Labor Department Sides with the Gig Economy

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Opinion letter finds a gig economy company’s workers are independent contractors.

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For most people, ordering a ride or a cleaning service over their phone may now seem like a convenience they can take for granted. But the workers providing those services find themselves caught up in one of the biggest dilemmas for employment law today.

Are workers for gig economy companies like Uber, GrubHub, and Handy independent contractors or employees?

Earlier this year, the U.S. Department of Labor weighed in on this question and said that these workers are independent contractors. This conclusion may well also mean that the Labor Department will do little to enforce minimum wage, overtime, and other employment protections against gig economy companies.

The Labor Department issued an opinion letter in April explaining its reasoning. The Department historically issued such letters whenever it received a request for clarification of laws such as the Fair Labor Standards Act. Although the Labor Department stopped writing such letters in 2010, the Trump Administration reinstated this practice in 2017. Worker advocates, such as unions, generally consider the practice of issuing opinion letters to be business-friendly because companies can use these letters as defenses in lawsuits against them.

Although the Labor Department publicly releases its opinion letters, it does not reveal which company requested them. The letter on the status of the workers in the gig economy appears to have responded to a request by a company that provides cleaning services, but the Department officially states that the company did not “specifically identify what types of service are offered.”

Still, according to the letter, many of the company’s characteristics are common to those of many firms in the gig economy: workers go through a background check before performing services; they can work for competing platform companies at the same time; they may set their own schedule and choose what tasks to accept; the company retains the right to terminate the worker for poor behavior or quality of work; and consumers rate the worker’s performance on a digital platform.

Several characteristics of this particular company, though, stand out as unusual for the gig economy. Although the business sets default prices, workers can negotiate for higher prices for particular jobs based on the circumstances. The workers may also arrange to work regularly with a customer, including outside of the platform relationship. Drivers for Uber or Lyft, for instance, do not have either of these options as part of their work on the rideshare platforms.

The Labor Department employed a six-factor test in its analysis contained in its opinion letter. These factors include: evaluating the level of control the business has over the worker; the degree of permanence in the working relationship; how much the worker invests in facilities or equipment; the amount of skill and judgment needed to provide the services; the ability of workers to control their profits and losses; and whether the work performed is integrated into the business of the company.

The letter indicates that the Department determined that all the factors weighed in favor of independent contractor status. For the control factor, for example, the Department indicated that the workers do not provide services for the business; they “work directly for the consumer,” which then benefits the company but the company itself does not exercise much control over the provision of those services. The Department also stated that the relationship was impermanent because workers could leave whenever they wanted. The investment of the company was in the platform, not the worker’s tools, so taken together the factors indicated independent contractor status.

Despite not knowing the specific services offered by the company, the Department found that the lack of training provided and the managerial discretion meant workers were able to exercise their own skills and judgment. They could also choose what services to provide and could negotiate rates, so they had a significant opportunity to control their profits and losses. The Department also determined that the workers were not integrated into the company’s business because “the business’s ‘primary purpose’ is not to provide services to end-market consumers, but to provide a referral system that connects service providers with consumers.”

Not all courts or agencies that have confronted this question agree with the Department’s analysis of these or similar factors. Two federal courts in 2018 found that gig economy workers for Uber and Grubhub did perform work integral to the platform company’s business, and that these companies did not just connect customers with service providers. In addition, a New York State agency found in 2018 that Uber controlled drivers to a sufficient degree that the workers constituted employees and needed to be covered by unemployment insurance.

The Labor Department’s recent analysis, on the other hand, attempted to leave no room for doubt as to the independent contractor status of the gig economy workers in the company covered by the letter. It is unclear whether the working relationships between other gig economy companies and their workers would fall under the same analysis or if those relationships differ significantly enough to leave open the possibility of an employee-employer relationship.

The future of worker classification in the gig economy is still unclear given the variety of decisions that have come out of courts and agencies around the country. But the Labor Department opinion letter appears to leave little room for doubt where the agency stands in this debate.