News & Updates

Department of Labor: Workers in Virtual Marketplace Companies Are Independent Contractors May 15, 2019

Virtual marketplace companies such as Uber, Lyft, and Handy are receiving a boost in their quest to classify workers as independent contractors. The U.S. Department of Labor issued a new guidance opinion about whether a worker is an employee or an independent contractor. This guidance, issued April 29, 2019, is the first issued during the Trump era. It discusses the hot-button topic of employee versus independent contractor classification involving a virtual marketplace company.

The opinion, issued by then-acting Department of Labor Wage and Hour Division Administrator Keith Sonderling, analyzed the virtual marketplace company’s business model using a six-factor test to discern whether the workers were employees or independent contractors. If the workers were deemed to be employees, the Fair Labor Standards Act (FLSA) minimum-wage and overtime protections would apply. If the workers were deemed to be independent contractors, no such protection would be available. The Department’s opinion concludes that the company’s workers, who provide services to consumers through the company’s virtual platform, are independent contractors.

In order to reach its conclusion, the Department of Labor had to define the meaning of a virtual marketplace company. A virtual marketplace company is one that operates on demand or in a sharing company. More specifically, this type of business is an online and/or smartphone-based referral service that connects service providers to consumers. Representative services would include transportation, delivery, shopping, cleaning, etc.

The Department of Labor considered six factors in reaching its conclusion that virtual marketplace company workers are independent contractors:

  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 the facilities and/or equipment needed to be utilized
  4. The amount of skill, initiative, judgment, or foresight required for the worker’s services
  5. The worker’s opportunities for profit or loss
  6. The extent of integration of the worker’s services into the potential employer’s services

 

An analysis of all six factors came down to one main conclusion: control. The virtual marketplace company does not appear to exert control over the service providers. These providers are able to work when they want and pursue other external opportunities. In essence, the workers are able to control their own profit/loss margin. Additionally, the Department of Labor noted that the most workers choose not to work full-time as they pursue other opportunities, or have other jobs outside the platform of the virtual marketplace company. In this respect, these workers are considered independent contractors and are not subject to the FLSA’s minimum-wage or overtime-wage protections.

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