Going Mobile? DOL Endorses Independent Contractor Model for Virtual Marketplace Apps

Opinion letter mobile app

Long before mobile apps were a thing, Pete Townsend and The Who were already going mobile. In the 1971 song, Townsend sings about the virtues of life on the open road, living in a mobile home. I’m an air-conditioned gypsy.

In an important opinion letter released this week, the DOL went mobile too, lending support to businesses in the “on-demand” or “sharing” economy. The letter is the first significant ruling that supports independent contractor status for service providers who obtain work through virtual marketplace apps.

A virtual marketplace app is a matchmaking service. It connects consumers who need a service (driving, housekeeping, handyman, anything) with service providers who do the work. Virtual marketplace companies (VMCs) are frequently the target of misclassification claims. In these types of claims, service providers — and the plaintiffs’ lawyers who love them — file lawsuits claiming that the service providers are really employees of the VMC. Frequent targets have been Uber, Lyft, Doordash, and Grubhub.

In Monday’s letter, the DOL opined that service providers are indeed independent contractors of the VMC, not its employees, at least under the facts of this particular case. The letter does not identify the specific VMC at issue, but the facts in the letter are going to be generally applicable to lots of VMCs.

The opinion letter considered the Independent Contractor vs. Employee question only under the Fair Labor Standards Act (FLSA), not under any other law. The DOL evaluated the facts under a six-factor Economic Realities Test. The relevant factors are:

  1. Degree of VMC’s control over the workers;
  2. Permanency of the worker’s relationship with the VMC;
  3. Amount of worker’s investment in facilities, equipment, or helpers;
  4. Amount of skill, initiative, judgment or foresight required for the worker’s services;
  5. Worker’s opportunity for profit or loss; and
  6. Extent of integration of worker’s services into the VMC’s business.

When considering these factors, the DOL found it persuasive that the workers:

  • Provided services for the customer, not for the VMC;
  • Chose when to work and which tasks to accept;
  • Could price their services;
  • Could hire helpers;
  • Invested in their own tools and equipment;
  • Could discontinue their relationship with the VMC at any time;
  • Could find work using multiple VMCs, including competing VMCs;
  • Were not trained by the VMC in how to perform their particular skill or trade; and
  • Were not required to accept any minimum number of tasks.

The DOL found that the primary purpose of a virtual marketplace app is not to provide services to customers, but rather to provide a referral system — a virtual marketplace — that enables service providers to connect with customers.

While opinion letters do not carry the same weight as a court decision, there are special privileges granted to businesses who rely on them when designing their pay practices. Under the Portal-to-Portal Act, reliance on an opinion letter is a defense against a claim that the business violated the FLSA. VMCs, therefore, might consider structuring their business in ways that are consistent with the facts in this letter, then creating a record showing their reliance on the opinion letter.

A few cautionary notes:

  • The DOL’s opinion is limited to the specific facts presented, but those facts are going to apply to a lot of virtual marketplace apps; and
  • The DOL’s opinion is limited to the FLSA and its Economic Realities Test. The decision is of little help against claims that are brought under state laws, most of which do not apply an Economic Realities Test and do not recognize Portal-to-Portal Act reliance as a defense. The decision is also not applicable to other laws, such as federal tax law and employee benefits law, both of which use a Right to Control Test, which examines different factors.

The Fair Labor Standards Act is often criticized as a 1930s-era law that fails to account for the realities of the modern economy. This letter is the DOL’s first significant recognition that the law may be able to co-exist with the gig economy in ways that do not necessarily convert independent contractors to employees.

So play the tape machine, make the toast and tea!  I’m going mobile.

© 2019 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.

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