THE U.S. DEPARTMENT of Labor’s definition of who qualifies as independent contractors, due to take effect in March, is meant to ensure that workers are treated fairly, according to the department. However, the American Hotel & Lodging Association says the new rule limits independent contractors to work and impact hotels’ ability to find workers.
The new rule under the Fair Labor Standards Act aims to prevent misclassification of workers that can affect workers’ rights to minimum wage and overtime pay, “facilitates wage theft, allows some employers to undercut their law-abiding competition and hurts the economy at-large,” the Labor Department said in a statement. It uses a multifactor analysis of six factors defining a worker’s relationship with an employer, such as the worker’s opportunities for profit or loss; the financial stake and nature of any resources a worker has invested in the work; the degree of permanence of the work relationship; the degree of control an employer has over the individual’s work; how essential the work is to the employer’s business; and the worker’s skill and initiative.
“Misclassifying employees as independent contractors is a serious issue that deprives workers of basic rights and protections,” said Julie Su, acting secretary of labor. “This rule will help protect workers, especially those facing the greatest risk of exploitation, by making sure they are classified properly and that they receive the wages they’ve earned.”
However, AHLA said in its statement that the new rule, which rescinds the 2021 Independent Contractor Rule, will limit some individuals’ opportunities to work as independent contractors and hurt hotels’ ability to maintain operations.
“We are extraordinarily disappointed that the Labor Department dismissed the concerns of the thousands of small business owners AHLA represents and is insisting on making it harder for hotels to maintain operations in what is already one of the toughest labor markets in recent history,” said Chip Rogers, AHLA president and CEO. “In the face of a nationwide shortage of workers, hoteliers need maximum flexibility to hire independent contractors, and contractors often prefer the flexibility of being classified this way. Despite this reality, the Labor Department is focused on making it harder, not easier, for hoteliers to hire the workers they need.”
Rogers also said AHLA is reviewing legal options to challenge the new regulation. Its other arguments against the new regulation center around complications that it presents to the worker classification process.
“The regulation invites confusion and litigation by establishing a test where any of six different factors could be determinative of employee status, as opposed to DOL’s prior regulation, under which two core factors guided classification determinations.Additionally, the regulation introduces a vague mandate forcing businesses to consider the ‘economic realities’ of the relationship between a worker and a company as well as an undefined set of ‘additional factors’ that must also be considered,” AHLA said in its statement. “The regulation will increase liability for businesses and reduce opportunities for those interested in working as independent contractors, a status many workers prefer because it gives them more flexibility and autonomy over their work. This will make it more costly and time consuming for hoteliers to hire the independent contractors they need, harming the industry’s ability to maintain operations and reducing business opportunities for independent contractors.”
In November, former AAHOA Chairwoman Jagruti Panwala testified before Congress on behalf of AHLA regarding the Labor Department’s proposal to raise the overtime salary exemption threshold for executive, administrative, and professional employees under the Fair Labor Standards Act. Panwala, now a board member for AHLA, argued that the proposed change would actually limit hotel employees’ opportunities and does not take into account economic differences between regions of the country.