On April 29, 2019, the U.S. Department of Labor’s (DOL) Wage and Hour Division issued an opinion letter finding that “virtual marketplace company” workers (of an unnamed business) were independent contractors rather than employees. While not binding, the opinion signals that DOL is taking a less aggressive approach than in recent years to the hot-button issue of worker classification in the online “gig economy.” Companies with similar business models that link workers with consumers through technology platforms or “virtual marketplaces” — such as for transportation, delivery, moving, cleaning and household services — may be able to rely on the new opinion to establish a good-faith defense under the Fair Labor Standards Act (FLSA) of their classification of workers as independent contractors.
In its analysis, DOL applied the so-called “economic realities” test, weighing six factors, including the business’s control over the worker, the permanency of the relationship, and whether the worker’s services were integral to the business. DOL underscored that the company allowed its workers to “multi-app” in order to compare work opportunities provided by competitors, which indicated a high degree of worker flexibility and a low degree of company control over them. Further, DOL framed the company’s core business as a “referral system that connects service providers with consumers,” and so the end-market consumer’s projects were not an integral part of the business. DOL also noted that the workers were engaged on a temporary “project-by-project” basis, which is characteristic of independent contractors.
DOL’s opinion is a positive development for gig economy companies, although each company will need to consider potential differences in their business models from the company assessed by DOL. For example, while ridesharing companies allow similar “multi-app” capabilities and do not require long-term engagement with their platforms, other aspects of DOL’s fact-specific analysis suggest that ridesharing platforms may differ in some respects, including the amount of control (where the company specifies what route to take or monitors workers) and drivers’ opportunity for profit or loss (where drivers do not have the power to negotiate prices).
While the new opinion letter is a welcome development for gig economy businesses with respect to worker classification under the FLSA, companies may still face more demanding state standards. As we have explained in prior posts (here and here), the California Supreme Court’s Dynamex ruling established an exacting three-factor test that employers must meet in order to demonstrate that workers are properly classified as independent contractors rather than employees under California law. Courts applying California law may remain unswayed by DOL’s looser stance regarding independent contractors. Indeed, shortly after DOL’s recent letter, the Ninth Circuit ruled that the Dynamex test applies retroactively. Other states, such as Massachusetts and New Jersey, use similar three-factor tests. Thus, companies should continue to assess applicable state standards for worker classification notwithstanding DOL’s new and more relaxed approach.