(CNN Business) The Biden administration is proposing a new labor rule that could classify millions of gig workers as employees — a move that would challenge the low-cost labor models behind Silicon Valley heavyweights such as Uber, Lyft and DoorDash.
The proposed rule announced by the Labor Department on Tuesday aims to broaden the test that determines whether workers are entitled to protections such as minimum wage and overtime pay under federal law.
"While independent contractors have an important role in our economy, we have seen in many cases that employers misclassify their employees as independent contractors, particularly among our nation's most vulnerable workers," said Secretary of Labor Marty Walsh in a statement Tuesday.
The new rule would affect workers in a wide range of industries like home care, trucking, delivery services, and hospitality, according to the Labor Department.
Shares of Uber (UBER () and Lyft ( )LYFT (), whose drivers are )considered independent contractors, fell more than 10% in trading Tuesday on the news of the proposed rule. Shares of DoorDash fell roughly 6%.
In a statement, Uber called the proposal a "measured approach" while noting that its drivers "consistently and overwhelmingly state that they prefer the flexibility that comes from being an independent contractor"
Lyft said the rule would not reclassify their drivers as employees and would not force the company to change their business model.
A 45-day public comment period on the proposed rule will start October 13.
Gig Workers Rising, an advocacy group, praised the Biden administration proposal.
"For years, gig corporations have exploited outdated labor laws to avoid all responsibilities for their workers," said Rondu Gantt, an Uber, Lyft, and DoorDash driver based in San Francisco. "This rule can help establish bedrock protections for app-based workers like me and give us an important tool to fight for respect and safety on the job."
The proposed rule would broaden the test the Labor Department uses to determine whether a worker is an employee or independent contractor.
This contains several factors, including whether the work is an integral part of the employer's business, how much control the company has over the worker, and whether the worker has control over their own earnings.
This rule would further clarify whether the worker is "economically dependent on the employer for work (and is thus an employee) or is in business for themself (and is thus an independent contractor)," the Labor Department said Tuesday.
"Misclassification deprives workers of their federal labor protections, including their right to be paid their full, legally earned wages," said Walsh.
The new rule would repeal the 2021 Independent Contractor Rule which narrowed the qualifications for employees.
The National Retail Federation, a trade group representing the largest US retailers, opposes the new rule and argues the changes would only hurt businesses by driving up costs.
"The changes being proposed by the Labor Department will significantly increase costs for businesses across all industries, and further drive already rampant inflation," said David French, Senior Vice President of Government Relations, at the National Retail Federation Tuesday. "This decision will only foster massive confusion, endless litigation, reduced innovation and fewer opportunities for employees and independent contractors alike," he said.
-- CNN's Kate Trafecante contributed to this report.