Tennessee Free-Market Group Sues Over Federal Rule That Tightens Worker Classification Standards

NASHVILLE, Tenn. (AP) — A Tennessee free-market nonprofit group on Wednesday joined the ranks of organizations challenging a new Biden administration labor rule that changes the criteria for classifying workers as independent contractors or employees.

The Beacon Center of Tennessee filed its federal lawsuit in Nashville on behalf of two freelance journalists, Margaret Littman and Jennifer Chesak. The lawsuit against the U.S. Department of Labor, its wage division and two top officials claims the new rule will “force freelancers to enter undesirable employment relationships or to refrain from working at all.”

Others are also challenging the rule, including business coalitions in an ongoing case before the 5th U.S. Circuit Court of Appeals, and a group of freelance writers represented by a libertarian legal organization who sued in a Georgia federal court.

The rule replaces a Trump-era standard regarding classification of employees as contractors. Such workers are not guaranteed minimum wages or benefits, such as health coverage and paid sick days. The new rule aims to prevent the misclassification of workers as independent contractors.

President Joe Biden’s administration proposed the rule change in October 2022, approved it in January and set it to go into effect on March 11.

Labor advocates have supported the rule, saying employers have exploited lax rules to misclassify workers and avoid properly compensating them. Business groups contend that the rule creates uncertainty for employers and that much depends on how the Labor Department decides to enforce it.

The Beacon Center's lawsuit argues that the Labor Department lacks the authority to change the rule and didn’t provide a reasoned explanation for it as required by the federal Administrative Procedure Act. Additionally, the group argues that the rule increases the chances that freelancers like Littman and Chesak will be misclassified as employees instead of contractors.

In Chesak's case, the lawsuit says one company has begun requiring her to spend unpaid hours documenting her tasks as a freelancer; another company has limited the hours she can work as a freelancer; and another has required her to sign an agreement that indemnifies the company if it were found liable for misclassifying her.

“I’ve chosen to be a freelance writer for nearly 30 years because of the flexibility, control, and opportunity it provides me," Littman said in a news release. "I’m fighting back against the Labor Department’s rule because it threatens to destroy my livelihood and right to earn a living as a freelancer.”

The rule directs employers to consider six criteria for determining whether a worker is an employee or a contractor, without predetermining whether one outweighs the other. That’s a change from the Trump-era rule, which prioritized two criteria: how much control a company has over its workers and how much “entrepreneurial opportunity” the work provides.

It's up to employers initially to decide how to weigh each criteria, which also include how much control the employer has over the worker, whether the work requires special skills, the nature and length of the work relationship of the relationship between worker and employer, and the investment a worker makes to do the work, such as car payments.

Major app-based platforms including Uber and Lyft have expressed confidence that the new rule would not force them to reclassify their gig drivers. The two companies are also listed as members of one of the business coalitions challenging the rule in court.