(Reuters) – The U.S. Department of Labor on Tuesday said it would soon propose a rule that could make it easier to classify workers as independent contractors rather than employees, a major issue for the “gig economy” and other industries that use contractors to contain costs.
During a phone call with reporters, senior department officials said the rule, if adopted, would provide courts with a “cleaner and easier-to-use process” than the complex multi-factor test currently applied in lawsuits alleging workers have been misclassified.
Independent contractors are not entitled to many of the legal protections afforded to employees, such as minimum wage and overtime pay. Employees can cost companies up to 40% more than contractors, according to several studies.
The labor department will publish a formal proposal by next week, the officials said, and adopt a final rule by the end of the year.
Under the proposal, a worker would be considered a company’s employee if he or she is economically dependent on the company for work. But a worker who operates an independent business and has opportunities for profit or loss would be deemed an independent contractor.
The proposal comes as Uber Technologies Inc and other gig economy firms are challenging a California law adopted last year that makes it more difficult to treat workers as independent contractors.
Uber and courier service Postmates Inc have filed a lawsuit claiming the law is unconstitutional. The companies also have launched a campaign to urge California voters to approve a ballot referendum in November that would exempt app-based services from the scope of the law.
The upcoming proposal by the labor department would not override stricter state laws. But it would likely make it more difficult for workers to bring nationwide class-action lawsuits claiming they have been misclassified as independent contractors.