Earlier today the U.S. Department of Labor (DOL) issued an opinion letter stating that service providers working through a virtual marketplace are independent contractors and not employees of the company running the virtual marketplace. The opinion letter is good news for companies operating in this newer economic model. As most employers know, the “employee” label carries significantly increased costs and burdens versus the “independent contractor” label.
The opinion letter was the result of an inquiry by an attorney representing an unnamed virtual marketplace company (Company X). Virtual marketplace companies are an online referral service matching consumers with specific service providers such as contractors, professionals, drivers, house cleaners, etc. Some of the most prominent companies in this space are Uber and Angie’s List.
In deciding that Company X was not an employer under federal law, the DOL applied a six-factor test derived from Supreme Court precedents (degree of control, permanency of relationship, worker investment, degree of skill and initiative, opportunity of profit and loss, and extent of integration of worker’s services with potential employer’s business). These factors are designed to get to the “economic reality” of the relationship. The factors were applied to the facts about Company X presented by the company’s attorney. Obviously, the DOL could have reached the opposite conclusion on a different set of facts. Any business running a virtual marketplace would be well advised to consider whether the service providers it matches and promotes might be considered its “employees” and to structure its policies and relationship with them to avoid the label and resulting liabilities. It is also important to remember that the DOL opinion letters are not law. They are simply tools that can be used as guidance for compliance with the law.
A copy of the opinion letter can be found here: https://www.dol.gov/whd/opinion/FLSA/2019/2019_04_29_06_FLSA.pdf