With the ever-increasing prevalence of service providers working for virtual marketplace companies, there has been ambiguity regarding these workers’ status as employees vs independent contractors under the Fair Labor Standards Act. These service providers are the ground-level workforce for companies that provide a variety of services including ride sharing, delivery service, maintenance work, and other services.
To clarify the distinction between employees and independent contractors for these companies, the Wage and Hours Division (WHD) of the Department of Labor recently published an opinion letter on the issue. The conclusion of this letter is that these service providers generally fall under the category of independent contractors.
However, simply classifying all gig workers or service providers in a virtual marketplace as independent contractors would be to paint with an overly broad brush. This distinction is to be made on a case-by-case basis in accordance with a six-factor test that the WHD derived from Supreme Court precedent.
The six factors to be considered when determining a worker’s status are:
- The nature and degree of the potential employer’s control;
- The permanency of the worker’s relationship with the potential employer;
- The amount of the worker’s investment in facilities, equipment, or helpers;
- The amount of skill, initiative, judgment, or foresight required for the worker’s services;
- The worker’s opportunities for profit or loss; and
- The extent of integration of the worker’s services into the potential employer’s business
In the typical model of virtual marketplace companies, the company merely provides the service of connecting laborers with those who need their services. They are not providing the service themselves; they are merely facilitating the exchange of services between customers and the workers. The WHD put it this way: “They do not work directly for [the company] to the consumer’s benefit; they work directly for the consumer to [the company’s] benefit.”
These service providers typically have the flexibility to set their own working schedules, provide their own facilities and equipment, and begin/end their employment relationship at will. There is usually minimal training, resources, or structure provided by the company, resulting in highly autonomous working positions that warrant the classification as independent contractors.
For a more detailed breakdown of the six factors and associated analysis, please view the opinion letter published by the WHD:
This opinion letter details how the WHD will analyze the distinction going forward, but is not codified law and could be changed or modified in the future.