Big Win For Employers Using Independent Contractors
This week the Department of Labor (DOL) issued a new advisory opinion responding to this question: Is our independent contractor properly classified? The question is certainly not uncommon as courts and the DOL have addressed it a number of times over the years. Generally the DOL has shifted over the years, primarily during the Obama Administration, to answering this question in favor of classifying workers as employees versus independent contractors. Federal courts as well have increasingly interpreted federal law to finding workers as independent contractors. Not to be left out, states too have passed their own laws shifting the tide toward workers being employees versus independent contractors. In general, employers in the past dozen or so years have found their options for classifying workers as independent contractors increasingly narrowed.
Until this week.
This week the DOL answered the question to the benefit of employers using independent contractors particularly in the gig economy. In the situation posed to the DOL the employer described itself as a virtual marketplace business that creates a platform where homeowners could connect with service providers. The company posed the question to the DOL: Are the service providers employees or independent contractors? To answer this the DOL needed to determine under the Fair Labor Standards Act (FLSA) whether the worker was economically dependent on the company. That question has not changed. What changed, however, are the factors the DOL used to answer it:
• Control – What is the nature and degree of the company’s control over the service provider?
• Permanency of relationship -- Does the company require the worker to commit to a fixed amount of time worked? How long is the relationship?
• Investment in facilities, equipment or helpers – Who takes the risk of investment? How much investment is the service provider making?
• Skill, initiative, judgment, and foresight required – How much of the company’s profits are dependent on these characteristics from the service provider? Does the company provide training to the service provider with regard to these characteristics?
• Opportunity for profit and loss – How much opportunity does the worker have to make or lose money from the service?
• Integrality – How integrated are the worker’s services for the company’s business?
While these factors have been used by the DOL and courts over the years, the DOL analyzed this company’s model and provided guidance that in a situation where the worker connects with an end customer through a referral website these six factors indicate the existence of an independent contractor relationship. This is a shift from the Obama administration which had given guidance that would indicate most workers in gig economy companies of this nature would be employees. Apparently that is no longer the DOL’s stance. Employers should still be mindful of states that have their own laws defining “employment” (e.g. California), but apparently the DOL is siding with employers using independent contractors, at least for now.
If you have any additional questions with regard to the new DOL Opinion or how it may affect your business and its existing policies and practices, please contact your Thompson Coe attorney at (651) 389-5000 or at myHRgenius@thompsoncoe.com. You can also find additional information and tips for your company and HR professionals at https://myhrgenius.co.
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