DOL Says Gig Workers Are Contractors

Washington, DC (WorkersCompensation.com) – Weighing in on the ongoing debate over whether or not gig economy workers are employees, the Department of Labor this week issued an opinion that, at one company at least, they are contractors.

The decision overturns the Obama administration’s opinion that said such workers were likely to be employees. That decision was rescinded shortly after the Trump administration took office.

"An important role of the U.S. Department of Labor is to ensure that employers who want to do the right thing have clear compliance assistance," said Keith Sonderling, Acting Administrator of the Department's Wage and Hour Division in a statement. "Today, the U.S. Department of Labor offers further insight into the nexus of current labor law and innovations in the job market."

The opinion was in response to a sharing economy company’s request that the Department of Labor’s Wage and Hour Division weigh in on whether or not a someone who signs up online and works for a company that connects them to people who need their services is an employee or a contractor.

The opinion said workers at this particular gig economy company were contractors primarily because it is not a dependent relationship between the company and the worker.

“Over its history, WHD has consistently applied an interpretation of ‘employee’ that adheres to the text of the FLSA and judicial precedent interpreting it: An employee, as distinguished from a person who is engaged in business for himself or herself, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent upon the business to which he or she renders service,” the department wrote in its opinion. “The employer-employee relationship under the FLSA is tested by economic reality rather than technical concepts. It is not determined by common law standards relating to master and servant.”

Because workers at that company were allowed to ignore requests for service, and to ignore onboarding information, among other things, they should not be considered employees, the opinion said.

“Your client provides a referral service. As such, it does not receive services from service providers, but empowers service providers to provide services to end-market consumers. The service providers are not working for your client’s virtual marketplace; they are working for consumers through the virtual marketplace,” the opinion said. “They do not work directly for your client to the consumer’s benefit; they work directly for the consumer to your client’s benefit. It is therefore inherently difficult to conceptualize the service providers’ ‘working relationship’ with your client, because as a matter of economic reality, they are working for the consumer, not your client.”

In making its ruling, the department considered how much control the employer has over its workers. In this case, based only on information provided by the company, the business doesn’t control when, how often or how long a worker works. Additionally, the worker is free to work for competitors. Because of this, and the fact that the company in question doesn’t rate the workers’ performance, the department concluded the workers were contractors.

The department also looked at the ‘permanency’ of the relationship between the worker and the company; who paid for the workers’ facilities and equipment; and how much of a potential the worker had for profit and loss. Because the worker could terminate the relationship easily, the workers paid for their own facilities and equipment and had the greatest potential for profits and losses, they should be considered contractors, according to the department.

And lastly, the department considered what role the workers played in the company’s business. According to the department, the company’s business was in referring service providers with consumers, and because of this, the services the workers performed were a separate business from the company’s.

Analysts Weigh In

While the company in the opinion was not identified and the letter isn’t legally binding, the implications could have far reaching effects experts say.

For one, it would strip those working in the gig economy of any possibility of worker protections like workers’ compensation, unemployment benefits and paid time off.

“Where we see misclassification of workers is a lot of low-wage jobs that have a service sector aspect, or in construction, where companies have a lot of workers and they’re trying to cut costs,” Catherine Ruckelshaus, general counsel for the National Employment Law Project, told CBS News.

The letter could be used by other companies to justify their classification of workers as contractors, said Maya Pinto, a senior researcher at the NELP to CBS News. “For that particular company, the letter is sort of a get-out-of-jail-free card. It will be used by this one company and could prod other companies to get similar letters. We believe in most cases, if not all cases, the workers are under control of the company and are in fact employees.”

Representatives from Uber, Lyft and GrubHub did not respond to requests for comment. All three of the gig economy companies have pending lawsuits from workers about misclassification. In its recent IPO, Lyft told the Securities and Exchange Commission that it is the subject of six class action and “thousands” of lawsuits from individual workers over misclassification. Uber faces two similar lawsuits, according to securities filings.

"Most gig-economy companies I know have very similar models," said Rich Meneghello, cochair of the gig-economy practice at employment-law firm Fisher Phillips, according to Wired Magazine. "I think the Department of Labor knew that and were trying to send a message to companies with that same model."

Alex Rosenblat, author of Uberland: How Algorithms Are Rewriting the Rules of Work, was quoted by Wired Magazine as saying the opinion may not apply to all gig economy companies.

"I can see why the letter sparked a lot of concern," Rosenblat said, according to Wired. "But I'd caution this opinion letter is based on the facts this company presented. These facts may or may not be true, and they don't align with some of the more controversial tactics in the gig economy."

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