Which Way is the Wind Blowing on Independent Contractors Lately?

The question always seems to be – which way is the wind blowing on independent contractors lately? The answer depends on who is asking and in what state they work. Most recently, the U.S. Department of Labor (DOL) issued an opinion letter indicating that gig economy workers who are part of the virtual marketplace are likely independent contractors, provided they meet the six-factor economic realities test. The DOL stated that a virtual marketplace company (VMC) “is an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a wide variety of services, such as transportation, delivery, shopping, moving, cleaning, plumbing, painting, and household services.” The role of VMC’s is to help consumers more readily connect with the services they are looking for.

There, although the VMC did background and identity searches, an independent contractor agreement indicated that the contractors provided services directly to customers. The contractors were not provided with training and were not interviewed prior to joining the service.  The contractor agreement allowed service providers the right to accept, reject, or ignore any service opportunity on the virtual platform; determine whether to accept any service opportunities at all; select service opportunities by time and place; determine the tools, equipment, and materials needed to deliver their services; and hire assistants or personnel. The VMC did not monitor, supervise, or inspect a service provider’s work for quality, or rate the service provider’s performance.

The DOL uses the economic realities test to determine whether an individual is an employee under the Fair Labor Standards Act (FLSA), which includes: (1) the nature and degree of the potential employer’s control; (2) the permanency of the worker’s relationship with the potential employer; (3) the amount of the worker’s investment in facilities, equipment, or helpers; (4) the amount of skill, initiative, judgment, or foresight required for the worker’s services; (5) the worker’s opportunities for profit or loss; and (6) the extent of integration of the worker’s services into the potential employer’s business. Following its review of facts, the DOL stated that the service providers were not economically dependent on the VMC under any of the factors.

Notably, the DOL’s opinion letter is not binding precedent, but is an indication of how the DOL will view similar circumstances. Moreover, this opinion does not change how states, e.g., California, analyze independent contractor relationships, and employers should continue to be vigilant on review of independent contractor status in their states of operation.