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Wage & Hour Laws in the Gig-Economy — It’s Just Politics

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By Michael Mahon

Employment Newsletter, November 2019
November 2019

Chances are you’ve recently been a first-hand participant in the “gig economy.”  Whether it means hitching a ride, walking your dog, or getting help with the puzzle that is IKEA furniture, the gig economy has an ever-increasing place in our daily lives.  It’s designed to make our lives easier, and while it largely succeeds in that goal for consumers, the story on the other side of that coin—the employers and workers—has been quite different.  This is because many of our employment wage laws apply to “employees,” not independent contractors, and the gig economy has significantly blurred the lines between the two categories.

The gig economy is primarily made up of 3 parts: (1) the worker picking up a “gig,” or service; (2) the consumer looking for a worker for the service; and (3) the company that connects the worker to the consumer to perform the specific service desired.  Traditionally, an individual would have found it difficult to connect with a consumer to perform one-off jobs.  But now, thanks to companies that are able to utilize mobile applications to match consumers to the worker, these individuals are easily able to pick up quick, temporary “gigs” at the tap of a screen.    This dynamic has reopened the question of whether these workers are independent contractors—for which minimum wage and overtime laws would not apply—or employees to whom these laws would apply.

While the Fair Labor Standards Act sets forth a six-factor test for determining one’s status as an employee or independent contractor, it seems that the answer depends more on the political climate of our country than with the application of any test.  In 2015, for example, the Obama administration believed there were widespread issues with misclassified workers, particularly in the gig economy, and it therefore issued guidance signaling that the Department of Labor (“DOL”) would view most individuals as “employees.”  However, earlier this year the Trump administration issued a reversal of this policy, signaling a much more lenient approach, particularly as it applies to companies in the gig economy.

Although not itself law, the DOL also issued a recent opinion letter in response to a question from a gig economy company about whether its workers were employees or independent contractors.  Although applying the traditional six-factor test to the issue, the DOL under the Trump administration determined that the workers were independent contractors, making clear that unlike the previous administration, it did not consider classifying gig economy workers as independent contractors a “problematic trend.”  Previously, the Obama administration had focused on whether the worker had the ability to make decisions and use his or her skill to affect the opportunity for profit or loss—something that in the gig economy, certainly appeared to significantly tip the scale in favor of being an employee rather than an independent contractor.  However, with the Trump administration, this new opinion letter signifies that the primary focus is on whether a worker has “economic independence”—that is, whether the worker is engaged in business for himself or herself, or whether the worker is dependent upon the business to which he or she renders service.

While this opinion letter only technically applied to the company making the inquiry, many gig economy companies utilize similar models, and therefore, this shift in focus has widely been considered a win for employers.  That being said, companies still face significant risks under the FLSA if they misclassify workers as independent contractors.  Therefore, if there is any question as to what classification is proper, companies are urged to seek legal guidance to help avoid the pitfalls of misclassification.

For additional information and/or guidance, please contact one of Reminger’s employment practices attorneys.