On April 29, 2019, the U.S. Department of Labor’s (DOL) Wage and Hour Division issued an opinion letter finding that “virtual marketplace company” workers (of an unnamed business) were independent contractors rather than employees.  While not binding, the opinion signals that DOL is taking a less aggressive approach than in recent years to the hot-button issue of worker classification in the online “gig economy.”  Companies with similar business models that link workers with consumers through technology platforms or “virtual marketplaces” — such as for transportation, delivery, moving, cleaning and household services — may be able to rely on the new opinion to establish a good-faith defense under the Fair Labor Standards Act (FLSA) of their classification of workers as independent contractors.

In its analysis, DOL applied the so-called “economic realities” test, weighing six factors, including the business’s control over the worker, the permanency of the relationship, and whether the worker’s services were integral to the business.  DOL underscored that the company allowed its workers to “multi-app” in order to compare work opportunities provided by competitors, which indicated a high degree of worker flexibility and a low degree of company control over them.  Further, DOL framed the company’s core business as a “referral system that connects service providers with consumers,” and so the end-market consumer’s projects were not an integral part of the business.  DOL also noted that the workers were engaged on a temporary “project-by-project” basis, which is characteristic of independent contractors.

DOL’s opinion is a positive development for gig economy companies, although each company will need to consider potential differences in their business models from the company assessed by DOL.  For example, while ridesharing companies allow similar “multi-app” capabilities and do not require long-term engagement with their platforms, other aspects of DOL’s fact-specific analysis suggest that ridesharing platforms may differ in some respects, including the amount of control (where the company specifies what route to take or monitors workers) and drivers’ opportunity for profit or loss (where drivers do not have the power to negotiate prices).

While the new opinion letter is a welcome development for gig economy businesses with respect to worker classification under the FLSA, companies may still face more demanding state standards.  As we have explained in prior posts (here and here), the California Supreme Court’s Dynamex ruling established an exacting three-factor test that employers must meet in order to demonstrate that workers are properly classified as independent contractors rather than employees under California law.  Courts applying California law may remain unswayed by DOL’s looser stance regarding independent contractors.  Indeed, shortly after DOL’s recent letter, the Ninth Circuit ruled that the Dynamex test applies retroactively.  Other states, such as Massachusetts and New Jersey, use similar three-factor tests.  Thus, companies should continue to assess applicable state standards for worker classification notwithstanding DOL’s new and more relaxed approach.

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Carolyn Rashby Carolyn Rashby

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.…

Carolyn Rashby provides business-focused advice and counsel to companies navigating the constantly evolving and overlapping maze of federal, state, and local employment requirements. Carolyn’s approach is preventive, while recognizing the need to set clients up for the best possible defense should disputes arise.

As a senior member of Covington’s Institutional Culture and Social Responsibility Practice Group, Carolyn has co-led significant investigations into workplace culture, DEI issues, and reports of sexual misconduct and workplace harassment.

As an employment lawyer with over two decades of experience, Carolyn focuses on a wide range of compliance and regulatory matters for employers, including:

  • Conducting audits regarding employee classification and pay equity
  • Advising on employment issues arising in corporate transactions
  • Strategic counseling on a wide range of issues including discrimination and harassment, wages and hours, worker classification, workplace accommodations and leave management, performance management and termination decisions, workplace violence, employment agreements, trade secrets, restrictive covenants, employee handbooks, and personnel policies
  • Drafting employment contracts and offer letters, separation agreements, NDAs, and other employment agreements
  • Advising on employee privacy matters, including under the California Consumer Privacy Act
  • Providing guidance on use of AI in the workplace and development of related policies
  • Leading anti-harassment and other workplace-related trainings, for employees, executives, and boards

Carolyn also works frequently with the firm’s white collar, privacy, employee benefits and executive compensation, corporate, government contracts, and cybersecurity practice groups to ensure that all potential employment issues are addressed in matters handled by these groups.

Photo of Michelle Barineau Michelle Barineau

Michelle Barineau counsels U.S. and multinational clients on a broad range of employment issues. Michelle routinely provides guidance pertaining to wage and hour compliance, job classifications, pay equity, and employee leave. She also prepares key employment documents including employment agreements, employee policies, and…

Michelle Barineau counsels U.S. and multinational clients on a broad range of employment issues. Michelle routinely provides guidance pertaining to wage and hour compliance, job classifications, pay equity, and employee leave. She also prepares key employment documents including employment agreements, employee policies, and separation agreements.

Michelle guides employers through hiring and terminating employees and managing their performance, as well as workforce change strategies, including reorganizations, reductions in force, and WARN compliance. In addition, Michelle provides practical advice about workplace issues impacting employers including remote work, workplace culture, diversity, equity, and inclusion, and the use of artificial intelligence in the workplace. She helps clients navigate matters involving harassment, discrimination, non-competition, and other issues arising under state and federal employment laws including Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act, the Family and Medical Leave Act, and the Fair Labor Standards Act. She assists clients when responding to agency charges and demand letters, including whistleblower retaliation complaints, and frequently interacts with the Equal Employment Opportunity Commission, state and local equal employment opportunity agencies, and the Occupational Safety and Health Administration.

Michelle has experience investigating employment complaints and she frequently partners with white collar colleagues to conduct sensitive internal investigations, workplace culture assessments, and racial equity audits. She works with colleagues in the privacy, employee benefits and executive compensation, and corporate groups when employment matters arise and she regularly works with colleagues in California to advise on matters implicating California employment laws. Michelle is a co-founder of Covington’s AI Roundtable, which convenes senior lawyers at the firm working closely on AI issues to discuss legal implications of AI deployment and use.