New labor guidelines address worker status

WASHINGTON – When are workers employees? When are they contractors?

The Labor Department issued new guidance Wednesday that could limit the ability of many companies to designate their workers as contractors. That could spell trouble for sharing-economy firms such as Uber and TaskRabbit, which rely on independent workers.

It comes amid a wave of lawsuits against companies brought by workers who say they should have been treated as employees rather than contractors.

The Economic Policy Institute estimates 10 to 20 percent of employers misclassify at least one worker.

The Labor Department’s directive emphasizes that a worker who is “economically dependent” on the employer should be treated as an employee. By contrast, a worker must be in business for himself or herself to be an independent contractor.

That is a broader standard than guidelines followed by many states and the IRS, according to Michael Droke, an employment law partner at Dorsey and Whitney. They generally focus on how much control a company has over how a worker does the job.

The directive also says an agreement between an employer and worker that designates the worker as an independent contractor “is not relevant” to the classification question.