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Legal challenges could hamper rules to limit independent contracting



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

The U.S. Labor Department proposal drew immediate criticism from groups representing a range of industries and sent shares of companies that rely on gig workers, such as Uber and Lyft, tumbling on expectations that it will sharply raise their labor costs.

Business groups will lobby for changes to the proposal before it is finalized in the coming months, but ultimately they will likely have to argue that the rule is invalid, legal experts said.

“There will be years of litigation over this,”

; said Michael Lotito, a San Francisco-based attorney who represents employers and business groups. “This is what the Supreme Court has written all over it.”

The proposal says 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, and not independent contractors.

The current worker classification rule, passed under the Trump administration and favored by business groups, says workers who run their own businesses and are free to work for multiple companies can be considered contractors. Under that standard, far more workers can qualify as entrepreneurs, which studies estimate can cost businesses about 30% less than employees.

The department’s sharp break from the Trump-era standard is likely to be the focus of lawsuits challenging the new rule, which is expected to be finalized next year, according to legal experts. Federal law requires agencies to adequately explain their decision to withdraw and replace existing regulations.

In a call with reporters Tuesday, Solicitor of Labor Seema Nanda said the Trump-era rule was out of step with the standards applied by federal courts for decades and has increased the risk of worker misclassification.

Ms Nanda said the new proposal clarifies that workers are independent contractors only when they are truly in business for themselves rather than relying on a company for work.

But Mr. Lotito and others said the department’s decision to completely scrap the Trump administration rule, rather than identify specific problems with it and seek to fix them, could leave the new regulation vulnerable to legal challenges.

Any lawsuit would likely try to block the rule from taking effect while challenges make their way through appeals courts, which could take years.

Businesses and trade groups are also likely to attack the content 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 the legal status of many workers, said Roger King, a veteran. employment lawyer and senior counsel at the HR Policy Association, a business group.

Individual companies, workers and industry groups could also mount narrower legal challenges to the new rule. These lawsuits may argue that the rule cannot be applied to industries with their own rules, such as trucking, or that it violates the constitutional rights of specific companies by targeting their industry.

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


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