The United States Department of Labor has provided good news for gig economy employers, telling one unidentified “virtual marketplace” employer that its service providers are properly classified as independent contractors. While advisory and non-binding, the April 29, 2019, Opinion Letter FLSA2019-6 provides insight into how the current DOL views independent contractor (mis)classification, and continues this administration’s departure from the DOL guidance under the Obama administration that assumed most workers are employees and not independent contractors.
The identity of the online platform (“Company”) that requested the Opinion Letter was removed to protect the entity’s privacy, but we do know that it is a “virtual marketplace company” that operates in the “sharing” or “on-demand” economy. The entity operates a referral service that connects service providers to consumers through a process software platform. Like many gig economy businesses, this particular company had concerns about a misclassification claim leading to wage and hour liability under the Fair Labor Standards Act (FLSA).
In the 10-page Opinion Letter, the acting administrator of the DOL’s wage and hour division opines that the service providers working for the online platform “are independent contractors, not employees of your client” based on the agency’s long-standing six-factor economic realities test. The test determines whether the workers are economically independent or dependent on the working relationship with the entity at issue. The six factors are:
- 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.
- The extent of integration of the worker’s services into the potential employer’s business.
In this particular scenario, the DOL found all six of the factors pointed to “economic independence, rather than economic dependence, in the working relationship between [the Company’s] client and its service providers.” The DOL further reasoned that the Company “empowers service providers to provide services to end-market consumers” and “as a matter of economic reality” the service providers are working for the consumer, not the Company operating the platform.
The Opinion Letter provides valuable guidance on how companies that operate platform-based matching services should interact with both service providers and service recipients for federal wage and hour purposes. However, companies need to continue to be mindful of the relevant law in states (such as California) that continue to apply their own state wage and hour laws when making independent contractor determinations.