The U.S. Department of Labor (DOL) recently issued an opinion letter, FLSA 2019-6, addressing whether a service provider for a virtual marketplace company (VMC) is an independent contractor or employee under the federal Fair Labor Standards Act (FLSA).
A VMC operates in the “on-demand” or “sharing” economy and is generally an online and/or smartphone-based referral service that connects service providers to end-market consumers to provide a variety of services, such as transportation, cleaning and household services. Uber, DoorDash, Lyft, Etsy, eBay and Rover are all examples of a virtual marketplace. One unnamed VMC sought the DOL’s opinion on service providers and the DOL based their opinion on the facts that company presented.
Under the FLSA, the existence of an employer-employee relationship is determined by the economic reality of the relationship; namely whether the worker is economically dependent on the hiring entity. To make that determination, the DOL applied its six-factor balancing test, derived from Supreme Court precedent, and examined the:
- Nature and degree of the potential employer’s control;
- Permanency of the worker’s relationship with the potential employer;
- Amount of the worker’s investment in facilities, equipment or helpers;
- Amount of skill, initiative, judgment or foresight required for the worker’s services;
- Worker’s opportunities for profit or loss; and
- Extent of integration of the worker’s services into the potential employer’s business.
The DOL concludes that the workers who provide services to consumers through this specific company’s virtual platform are independent contractors, not employees of the company, because they are not economically dependent on the company.
While this opinion letter may be helpful for ‘gig’ economy companies that are subject to the FLSA, California employers must still follow the more stringent ABC test established by the California Supreme Court in Dynamex Operations West v. Superior Court (4 Cal.5th 903 (2018), at least for claims under California’s Wage Orders.
California businesses classifying workers as independent contractors should ensure that they can meet all three of the prongs of the ABC test. If not, they may be at risk of claims that those workers are actually employees.