Department of Labor Gives Guidance for Businesses Using Independent Contractors
By Beth Florkowski of Fausone Bohn, LLP posted in Business on Thursday, June 20, 2019.
Just last month, the Department of Labor (DOL) issued an opinion letter regarding employer-employee relationships in today’s technologically advanced gig economy.
The letter tackles the blurry line that employers walk when deciding if a worker is an employee or an independent contractor. That decision has a stark impact because workers who are classified as employees have significant legal protections, such as minimum wage, overtime, and employee benefits; whereas, independent contractors do not have those protections.
The Fair Labor Standards Act (FLSA) uses the six-factor economic reality test as a benchmark to determine whether a worker is an employee or a true independent contractor. The test measures the dependence of the worker on the principal by examining the degree of control by the principal, permanency of the work relationship, amount of the worker’s investment, the level of skill involved in the work, the worker’s opportunities for profit and loss, and the extent to which the worker’s services are integral to the principal’s business. The higher the control and permanency, and the less the skill, investment, and opportunity, the greater the chances are that a worker is an employee, rather than an independent contractor.
The DOL letter was in reference to an unnamed “online or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.” The workers were service providers working for the end-market consumers – not the company. The company merely gave the service providers the opportunity to connect with the ultimate consumer. The DOL concluded that the workers had “complete autonomy” over their hours of work and the freedom to pursue external opportunities, including working with the referral service’s competitors. After an examination of the economic reality test, the DOL concluded that the workers were independent contractors.
The same analysis applies to virtual taxi services, like Uber and Lyft. Although affiliated with the respective companies, the drivers are not bound to work for one company over the other, and many actually work for both. The drivers set their own hours and pick up as many people as they wish. In addition, the drivers are not supplied cars and instead use their own vehicles to drive people from Point A to Point B. As a result of the economic reality test, Uber and Lyft drivers are likely true independent contractors, rather than employees and therefore, are not entitled to minimum wage, overtime, or other benefits. This is consistent with the National Labor Relations Board (NLRB) General Counsel’s recent advice memo, which held that Uber drivers are independent contractors not entitled to protections under the National Labor Relations Act.
This is a dynamic and controversial issue in our economy, about which workers and businesses will continue to experience conflict. Remember, advice memos and opinion letters are great resources, but the ultimate decision makers are the courts. In other words, this guidance is subject to change, so employers and businesses using independent contractors should still seek legal counsel to ensure their work relationships are in line with the requirements under the law.