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Virtually Independent Contractors or Employees - Department of Labor Takes a Look
June 13, 2019
In a recent opinion letter, the United States Department of Labor concluded that workers who use a “virtual marketplace” business – similar to Uber, DoorDash, Instacart, or Rover – are independent contractors and not employees of the business. The opinion provides helpful insight for how the DOL determines whether a virtual marketplace business’s service providers are properly classified as independent contractors (at least during the Trump administration). For other employers, the opinion, which the DOL described as “inherently difficult to conceptualize,” may provide helpful insight for how the DOL analyzes particularly difficult classification questions under the Fair Labor Standards Act (“FLSA”).
Subject to certain exceptions, any person may ask the DOL for an official written explanation of what the FLSA requires in fact-specific situations. Why might a company want to do so? Under the FLSA, an employer may avoid liability for unpaid overtime compensation if it acted in good faith and conformity with an opinion letter. Here, a virtual marketplace company requested the DOL opine on whether its workers were independent contractors or employees. While the specific company is left anonymous, the company’s business is similar to other businesses in the sharing economy. It connects people in need of services (e.g., transportation, housework, dog walking) to service providers (e.g., drivers, housecleaners, dog walkers) through an app or online platform. It is newsworthy that the DOL concluded the anonymous virtual marketplace company’s workers were independent contractors because courts and other authorities have determined similar workers are employees protected by the FLSA. Nonetheless, the opinion also provides helpful insights for all employers about how the DOL considers whether a worker is an independent contractor or an employee.
For example, the virtual marketplace company’s service providers agreed to contracts that provided they were independent contractors. This is a good fact that some employers wrongly confuse for a silver bullet to misclassification claims. Indeed, in the DOL’s analysis of whether the virtual marketplace company’s service providers were independent contractors, it did not mention that the providers agreed they were independent contractors. Instead, the opinion letter includes detailed, fact-specific analysis concerning the anonymous company’s business. That inquiry considers:
  1. The nature and degree of the potential employer’s control;
  2. The permanency of the worker’s relationship with the potential employer;
  3. The amount of the worker’s investment in facilities, equipment, or helpers;
  4. The amount of skill, initiative, judgment, or foresight required for the worker’s services;
  5. The worker’s opportunities for profit or loss; and
  6. The extent of integration of the worker’s services into the potential employer’s business.
As the DOL acknowledged, it does not simply count whether the factors lean towards independent contractor or employee. It can manipulate the importance of each factor. Cynically, this allows the DOL or a court to manipulate the factors to justify any desired result. Indeed, the opinion letter shows how such manipulation can help employers during a generally pro-employer administration. For example, the anonymous virtual marketplace company required background and identity checks before a worker could use its platform and the company could terminate a worker’s access to its platform for, among other things, frequent cancellations. These facts, which could support an argument that the workers are employees, were brushed aside by the DOL as “neutral requirements” that were “less relevant” because the company had a “general lack of control” over the actual work performed.
As I have written in the past concerning independent contractors, it is tempting, but unwise, to view new developments in the law surrounding independent contractors as moving the law in a decidedly pro-employer or pro-employee direction. The DOL’s opinion letter does not make new law. Instead, as its opinion illustrates, determining whether a worker is an employee or independent contractor under the FLSA remains a fact-intensive question. The opinion letter also does not mention the significant tradeoffs associated with independent contractors. The DOL found the anonymous virtual marketplace company did not exercise significant control over its workers. While the lack of control over workers allowed the company to classify them as independent contractors, it also means it does not require training, monitor performance, or enforce any rules that would allow it to ensure consumers receive a predictable level of service. In other words, this stuff is thorny. While the DOL concluded these anonymous virtual marketplace company’s workers were independent contractors, other businesses will justifiably seek to exercise more control over their workers to maintain brand integrity. As a result, courts, agencies (maybe even the DOL), and others will reach opposite conclusions regarding workers at these similar businesses in the future.  

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Labor & Employment Law Mitchell J. Rhein