A new law regarding the gig economy from the Biden administration will go into effect in March 2024, making it harder for companies to classify workers as independent contractors instead of employees. This policy will also aid in protecting overtime pay and preventing wage theft.
Many app-based companies like Uber (UBER), Lyft (LYFT), and DoorDash (DASH) rely heavily on these independent contractors, so what will be the impact on these companies from this new law?
Former California Labor Department Director Michael Bernick joins Yahoo Finance to discuss the state of the gig economy and how companies will conduct business once this new law goes into effect.
"It doesn't eliminate the gig economy. It merely changes the rules on how you classify between gig economy workers and employees," Bernick says, adding: "We had this in California, we went through a similar process in California in 2019 with the passage of AB 5 that made it more difficult in our state to classify workers as independent contractors... What we find out is... it's a company-by-company process, so it's not as if a whole category of independent contractors or app workers are changed."
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Editor's note: This article was written by Nicholas Jacobino.
Video Transcript
RACHELLE AKUFFO: Change is coming for millions of gig workers who could qualify under a new Biden administration rule, making it harder for companies to classify workers as independent contractors instead of employees. Now, that goes into effect in March.
Now, in tandem, the Labor Department also rescinding a Trump era rule today that had broadened the classification of independent contractors. The revamped rule means easier access to benefits, protections, overtime, higher wages, and more. So how will companies that rely on independent contractors and gig workers, like your Uber, Lyft, DoorDash, and others, offset these added costs.
Let's bring in Michael Bernick, Duane Morris LLP Employment Attorney and former California Labor Department Director to discuss more. Welcome back to the show here. So for people who are seeing these announcements crossing today, what should they be aware of as a gig worker as to how they should be navigating this?
MICHAEL BERNICK: Well, as you say, Rachelle, it is a process that'll take some time. First, it doesn't eliminate the gig economy. It merely changes the rules on how do you classify between gig economy workers and employees?
And we've had this in California. We went through a similar process in California in 2019 with the passage of AB5 that made it more difficult in our state to classify workers as independent contractors. So we have some experience.
And what we find out is, one, that it's a company by company process. So it's not as if a whole category of independent contractors or Apple workers are changed. It's company by company. It takes time.
And of course, the gig economy, 57-- an estimated 57 million workers is so diverse. We often think of it in terms of the app-based workers. But there are very small part of independent contractors in this gig economy. So it'll take some time to play out. But you're right, it is a major change. And we've seen that in California.
RACHELLE AKUFFO: And so, obviously, there was some pushback from some employers even when the draft rule was first announced back in 2022 saying, look, we can't afford these added costs for these extra benefits. How did that play out in California?
MICHAEL BERNICK: Well, we have seen a diversity of responses. In some cases, workers have been moved in from independent contractors or gig economy workers into employee status. In other cases, though, Rachelle, workers who are independent contractors found their positions eliminated.
Employers or companies did say, we just can't afford if we have to move you into employee status. So it's had that diversity within and among employers. Some have been able to move people on, as I say. Others have decided they just can't absorb the additional costs. So it really has split among sectors, among occupations.
