A New Mexico lawmaker led a growing coalition of state lawmakers in opposing a proposed federal labor rule that could strip hundreds of thousands of Americans of workplace protections, weaken state safety nets, and accelerate the nation’s shift toward gig work, benefiting employers.
Rep. Eleanor Chávez, a Democrat from Albuquerque, announced that she led more than 100 legislators from 23 states in urging the U.S. Department of Labor to withdraw a proposal that labor advocates say would make it easier for employers to classify workers into contractor status instead of employees.
The Labor Department unveiled the proposal in February. It would revise the criteria for distinguishing employees from contractors. Federal officials said the change centers on an economic reality test, a standard used to determine if workers operate as truly independent entities.
But advocates and Democratic lawmakers argue the change could substantially redefine the American workforce in favor of employers, evading employee entitlements such as paying benefits, overtime, unemployment insurance, and workers’ compensation.
The lawmakers did not mince words in their letter sent to the Department of Labor, saying that as many as 250,000 workers nationwide could be reclassified as contractors under the proposal. They said the shift would transfer billions of dollars in risk and public costs from corporations to state governments.
“We are 114 state legislators from 23 states, collectively home to over 176 million people,” the lawmakers wrote. “The Department has failed to consider the substantial fiscal impact this rule would have on our states.”
The coalition argued that the proposal could deplete revenue sources, further stressing state budgets that fund unemployment insurance and other labor protections. States could also face higher Medicaid costs if workers lose employer-sponsored health coverage.
To substantiate their argument, the lawmakers cited a 2009 report by the U.S. Government Accountability Office. The report estimated that if just 1 percent of workers nationwide were improperly reclassified as contractors, unemployment insurance revenues could decrease by $200 million annually.
They also pointed to findings from the Pennsylvania Department of Labor and Industry showing that worker misclassification may have resulted in some $6.4 million to $124.5 million losses in state revenue during the 2019 fiscal year.
The debate over worker classification is one of the crucial labor battles of the modern economy, particularly as app-based delivery services, ride-share companies, and contract-driven industries continue to grow. Business groups argued that independent contractor arrangements give workers flexibility and entrepreneurial freedom. Labor unions, however, argued that many companies use contractor classifications to avoid labor laws and reduce costs.
Ms. Chávez framed the Labor Department’s proposal as part of a sweeping retreat from labor safeguards under President Donald Trump’s administration.
This reflects a continuing pattern of the Trump administration disregarding labor interests and transferring responsibility for remediation to state governments, she said. “Rather than protecting the hardworking people at the heart of our economy, the Department of Labor is trying to upend vital workforce systems, without even doing its homework on how much damage it will cause.”
The lawmakers asked federal officials to either withdraw the proposal in its entirety or conduct a sweeping fiscal review of its budgetary effects before implementation.
Many labor advocates describe the fight as being about more than legal definitions. It is about whether the rapidly changing American economy of gig work is shifting liabilities from companies to employees and, eventually, taxpayers.
