Department of Labor Provides Beacon of Light for Companies with Gig Workers
By: Jp O Hanlon
Tags: Startup, Gig Economy, Independent Contractor, Tech Companies, Uber

Photo by Louis Reed on Unsplash

A particular company (we will refer to them as ‘TechX’) provides a platform and a mobile phone application for service providers that allows the service provider to connect with consumers and provide a specific service. TechX does not employ the service providers, nor does it monitor how they perform the service for the consumer. If TechX does well, it will increase the number of service providers it works with, the number of markets in which it connects consumers with service providers and even the type of services the service providers are able to perform.

In order for TechX to continue to grow, it raises money from investors. All the while, hundreds or even thousands of service providers are earning money to provide for their families, go to school or support whatever lifestyle they choose. They may work with other companies that offer the same or similar services as well with no opposition from TechX, even if the other one is their direct competitor.

TechX has invested heavily in improving its technology, making it easier for its service providers by improving their experience. It has received national press coverage for its innovations and disruption to an industry that has traditionally been oppressive to workers. TechX announced it has raised tens of millions of dollars to continue the work it has started. TechX appears to be offering consumers a better alternative to what they had before, creating transparent pricing structures and giving more options than ever before, including service on-demand at the consumer’s location of choice. It also appears to have helped thousands of service workers build their own businesses by letting them do the work they want while the company takes care of marketing, accounting, and all of the other boring stuff that small business owners do not like.

While TechX has been growing, plaintiff lawyers have been lurking the shadows, waiting for the right time to strike. These are the lawyers that claim to fight for the rights of the employee and work to undo all the injustices that have been done. They run ads on cable television channels promising huge settlements and they promise not to charge anything until the case has been settled.

Photo by Craig Whitehead on Unsplash

After TechX announced its latest round of financing, $100 million that will be used to expand into new markets across the US and venture into Canada and Europe, the lawyers knew there was enough money for a payday. It is only a matter of time until they pluck out one of the service providers and convince him he has been taken advantage of; “You should have been classified as an employee, should have earned overtime, gotten paid for break time, etc.” It’s not a difficult sale to the service provide who is otherwise happy with his business ventures.

On-demand technology companies have been navigating through the fog with respect to their mobile workforce of gig-working contractors. A class action lawsuit has become a sort of status symbol declaring they have been successful enough raising money that a class action law firm can expect a seven or eight figure piece of their pie, poking holes in contractor agreements and ignoring relevant facts while driving up legal costs for companies defending themselves.

Last week, the U.S. Department of Labor Wage and Hour Division published an opinion letter that may finally shine some light through the fog and give guidance to companies using contracted gig workers. In the letter, the Labor Department outlined the facts for a specific company (redacting the name of the business) and commented whether their service providers are independent contractors or employees.

Prior to the DOL’s opinion letter, individual states have developed different tests for determining whether service providers should be classified as employees or contractors, such as the ABC Test adopted by California following the California Supreme Court opinion in Dynamex Operations West, Inc. v. Superior Court. In this test, the presumption is the service worker is an employee and places the burden on the company to show all three factors of this analysis are met to properly classify a worker as an independent contractor. Those factors are:

The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact.

The worker performs tasks that are outside the usual course of the hiring entity’s business.

The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

The Labor Department’s letter takes a different approach in its analysis, looking to whether the service provider is economically dependent through a fact-based analysis of the specific conditions for each service provider. The weight of each factor in the analysis is determined by the facts of the situation. The factors considered in the Labor Department’s opinion are:

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.

The Labor Department’s analysis concluded that based on the specific facts, the Fair Labor Standards Act recognizes the status of the company’s service workers as independent contractors.

While the opinion appears to be a win for technology companies with gig workers, it is relevant to note this is not law or precedent. It should be viewed as a beacon of light that provides guidance toward the direction the current administration is leaning and what laws stemming from this topic may potentially look like as they are developed.

In the meantime, TechX should continue to look to its state specific laws and know that if the challenge comes up, the litigation they will be fighting will be determined by the relevant jurisdiction. TechX and all similarly situated companies should continue to follow the unfolding developments in the determination of the status of service workers and ensure they are drawing a clear distinction in their working relationships. Fair or not, the status symbol of success for these companies has agents waiting in the shadows and are ready to challenge the classification of service providers and each company’s specific facts to the tune of millions.