The US Department of Labor on Monday issued a new opinion letter concluding that workers who provide services to consumers through a company’s virtual platform are independent contractors under the Fair Labor Standards Act, not employees of the company. The letter was written in response to a request on behalf of one specific virtual marketplace company that connects service providers with clients.
An opinion letter is an official, written opinion by the department’s Wage and Hour Division on how a particular law applies in specific circumstances presented by an individual person or entity that requests an opinion. Monday’s letter did not name the company, but it addressed a specific virtual marketplace firm that operates in the “on-demand” or “sharing” economy. “Generally, a [virtual marketplace company] is an online and/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 opinion letter states.
“The WHD opinion letter provides some useful clarity to the approach the Department of Labor will take in cases regarding workers who provide their services via an online platform,” said Fiona Coombe, director of legal and regulatory research at Staffing Industry Analysts. “Although this opinion relates to ‘virtual marketplace companies’ connecting service providers and consumers, the factors outlined in the letter apply equally to online staffing platforms that enable skilled individuals to connect to businesses that wish to use their skills and knowledge on a project basis.”
Based on the description in the opinion letter, the company that sought it does not appear to be Lyft — which went public in March — or Uber, which filed its IPO prospective this month, according to The New York Times. Both companies have faced lawsuits alleging worker misclassification.
“Under the facts described in your letter, we conclude that your client’s service providers are independent contractors, not employees of your client,” Keith Sonderling, acting administrator of the Wage and Hour Division wrote in the opinion letter’s conclusion. “The facts in your letter demonstrate economic independence, rather than economic dependence, in the working relationship between your client and its service providers. The FLSA therefore recognizes your clients’ status as independent contractors.”
To make this determination, Wage and Hour Division applied a six-factor balancing test to the company, derived from Supreme Court precedent:
- 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.
“An important role of the US Department of Labor is to ensure that employers who want to do the right thing have clear compliance assistance,” Sonderling said. “Today, the US Department of Labor offers further insight into the nexus of current labor law and innovations in the job market.”
Richard Meneghello, a partner at law firm Fisher Phillips, wrote the opinion letter is not a “magic bullet that will cure all that ails the modern gig economy industry,” but welcomed the development and noted it is a preview as to how today’s Labor Department will treat misclassification concerns that “fall into their laps” from gig economy and other businesses.
“The next step is for the agency to take formal action with respect to investigatory decisions based on this same reasoning, or possibly issue guidance or formal regulations along these same lines,” the analysis stated. “We can also hope that a court will look to this letter and adopt these same principles in an active piece of misclassification litigation.”