- Service providers working for an unnamed virtual marketplace company (VMC) are independent contractors, not employees, according to an opinion letter from the U.S. Department of Labor's (DOL) Wage and Hour Division (WHD).
- The company, part of the so-called on-demand or sharing economy, asked the agency to weigh in on its Fair Labor Standards Act (FLSA) classifications. To determine the status of the VMC's workers, WHD said it used its six-factor test which considers: "the nature and degree of the potential employer's control; the permanency of the worker's relationship with the potential employer; the amount of the worker's investment in facilities, equipment, or helpers; the amount of skill, initiative, judgment, or foresight required for the worker's services; the worker's opportunities for profit or loss; and; the extent of integration of the worker's services into the potential employer's business."
- Importantly, WHD said a worker's economic dependence on an employer is "the touchstone of employee versus independent contractor status." This means independent contractors are generally marked by their ability to, among other things, work for multiple businesses at one time, WHD said.
The ever-evolving business world may be increasingly populated by VMC platforms like Angie's List and Task Rabbit, but it appears DOL will continue to rely on employment law designed for a more traditional workplace, at least under this administration, according to Morgan Lewis Partner Susan Harthill. "What stands out is the application of the traditional FLSA economic realities test to the so-called gig economy or sharing economy," Harthill told HR Dive in an interview. "It's the same test that has been in existence for a long time and it applies it to the gig economy."
Still, the letter grants VMCs "more flexibility but greater predictability" when it comes to adding independent contractors to their payrolls, Harthill said. For VMCs in particular, this letter may offer businesses a roadmap for best interacting with independent contractors. "They can have some quality control or best practices without becoming employers, but they really need to carefully look at their arrangements and reduce to the extent possible any control they would have over the workers' daily terms and conditions of work," Harthill said. "They should audit their arrangements and check carefully."
As businesses wrestle with employee classification, this letter may provide some clarity, but employers should remember that it's not a rule, Harthill said. "It provides this flexibility and predictability, but within the confines of these facts," Harthill said. If an employer intends to use the letter in court, it needs to be "very careful that its business arrangements hew as closely to the business arrangement as described in the opinion letter," she noted. Additionally, agency positions often change with administrations, and independent contractor classification has been no exception.