Labor Dept. 'gig economy' letter can help companies accused of misclassifying independent contractors, attorney says

By John Breslin | May 15, 2019

The U.S. Department of Labor recently clarified its position on the classification of workers within the growing so-called "gig economy," stating it believes most such workers can be described as independent contractors, and not employees, under federal labor laws.

In a letter responding to a request from an unnamed cleaning company asking for guidance on workers who use smartphone apps to source jobs, the Labor Department essentially said, if they use a technology platform to link up with consumers, then they could be treated as independent contractors.

The letter addresses how workers should be classified within the increasingly widespread "gig economy," but only applies to the federal Fair Labor Standards Act (FLSA), Cara Barrick, an Ogletree Deakins attorney with expertise in employment law, said.

The gig economy is a term for a growing segment of the national economy, in which workers, rather than landing full-time or even traditional part-time employment, freelance their labor, per assignment. Drivers for ride-hailing services such as Uber or Lyft, or delivery drivers for food delivery services like Grubhub and EatStreet, often are among the highest profile examples of workers within the "gig economy."

Barrick said the Labor Department's letter is not binding on courts. But she said "courts may defer to agency interpretation of the law," adding that opinion letters can be used as guidance in support of a defense in a legal action.

The Trump Administration, like previous ones, generally applies a multiple test standard to the classification of independent contractors under the FLSA. This allows for a more liberal standard resulting in less people classified as employees and therefore eligible for a minimum wage, overtime pay and other benefits.

A number of states, including Illinois with its Employee Classification Act , have their own statutes where a more narrow test, commonly known as ABC, is applied. California's Supreme Court recently ruled the ABC test aligns with the state's wage and labor laws.

At this point, it is not clear how those states will address the rapid expansion of the gig economy, or how its courts will rule.

In its letter, the Labor Department concluded: "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."

Those workers using a tech platform, or app, to connect with clients and consumers via the "virtual marketplace" are independent contractors. The provider of the platform is merely a service provider.

While ride share companies such as Uber and Lyft are among the highest profile of these gig economy companies, this way of conducting business and managing workers is becoming increasingly widespread, as the letter noted.

It stated that virtual marketplace companies are involved in delivery of goods, moving, cleaning and household services.

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