DOL Opinion Letter May Help Shield Gig Companies
Author: Michael Cardman, XpertHR Legal Editor
April 29, 2019
In a new opinion letter released today, the US Department of Labor (DOL) concluded that service providers for a gig economy company are independent contractors, not employees, under the Fair Labor Standards Act (FLSA).
Applying six factors derived from Supreme Court precedent, the DOL said the facts described by the gig company requesting the opinion letter demonstrated that the service providers were not "economically dependent" on the company. Among other things, the DOL cited the facts that the company:
- Gives the service providers flexibility to choose their hours of work;
- Does not restrict service providers from working for competitors; and
- Does not invest in the service providers' equipment or facilities.
The DOL described the company that requested the letter in a way that could be applied to many of today's most popular gig economy companies, including Uber, Airbnb, DoorDash, Instacart, TaskRabbit and more. The DOL called it a virtual marketplace company (or VMC), an online referral service that connects people who provide services - such as transportation, delivery, shopping, moving, cleaning, plumbing, painting and more - to end consumers.
An opinion letter is an official, written opinion from the DOL's Wage and Hour Division (WHD) describing how a particular law applies to specific circumstances. If an employer requests an opinion letter from the WHD, provides it with all the pertinent facts regarding its particular situation, receives an opinion letter from the WHD and then follows the opinion letter in good faith, it will be shielded from liability for any minimum wage and/or overtime violations involving the practices described in its letter.
Although today's opinion letter applies only to the company that requested it, it could provide a legal defense to other gig economy companies even if they had not requested an opinion letter themselves. Other employers that have identical fact patterns also can be shielded from liability if they follow an opinion letter. However, an employer should exercise caution before relying on another employer's opinion letter because any variation in the fact pattern can nullify its defense.
The DOL's opinion letter shields employers from liability only under the federal FLSA. The picture is more complicated at the state level.
Several states, including Arizona, Florida, Indiana, Iowa, Kentucky, Tennessee, Utah and, most recently, Texas, have enacted laws or regulations under which many gig workers will be considered independent contractors if certain criteria are met.
However, in California, a 2018 Supreme Court ruling makes it significantly more challenging for companies to classify workers as independent contractors rather than employees.