to workers being classified as employees eventually. 

For now, the rules proposed by the DOL won’t make drivers into employees, who would also be entitled to benefits such as minimum-wage protection, overtime pay, and to be paid when they are at work but don’t have a passenger in their car. Such a move would likely also cause pressure on the companies to offer the drivers health insurance and vacation pay, especially for the minority of drivers who do gig work full-time, though Morgan Stanley analyst Brian Nowak said state-level litigation could also force such change.

While Uber claims that its workers prefer the flexibility of being an independent contractor, others are critical of the way Uber classifies and pays its workers.

Uber believes the Department of Labor is focused less on ridesharing and more on industries such as construction that also use gig workers, pointing out that the proposed rule doesn’t single out rideshare drivers. 

“The Department of Labor listened to drivers, who consistently and overwhelmingly state that they prefer the unique flexibility that comes with being an independent contractor,” Uber head of federal affairs CR Wooters said in a statement. “Today’s proposed rule takes a measured approach, essentially returning us to the Obama era, during which our industry grew exponentially.”

The company also disputes Moore’s claims. It says driver pay has risen, reaching $37 per what Uber calls a utilized hour.  The company’s 10-Q filing doesn’t disclose an average utilization rate – or percentage of hours a car is carrying passengers while a driver is on the clock – but Sergio Avedian, senior contributor at industry blog The Rideshare Guy, said it’s about 60%. Uber drivers also supply their own cars and gasoline, though the company in March added a per-trip fuel surcharge that goes directly to drivers.

While gig workers are likely here to stay, employee classification rules is just as likely to change and evolve.

Gig workers are likely to remain on the scene, and their business models will change, Avedian said. The question is whether they will change fast enough for drivers and regulators.

“If it’s enforced, we will have status, benefits and pay that is guaranteed to employees under the law,″ Moore said. “99 percent of drivers want to be independent — but we’re not.”

To read about how employee classification rules are changing, click here.

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