In a lengthy April 29, 2019 Opinion Letter, the U.S. Department of Labor (“DOL”) examined the relationship between a virtual marketplace company (“VMC”) and its service providers. Applying a six-factor test derived from U.S. Supreme Court precedent, the DOL opined that the service providers were independent contractors under the Fair Labor Standards Act (“FLSA”)—not employees.
According to the Opinion Letter, the VMC is an online/application-based “referral service that connects service providers to end-market consumers to provide a wide variety of services.” Among other pertinent facts, the service providers (i) self-certify their experience and qualifications; (ii) are not required to interview or undergo training; (iii) can communicate directly with customers regarding scope, price or time for the project; (iv) can arrange for repeat business directly with the customer; (v) can use other VMCs (including competitors) to connect with customers; (vi) determine the tools, equipment and materials needed for their services; (vii) can hire their own personnel for the work; (viii) can accept as many or as few projects as they wish; and (ix) will only have their relationship with the VMC severed if they commit a material breach, including but not limited to inappropriate behavior, fraud or receiving an aggregate consumer rating below a certain minimum threshold.
Citing U.S. Supreme Court precedent dating back to 1947 (e.g., Rutherford Food Corp. v. McComb, 331 U.S. 722 (1947)), the DOL viewed these facts through a six-factor rubric that holistically assesses the “worker’s degree of independent organization and operation”:
- The nature and degree of the VMC’s control;
- The permanency of the service provider’s relationship with the VMC;
- The amount of the service provider’s investment in facilities, equipment or helpers;
- The amount of skill, initiative, judgment or foresight required for the services;
- The service provider’s opportunities for profit or loss; and
- The extent of integration of the service provider’s services into the VMC’s business.
Noting that the weight assigned to each factor is fact-dependent and that other factors may also be relevant, the DOL found all six factors weighing in favor of independent contractor status. While the Opinion Letter technically is limited to the facts supplied by the VMC who sought it, it nonetheless signals DOL enforcement priorities and presents a roadmap for other companies who contend that their workers are not employees, but economically independent contractors.
This Opinion Letter is consistent with a shift in policy from the prior administration to the current that began in June 2017, when Secretary of Labor Alexander Acosta withdrew Obama-era DOL guidance that was widely perceived as increasing the chances that courts would rule that gig economy companies employ their workers. The Opinion Letter comes during a flashpoint for the status of gig economy workers, with a number of significant cases currently on appeal. The Ninth Circuit and the Third Circuit, for instance, are each currently reviewing district court decisions that Grubhub and UberBLACK drivers, respectively, are properly classified as independent contractors. See Lawson v. Grubhub, Inc., No. 18-15386 (9th Cir.); Razak v. Uber, No. 2018-01944 (3d Cir.).