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Department of Labor Opines That Gig Workers are Independent Contractors

On April 29, 2019, the Department of Labor’s (“DOL”) Wage and Hour Division issued an opinion letter (FLSA2019-6) stating that workers in the “gig” or “sharing” economy should be considered as independent contractors rather than employees.  This opinion letter, while limited to the specific facts of the anonymous company who requested it, has potentially wide-ranging consequences for the sharing economy as a whole.

The DOL’s letter was written in response to a virtual marketplace company that utilizes an online or smartphone-based platform to refer workers, or service providers, to consumers in search of certain services.  While the opinion letter does not state which specific service the company provides, it does refer broadly to virtual marketplace companies providing services such as “transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.”

In assessing whether the workers at the company were employees or independent contractors, the DOL applied Supreme Court precedent, which considers whether workers are “economically dependent” on the company.  To determine whether a worker is economically dependent on a company–and therefore an employee–the DOL considered the following six factors:

  • The nature and degree of the potential employer’s control;
  • The permanency of the worker’s relationship with the potential employer;
  • The amount of the worker’s investment in facilities, equipment, or helpers;
  • The amount of skill, initiative, judgment, or foresight required for the worker’s services;
  • The worker’s opportunities for profit or loss; and
  • The extent of integration of the worker’s services into the potential employer’s business.

In weighing the first factor, the DOL noted that the company did not exert control over the service providers, as it did not impose duties on them such as “strict shifts, large quotas, or long hours.” The company also permitted its workers to work simultaneously for competitors (a fact which the DOL referred to repeatedly), and did not impose requirements on how the workers were to perform their tasks.

For the second factor, the DOL stated that the company did not have a permanent working relationship with its service providers, as the service providers were free to exit the working relationship and had ability to work freely with competitors.

Regarding the third factor, the DOL opined that while the company invested in the online or smartphone-based referral platform, it did not pay for facilities or equipment, and required the workers to provide all necessary resources without reimbursement. As a result, this factor weighed in favor of the workers being independent contractors.

In assessing the fourth factor, the DOL wrote that because the service providers “choose between different service opportunities and competing virtual platforms and exercise managerial discretion in order to maximize their profits,” they thereby have “considerable independence” from the company that weighs in favor of independent contractor status.

For the fifth factor, the DOL noted that the service providers had the “flexibility to work for different platforms, choose how to perform the job, choose different jobs with different prices, negotiate the prices of their jobs, and choose whether or not cancelling a job is worthwhile.” Therefore, the DOL considered that the “opportunity for profit or loss is driven by [the service providers’] own managerial skill, not simply their productivity,” and that this factor weighed in favor of independent contractor status, even though the company retains some control over profits and losses by setting default prices.

In weighing the sixth factor, the DOL characterized the virtual marketplace company as a referral business, which provided a “finished product”, i.e., the online referral platform, to its workers. The DOL went so far as to say that the virtual marketplace company’s business operations “terminate at the point of connecting service providers to consumers and do not extend to the service provider’s actual provision of services.”  Therefore, the DOL found that the workers were not integrated into the company, and that this factor weighed in favor of independent contractor status.

The upshot of all this is that if gig workers are considered as independent contractors as opposed to employees, then they will not be subject to the Fair Labor Standards Act.  This has important ramifications for both companies and workers in the gig economy.

While this opinion letter is limited to the anonymous company who requested it, it will likely provide a precedent going forward. This will be an important area of the law to follow in the coming years as the technology that has transformed traditional employment relations continues to evolve.

 

 

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