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Ask the Hotline | Feds Rule on 'Gig' Workers

May 8, 2019
We are a company in the “gig” or “sharing” economy. I heard about a recent U.S. Department of Labor (DOL) opinion letter defining independent contractors specifically in the gig economy.  What are the details, and does it mean we can finally ignore the Massachusetts three-factor test?
The DOL issued an opinion letter at the end of April addressing the question of whether someone is an Independent Contractor (IC) or an employee subject to the overtime and minimum-wage provisions of the Fair Labor Standards Act (FLSA). 
DOL regularly issues opinion letters in response to queries submitted by an individual company, attorney or other interested party seeking an opinion on the scope of the law in a particular situation. In this case, a virtual marketplace company (VMC) that operates in the so-called “on-demand” or “sharing” economy connecting service providers (plumbers and electricians) and consumers wrote asking whether a service provider using the VMC’s online or smart phone-based service is an employee or an independent contractor under the FLSA.
The letter is available here
The DOL concluded that workers who provide services to consumers through this specific company's virtual platform are independent contractors, not employees of the company. To make this determination, the DOL’s Wage and Hour Division applied its six-factor balancing test.  The six factors are:
  • The nature and degree of the potential employer's control;
  • The permanency of the worker's relationship with the potential employer;
  • The amount of the worker's investment in facilities, equipment, or helpers;
  • The amount of skill, initiative, judgment, or foresight required for the worker's services;
  • The worker's opportunities for profit or loss; and
  • The extent of integration of the worker's services into the potential employer's business.
Following a lengthy discussion of the six factors, the DOL stated that “Your client (the VMC) provides a referral service … and (the Wage and Hour Division) does not see any indication that the service providers are economically dependent on your client within the meaning of the FLSA.”
Massachusetts is different 
But that does not close the case. The FLSA is a permissive law, meaning that states are permitted to adopt stricter provisions or standards. A simple example would be state’s decision to adopt a higher minimum wage. The DOL ruling does not supersede the longstanding Massachusetts three factor independent contractor test. 
The test makes it clear that everyone working for an employer is presumed to be an employee for purposes of the wage and hour laws unless an employer can show that:
  1. the individual is free from control and direction in connection with the performance of the service, both under his contract for the performance of service and in fact; and
  2. the service is performed outside the usual course of the business of the employer; and,
  3. the individual is customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed.
The inclusion of the word “and” between each of the three factors means that any employer seeking to classify someone as an IC must be able to overcome all three factors before being able to prove the person is an IC. Otherwise the person will be presumed to be an employee. 
While the letter may impact a Massachusetts employer that operates in other states, the DOL letter will not change the law here. Moreover, any employer seeking to rely on the letter in another state should take care ot make sure the independent contractor law in that state is not the same as the Massachusetts one. 
Members may call the AIM Employer Hotline at 800-470-6277 to learn more about this or any other HR-related issue.
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