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Gig Workers are Independent Contractors

Posted Tuesday, May 14, 2019 6:27 am

Along with the rise of the gig economy has been the rise of the debate over whether gig workers are independent contractors or employees.  After rescinding the guidance issued by the U.S. Department of Labor (“DOL”) during the Obama administration (which considered gig workers more likely to be employees rather than independent contractors), and in the context of millions of dollars in settlement money being paid to allegedly misclassified employees, the DOL recently released an opinion letter finding that gig workers are independent contractors.

FLSA2019-6 addresses whether service providers working for a virtual marketplace company in the “on-demand” or “sharing” economy are employees under the Fair Labor Standards Act (“FLSA”).  A virtual marketplace company or gig business is an online and/or smartphone-based referral service that connects service providers to customers to provide a wide variety of services, including transportation (e.g., Uber or Lyft), food delivery (e.g., Doordash or GrubHub), and household services. The FLSA (including its minimum wage and overtime requirements) only applies to employees and not independent contractors.  As such, an employer who misclassifies an employee as an independent contractor could be subject to penalties and fines in addition to being liable for failing to pay minimum wage, overtime, and taxes.

The letter notes that “the touchstone of employee versus independent contractor status has long been ‘economic dependence,’” which is a fact-specific inquiry.  When determining economic dependence, the DOL weighs six factors “in order to answer the ultimate inquiry of whether the worker is ‘engaged in businesses for himself or herself,’ or ‘is dependent upon the business to which he or she render service’”:

  1. Control.  The nature and degree of the potential employer’s control;
  2. Permanency of relation.  The permanency of the worker’s relationship with the potential employer;
  3. Investment.  The amount of the worker’s investment in facilities, equipment, or helpers;
  4. Skill, initiative, judgment, and foresight required.  The amount of skill, initiative, judgment, or foresight required for the worker’s services;
  5. Opportunity for profit and loss.  The worker’s opportunities for profit or loss; and
  6. Integrality.  The extent of integration of the worker’s services into the potential employer’s business.

According to the letter, all six of the factors pointed to economic independence, and therefore, a finding of an independent contractor relationship under the facts presented by the requesting company.

This letter is a written opinion by the DOL on how a particular law applies to the specific facts presented by the company requesting the letter.  It is therefore not binding precedent, but this letter provides helpful guidance for gig businesses as well as companies outside of the gig economy determining whether their workers should be employees or independent contractors.

Feature of the Month:

Summary of Independent Contractor Laws

Classification of an individual as an employee or independent contractor is complex and nuanced, and there are serious consequences if it is not done properly.

Learn More

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