DOL Says Certain Gig-Economy Workers Aren’t Employees

According to a recent opinion letter from the U.S. Department of Labor (USDOL), at least some gig-economy workers who find jobs through smartphone apps—such as drivers for ride-hailing services—are not covered by the federal Fair Labor Standards Act (FLSA).

The distinction between an employee and an independent contractor is significant: Employees are entitled to minimum wage, overtime pay and other benefits that are not afforded to independent contractors, who may work for themselves or for several businesses.

The USDOL concluded that the workers who use a technology platform or “virtual marketplace” to connect with consumers are independent contractors rather than employees of the platform provider.

The virtual-marketplace company provides a referral service, the USDOL said. The letter did not name a specific service provider or technology platform but noted that virtual-marketplace companies offer a wide range of services, including transportation, delivery, moving, cleaning and household services.

Trend Toward Greater Flexibility

The previous guidance from 2015 under former President Barack Obama’s administration advocated for a more narrow view on what was considered an independent contractor, which would result in most workers being classified as employees.

Economic-Realities Test

The USDOL applied its longtime independent-contractor analysis to the facts presented, which considers whether the worker is economically dependent on the hiring business. The analysis is fact-specific and individualized for each worker, the department noted. When determining economic dependence, the USDOL considers six factors:

  • 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 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.
  • The extent that the worker’s services are integrated into the potential employer’s business.

Other factors also may be considered. The USDOL “does not determine employee status by simply counting factors but by weighing these factors in order to answer the ultimate inquiry of whether the worker is ‘engaged in business for himself or herself’ or ‘is dependent upon the business to which he or she renders service,'” the letter said.

Employer Takeaway

The USDOL has also confirmed that businesses can provide some oversight of contractors for quality control or compliance reasons without establishing an employment relationship.

It is important to note, however, that state courts and state enforcement agencies may have stricter standards for classifying workers as independent contractors.

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