Law Alert: DOL Issues Opinion Letter Deeming Gig Economy Workers Independent Contractors
April 29, 2019
DOL Issues Opinion Letter Deeming Gig Economy Workers Independent Contractors
This morning, the United States Department of Labor (“DOL”) issued an opinion letter concluding that service providers operating under a written agreement with a specific (but unnamed) virtual marketplace company (“VMC”)—i.e., a company that operates in the so-called “on-demand,” “sharing,” or “gig” economy—are independent contractors, not employees, under the Fair Labor Standards Act.
In reaching this conclusion, the DOL found the evidence favored independent contractor status under all six factors of the traditional “economic realities” test. While the opinion letter does not represent binding precedent, it may certainly be used as persuasive authority when seeking to defend the status of traditional owner-operators or small, contract or “settlement” carriers as independent contractors under the economic realities test. It also provides some insight into the leanings of the DOL under the current administration.
Some of the key facts and circumstances considered by the DOL under each factor of the economic realities test are highlighted below.
Factor-by-Factor Summary of the DOL’s Analysis
In finding the VMC does not exercise employer-like control over the service providers, the DOL noted that the service providers may choose their hours of work and work simultaneously for competitors. The DOL also noted (1) the VMC charges service providers a cancellation fee if a service provider accepts a job and then cancels, (2) reserves the right to remove a service provider from its platform if the service provider frequently cancels accepted jobs without adequate notice, and (3) requires service providers to undergo background and identity checks. The DOL nevertheless deemed these requirements “neutral” to the employment analysis, indicating such requirements stem from concerns regarding quality control, which differs from the control found in an employment relationship.
Permanency of relationship
The DOL highlighted that the VMC does not restrict its service providers from interacting with competitors, either during the relationship itself, or after the relationship ends. Moreover, while the service providers remain “active” on the VMC’s virtual marketplace, the DOL determined service providers only do so on a project-by-project basis.
Investment in facilities, equipment, or helpers
The DOL found this factor favored independent contractor status because service providers are required to purchase all necessary resources for their work, and the VMC does not reimburse them for those purchases. The DOL acknowledged that the VMC invests in its virtual referral platform, but found such an investment does not reflect an investment in the work the service providers actually perform.
Skill, initiative, judgment, or foresight
While the letter does not specifically identify the services offered on the VMC’s virtual platform, the DOL noted that, because the service providers may choose between different service opportunities on the platform and competing virtual platforms, the service providers exercise managerial discretion to maximize their profits. The DOL also found it persuasive that the service providers do not appear to rely on the VMC for training (thereby increasing their economic independence).
Opportunity for profit and loss
The DOL found this factor favored independent contractor status even though it the VMC sets default prices. In reaching this conclusion, the DOL noted the service providers are free to choose different jobs with different prices, take as many jobs as they see fit, negotiate the price of their jobs, and perform work for competitors. The DOL also emphasized evidence of the opportunity for service providers to experience loss, again highlighting that the VMC charges the service providers a fee for cancelling accepted jobs.
Finally, the DOL concluded that the service providers are not integrated into the business the VMC operates as a “referral” company, as the service providers do not develop, maintain, or otherwise operate the VMC’s referral platform. Instead, service providers, as consumers of the VMC’s referral service, use the VMC’s platform to acquire service opportunities.
News from Scopelitis is intended as a report to our clients and friends on legal developments affecting the transportation industry. The published material does not constitute an exhaustive legal study and should not be regarded or relied upon as individual legal advice or opinion.
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