“Gig economy” workers are contractors and not employees, the Labor Department said in a letter to an attorney for one such website Monday.
The letter strengthens the position of online companies — “virtual market economy” websites that connect customers with drivers, cleaners, deliverymen, or others providing — that argue they are not traditional employers and therefore are not bound by the usual legal obligations between management and employees.
“Based on the facts you provide in your letter, it appears that the service providers who use your client’s virtual marketplace are independent contractors. Your client provides a referral service. As such, it does not receive services from service providers, but empowers service providers to provide services to end-market consumers,” the department’s letter states.
The finding is significant because independent contractors are mostly exempted from the Fair Labor Standards Act, the law that mandates minimum wages, overtime pay, and other requires.
The letter doesn’t specifically state which companies the determination could apply to, but the description covers those that “provide a referral system that connects service providers with consumers,” such as ride-sharing companies like Lyft or referral website like Angie’s List.
The letter came from the department’s Wage and Hour Division in response to an inquiry from an inquiry from a lawyer for an online seeking clarification on the law. The letter isn’t law, or an even an official rulemaking, but it indicates how the department intends to interpret existing rules and regulations. It was made public to clarify the situation for similar businesses. The specific business’ name was redacted from the letter, the department’s standard practice when making them public.
The agency said it based the decision on it long-standing balancing test for when a business is an employer, such as its degree of control the over what the individual does and how exactly they compensated, among other factors. “Today, the U.S. Department of Labor offers further insight into the nexus of current labor law and innovations in the job market,” said Keith Sonderling, acting Administrator of the Department’s Wage and Hour Division.
The liberal National Employment Law Project criticized the rulemaking. “DOL opinion letter attempts to allow an unnamed #GigEconomy company to underpay and overwork its workers by classifying them as independent contractors. But if workers have all the restrictions of employees, they should get the protections,” it tweeted.
