Clearing the Smoke on the USDOL Gig Worker Opinion Letter: 5 key takeaways

Gig economy companies are not a one-size-fits-all proposition, and neither are the laws governing them. Classifying workers as independent contractors or employees isn’t simple; gray areas abound, as do the many risks of worker misclassification.

The US Department of Labor issued an opinion letter last month stating that certain service providers referred through a virtual marketplace are, indeed, independent contractors for purposes of the federal Fair Labor Standards Act. This has led to a lot of speculation, and some misinformation, about the impact of this letter.

Critically, the letter states that its guidance only applies to platforms where the client is an individual consumer. Additionally, it doesn’t affect the multitude of different IC laws and statutes within state jurisdictions.

Keep in mind, also, that the opinion letter does not specify the company referenced, which would have been helpful.

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The DOL did provide additional details of the factors that guided its determination, but the outlook is not as clear as appears at first glance – and again, the DOL did not actually name the company being assessed. Here are five takeaways of the opinion letter worthy of further examination:

  1. The US DOL letter refers to a virtual marketplace (VMC) and a platform where the client is a consumer (like Uber or Instacart). Online staffing platforms and other gig companies that cater to businesses do not meet this criteria. As a result, only a small subset of gig platforms are affected.
  2. The “company”referenced does not “interview” the workers or “require them to undergo training” or meet other criteria that are, on the surface, all things that many online staffing platforms regularly do. Additionally, FLSA regulations highlight many factors that indicate an employment relationship might exist, such as the “extent to which the services rendered are an integral part of the principal’s business.”
  3. The opinion only pertains to the FLSA and jurisdictions that use the multi-factor Economic Realities Test. However, different federal and state agencies use a multitude of different tests to determine worker classification. There is no one test. For example, in California, the EDD no longer uses a multi-factor test to classify ICs; the state now uses the “ABC” test (also used in some form by 20 states), which is recognized as among the most rigid employment status tests in the country.
  4. In almost all instances, there is still a need to assess and be able to defend each individual classification of a worker as 1099. Almost all large enterprise organizations already have an independent contractor compliance program in place. Irrespective of the DOL’s letter, these organizations will continue to require all potential Independent Contractors to be vetted, and for the enterprise to to be indemnified against misclassification risk.
  5. Many gig workers won’t meet the legal criteria to be paid as an Independent Contractor on a 1099 basis. As a result, they will need to be hired as W-2 employees. In this scenario, platforms need to consider if they want to employ the workers themselves, or use an outsourcing option such as an Employer of Record.

As the gig economy continues to grow, some clarity around these legal uncertainties is long overdue. Unfortunately, with so many different perspectives – and regulations – navigating this evolving legal landscape is complicated. What is clear, is that despite the much publicized DOL opinion letter, it only potentially affects a very narrow sub-set of ‘gig’ platforms and for any B-2-B platform, the risks involved with worker classification remain as high as ever.

The takeaways are the solely the opinion of Greenlight do not constitute legal advice or legal information.

Jason Posel

Jason Posel
Jason Posel is CEO of GreenLight Workforce Solutions. He can be reached at jasonposel (at) greenlight (dot) ai.

Jason Posel

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