Last week the U.S. Department of Labor issued a guidance which provides that workers for a gig economy platform that connects service providers with clients are independent contractors and not employees. The guidance focused upon an unnamed gig economy business, but provided that it is in a class of smart phone or web-based businesses offering platforms that pair customers with workers who provide certain services. The described business model would include ride-hailing apps like Uber and Lyft, cleaning apps like Handy, dog walking apps like Wag or Rover, general labor apps like TaskRabbit, as well as others.
The unnamed company’s business model was analyzed using a six-factor test aimed at discerning “economic realities” of whether workers are employees, who are subject to the Fair Labor Standards Act’s minimum wage and overtime protections or independent contractors, who are not. The DOL, in this matter, concluded that the workers were contractors because they are economically independent from the business, which was described as a “virtual marketplace company that operates in the so-called ‘on-demand’ or ‘sharing economy’”.
The guidance was issued as an opinion letter, which offers the wage and hour division’s perspective on the issue, but does not bind judges or courts. However, this opinion surely can bolster businesses’ legal defenses to workers’ claims in this newer and popular modern business model.
The recent guidance is focused upon one particular business model and should be interpreted narrowly at this time. While some might conclude that the DOL’s guidance suggests a narrowed take on who is an employee, this letter is focused solely upon gig economy business and not on more traditional business models. Courts around the country and the DOL itself still hold the general belief that most workers are employees and not independent contractors. Companies who utilize independent contractors or are considering classifying workers as contractors should consult with employment counsel to properly evaluate federal and local laws to determine if the worker legally can be classified as a contractor.
