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Legal Challenges May Hinder the US Government to Limit Independent Hiring

Experts said it was almost certain that business groups would file lawsuits in an attempt to delay or obstruct a rule proposed by the Biden administration on Tuesday that would limit companies’ use of independent contractors.

The US Department of Labor’s proposal drew immediate criticism from groups representing a variety of industries and prompted the actions of companies that rely on temporary workers, such as Uber (UBER.N) and Lyft (LYFT.O), falter due to expectations. It will dramatically increase labor costs.

Legal experts said business groups will push for changes to the proposal before it is finalized in the coming months, but are likely to eventually make their case in court that the rule is invalid.

“There will be years of litigation over this,” said Michael Lotito, a San Francisco-based attorney who represents employers and business groups. “This Supreme Court is written all over it.”

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

The current rule on worker classification, adopted during the Trump administration and favored by business groups, says that workers who run their own businesses and are free to work for multiple companies can be considered contractors. Under this standard, many more workers could qualify as contractors, which studies show can cost companies around 30% less staff.

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

In a call with reporters Tuesday, labor attorney Sima Nanda said the Trump-era rule did not align with standards federal courts have applied for decades and increased the risk that workers would be misclassified.

Nanda said the new proposal makes it clear that workers are independent contractors only when they are actually working for themselves rather than relying on a company on the job.

But Lotito and others said the department’s decision to scrap the Trump administration’s rule entirely, rather than identify specific problems with it and try to fix them, could make the new regulations vulnerable to legal challenges.

Any lawsuit is likely to seek to block enforcement of the rule while appeals work their way through appellate courts, which could take years.

Businesses and trade groups are also likely to attack the core of the new rule once it’s finalized, arguing that the way they define hiring is inconsistent with federal wage law and creates uncertainty about the legal status of many workers. said Roger King, a veteran attorney and employment consultant. I’m a senior at the HR Policy Association, a business group.

Sole proprietorships, employees and trade groups may also present more limited legal challenges to the new rule. Those lawsuits could argue that the rule cannot be applied to industries that have their own set of regulations, such as trucking, or that it infringes the constitutional rights of certain companies by targeting their industry.

The rigorous worker classification test California adopted in 2019 has been met with separate challenges from labor economics firms, the trucking industry and groups representing freelance writers and photographers. So far, those challenges have failed.

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