The U.S. Department of Labor has published a new proposal on how workers should be classified saying that thousands of people have been incorrectly labeled as contractors rather than employees, potentially curtailing access to benefits and protections they rightfully deserve.
Misclassifying workers as independent contractors denies those workers protections under federal labor standards, promotes wage theft, allows certain employers to gain an unfair advantage over businesses, and hurts the economy, the department said Tuesday.
The reaction in markets for major gig companies was immediate. Shares of Lyft and Uber tumbled about 13%.
A misclassification can deprive employees of protection under minimum wage laws and overtime pay, according to the department, impacting thousands of delivery workers, custodians, truck drivers, waiters, construction workers and more.
"While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation's most vulnerable workers," said Secretary of Labor Marty Walsh in a prepared statement. "Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages."
The Labor department's proposed rule would help employers and workers determine whether a worker is an employee or an independent contractor under the Fair Labor Standards Act.
Wedbush analyst Dan Ives said the proposal would constitute a major change for workers and employers from previous years.
"A classification to employees would essentially throw the business model upside down and cause some major structural changes if this holds," Ives wrote.