In an opinion letter dated April 29, 2019, the U.S. Department of Labor (DOL) explained that some service providers working for a virtual marketplace company (VMC) are independent contractors under the Fair Labor Standards Act (FLSA). This opinion letter identifies the test the DOL is expected to use when considering the classification of workers in this growing gig-economy under federal law.
Service provider workers are also referred to as “gig,” “on-demand,” or “sharing-economy” workers. A gig economy is a marketplace where these workers take temporary positions for short-term engagements. Often using an App-based platform, the market involves these on-demand workers, the consumers who need a specific good or service, and technology platform companies or VCMs that connect the workers to the consumers. Examples of some VCMs are Etsy, Airbnb, eBay, and TaskRabbit.
The FLSA applies to “employees.” While the definition of employee — any individual whom an employer suffers, permits, or otherwise employs to work — is very broad, not all workers are employees. Some workers may be independent contractors and therefore outside of any FLSA requirements. In other words, the legal protections of minimum wage and overtime pay are not afforded to independent contractors. The recent growth in popularity of individuals entering into the gig-economy has put center-stage the question as to whether these new gig workers are employees or independent contractors. The DOL addressed this question through its renewed opinion letter process.
In its opinion letter FLSA 2019-6, the DOL redacted the identify of the VCM seeking the guidance. And the DOL was noticeably careful to point out that it was considering the facts specific to the situation at hand. What we do know is that the VMC here helps consumers connect with service providers through a software platform. “The platform also allows its service providers to communicate with consumers—including through mobile app messaging or masked telephone calls—to exchange details about the requested service, including adjustments to the scope, price, or time.” Opportunity for repeat business is also provided. There is no interview of service providers or required training by the VCM. Onboarding is online and service providers can provide work to customers once the account is activated without any requirement for reviewing materials or physically reporting to any office. The VCM receives no services from the service providers.
In determining the classification of these particular workers, the DOL used its Economic-Realities Test. The six factors under that test include:
- The nature and degree of the potential employer’s control;
- The permanency of the worker’s relationship with the hiring business;
- The amount of the worker’s investment in the 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.
The DOL went through and analyzed each of the factors above. Prior to doing so, it noted that other factors may also be relevant to the analysis and that “appropriate weight” for the listed factors would depend on the circumstances. The key factor came down to how much “control” the VCM had over the service provider worker in doing the job. In the end, the DOL found that the service providers who use this VCM are independent contractors.
With a growing on-demand market of workers, getting some direction from the DOL as to the legal standard it will use in reviewing these classification issues is helpful. These opinion letters, however, are not precedent for courts, although courts may defer to the DOL’s interpretation. More importantly, this is limited to federal law. Many states have their own tests for determining independent contractor status and under those state tests the same facts may lead to a different result. For example, Massachusetts follows a more stringent test, making it difficult to classify workers other than as employees. In New Hampshire, the NHDOL’s test for classification changed in 2012 to a seven-part test. Employers wanting to engage workers as independent contractors should be careful of this classification minefield and seek legal assistance.