Entrepreneurs have been advancing new business models for connecting customers with a variety of on-demand services, like Uber, Airbnb and Postmates. With these new advances, the law is struggling to keep up with how workers in the “gig economy” should be classified for tax, minimum wage and overtime, unemployment, workers’ compensation and other purposes. Traditionally, workers who provide services to a business’s core customer base are characterized as employees, but new business models have pushed legislators and government agencies to reevaluate the conventional employee versus contractor distinction.
On April 29, 2019, the Department of Labor’s (“DOL”) released an opinion letter, FLSA2019-6, demonstrating this shift. The DOL was asked to opine on whether the service providers associated with an online platform that connects them to consumers who need cleaning services should be classified as employees or independent contractors. The DOL determined that the software platform could properly classify these workers as independent contractors, at least where the company allowed providers to accept or to decline an opportunity, to select their own time and place for performing services, to select and provide their own tools and equipment, and to choose the order and process they use for cleaning, among other independent choices. Of particular note, this software company allowed for service providers to arrange for future, repeat business outside of the virtual marketplace, and it also let the service providers request a change to the default prices set for services. These elements, which showed additional lack of control by the software company, may have swayed the DOL’s thinking.
The takeaway for those in business is that the higher the degree of control exerted by the business, the more likely it is that the persons working for the business will need to be classified as employees. The extent to which the business has control over employees, such as when they work, where they work, the rates they charge or the materials they must use, are likely to be determining factors. Because new online and smartphone-based applications allow businesses to connect service providers with consumers in the virtual marketplace without taking greater control over the arrangement, it is more likely that workers will be classified as independent contractors.
The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or contact us here.
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