Labor Department Says Gig Workers Are Contractors, Not Employees

The United States Department of Labor (DOL) issued an opinion letter on Monday that an organization’s gig economy workers are independent contractors, not employees.  The unidentified entity, whose workers are believed to clean residences, will not have to provide federal minimum wage or overtime to those employees.

While the opinion letter applies only to this particular company, legal experts believe it will likely impact a much larger portion of the industry.

What is a gig worker?

So what exactly is a gig worker?  The term is borrowed from the music industry, where musicians are hired to play a show (commonly referred to as a “gig”) at a particular venue and then move on to their next gig.  The “gig economy” is now estimated to encompass almost 60 million workers and has been described by the Congressional Research Service (“CRS”), as follows:

The gig economy is the collection of markets that match providers to consumers on a gig (or job) basis in support of on-demand commerce.  In  the  basic  model, gig workers  enter into formal agreements with on-demand companies (e.g., Uber, TaskRabbit) to provide services to the company’s clients. Prospective clients request services through an Internet-based technological platform or smartphone application that allows them to search for providers or to specify jobs. Providers (i.e., gig workers) engaged by the on-demand company provide the requested service and are compensated for the jobs

Under the Obama administration, the DOL issued guidance suggesting that gig workers were likely to be employees, with an official guidance advising that Uber and Lyft drivers would likely be classified as employees if the department was asked to make a determination about their status as employees.  Shortly after taking office, the Trump administration removed that guidance from the Department of Labor’s website, prompting the unnamed company to seek a specific ruling.

What did the opinion letter say?

The opinion letter applied the DOL’s traditional six-factor analysis to conclude that the company’s workers were independent contractors, not employees.  Those factors (and the DOL’s interpretation of them in this instance) are:

  1. The nature and degree of the potential employer’s control.

    The DOL found it significant that the business does not mandate shifts or hours for their workers and that the workers often work for other businesses (even competitors) as well. The business does not monitor, control or inspect the work, relying instead upon customer evaluations.

  2. The permanency of the worker’s relationship with the potential employer.

    The workers come and go as they please. Permanency is determined solely by whether the worker wants to keep doing the work.

  3. The amount of the worker’s investment in facilities, equipment, or helpers.

    The workers purchase and maintain everything they need for the work, just like more traditional independent contractors.

  4. The amount of skill, initiative, judgment, or foresight required for the worker’s services.

    The DOL observed that the workers exercise managerial discretion in determining which opportunities to pursue and which platform to service (e.g. choosing between Uber and Lyft), all in the interest of maximizing their own personal profits.

  5. The worker’s opportunities for profit or loss.

    In this instance, the company allowed their workers to set their own price for their service, thereby giving them significant control over profit or loss.  This factor might be evaluated differently for large service providers like Uber where service prices are more firmly established.

  6. The extent of integration of the worker’s services into the potential employer’s business.

    The DOL was quite emphatic on this factor, noting that the workers have no role in maintaining or operating the internet platform that typically controls their work opportunities, and the company’s involvement with the worker typically ends once they match the workers with the job. In essence, the workers are themselves more like consumers in the sense that they purchase the referral service from the company for the purpose of then providing service (e.g. driving, dog-walking, food delivery) to the end user.

Bottom Line

While the letter is just an “opinion letter” applying only to that particular company, we expect other businesses with gig employees to rely on it substantially.  Still, despite their many similarities, participants in the gig economy should proceed cautiously in designating their workers as independent contractors since the critical factors may not shake out the same way for everyone.

In addition, gig workers all over the country are initiating litigation seeking judicial recognition that they are employees entitled to protection under Wage & Hour regulations, anti-discrimination laws and other employment-related legislation.  We expect to see more activity on these issues relatively soon.