Classifying “gig” workers as independent contractors, rather than employees, continues to be a risky business. While things were looking like they were heading in a different direction for a while (e.g. in 2017 and 2020), the U.S. Department of Labor (DOL) has taken steps recently to make clear that employee misclassification continues to be a hot topic under federal wage and hour law. Most recently, the DOL retracted its 2019 Opinion Letter (FLSA2019-6), which provided guidance on whether service providers for virtual marketplace companies (VMC) are employees or independent contractors. VMCs are companies that operate online or through apps, such as Uber, Grubhub, and Amazon. In the 2019 letter, the DOL applied the widely utilized “economic realities” test and found that the relevant factors weighed in favor of independent contractor status for workers providing services through VMCs.
The DOL’s retraction of this Opinion Letter following the change in administration is not surprising. Last month, the DOL delayed the effective date of the Final Rule for determining Independent Contractor status, which was published during the previous administration and was intended to streamline the test for independent contractor status. The DOL is about halfway into its 60-day review period, during which it is “evaluating” whether the Final Rule should be implemented as written, revised, or rejected entirely.
For now, companies should continue to use the old “economic realities” test when determining whether a worker should be treated as an employee or an independent contractor under the FLSA. Companies should also remember that different tests are used in different contexts and most of these will not be affected by whatever the DOL decides to do. Indeed, states have begun specifically addressing the classification of workers in the “gig” economy. For example, California voters passed Proposition 22 in November 2020, which specifically classifies drivers for app-based rideshare and delivery companies as independent contractors unless the companies exercise a certain degree of control over the drivers. Proposition 22 is an exemption to the state’s statutory presumption that all workers, with very limited exception, are employees. A legal challenge to Proposition 22 has been filed by SEIU California.
Employers should tread carefully when navigating this sticky area of the law, especially if they are working in multiple states and/or countries, where stricter and/or contradictory guidelines may be in place. The independent contractor arena continues to evolve with the DOL evaluating the Final Rule and California leading the charge at the state level. We will keep you updated as these changes unfold.