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Debate about the classification of workers as either independent contractors or employees has grown as the so-called gig-economy continues to develop. Federal agencies charged with enforcing various labor laws are gradually addressing some of the issues arising from these evolving employment relationships. Central to enforcement of these laws is being able to determine when a worker is an employee versus an independent contractor.
As this blog noted previously, the National Labor Relations Board’s (NLRB) Office of General Counsel, which prosecutes violations of the National Labor Relations Act (NLRA), issued a guidance memorandum in which it determined that drivers using the popular ride-sharing application Uber are not employees of the company. In a similar vein, the U.S. Department of Labor’s (DOL) Wage and Hour Division (WHD) issued an opinion letter addressing whether service providers working for a “virtual marketplace company” (VMC) are employees or independent contractors under the Fair Labor Standards Act (FLSA).
The WHD letter responded to an inquiry from a lawyer working for an unnamed cleaning company seeking to determine how to classify individuals using the VMC’s platform to obtain work from potential clients. The response reflects the Trump administration’s desire to move away from the Obama administration’s interpretation that adopted an expansive definition of employment under the FLSA and concluded that “most workers are employees under the FLSA.” That 2015 Administrator’s Interpretation was withdrawn in 2017 as one of Secretary of Labor Alexander Acosta’s first actions.
The recent WHD letter used the agency’s well-known six-factor test for determining employment, which considers: “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 its analysis, the letter observes that individuals using the VMC have “the right to, among other things: accept, reject, or ignore any service opportunity on the virtual platform; determine whether to accept any service opportunities at all; select service opportunities by time and place; determine the tools, equipment, and materials needed to deliver their services; and hire assistants or personnel.” It also notes that the VMC’s user agreement states that it “will not inspect a service provider’s work for quality or rate the service provider’s performance” and “allows service providers to provide their services to consumers through other means, including competing VMC platforms.”
The WHD letter concludes that based on the facts as presented to the agency, the VMC is merely acting as a “referral provider,” and “as a matter of economic reality, [the service providers] are working for the consumer,” rather than for the VMC. By basing the interpretation on “a matter of economic reality” the opinion letter directly reverses the Obama administration interpretation that relied on a version of the “economic realities” test to support severely restricting the opportunity for workers to be independent contractors. Because this is only an interpretation, a future administration may alter it through a mere interpretative process rather than a rulemaking.