Labor Dept U.S. Labor Department headquarters in Washington, D.C. Photo: Mike Scarcella/ALM

The U.S. Department of Labor issued a business-friendly opinion Monday for the gig economy industry, telling one unidentified “virtual marketplace” employer that its workers are properly classified as independent contractors, not employees.

In a 10-page opinion letter dated April 29, Keith Sonderling, the acting administrator of the Labor Department's wage and hour division, tells the representative of an unnamed online platform that based on a six-factor test, “we conclude that your client's service providers are independent contractors, not employees of your client.”

“The facts in your letter demonstrate economic independence, rather than economic dependence, in the working relationship between your client and its service providers,” Sonderling wrote.

The letter, as is customary, does not name the company that sought the opinion. But its findings are a potential big-dollar boon to the employer—and those similarly situated in the on-demand economy. Independent contractors, unlike employees, are often not entitled to minimum wage, overtime and other benefits.

Morgan, Lewis & Bockius partner Michael Puma in Philadelphia said the letter continues a trend at the Labor Department where regulators are giving more flexibility to companies in defining “nontraditional relationships” with workers.

“The previous guidance from 2015 under the Obama administration was advocating for a more narrow view on what was considered an independent contractor and advocating that most workers were employees,” Puma said in an email. “Now, this new opinion letter gives a fair amount of freedom on how to engage workers outside of the normal employee models. While it's not a binding regulation, the guidance could be persuasive to courts.”

The Labor Department's opinion was released as the debate over worker classification has reached a critical moment. As Lyft Inc. and Uber Technologies Inc. move toward IPOs this year, companies in the so-called sharing economy are seeking regulatory assurance that they can continue to rely on a non-employee workforce.

In a March 1 S-1 filing with the U.S. Securities and Exchange Commission, Lyft listed potential legal proceedings that classify “a driver of a ridesharing platform as an employee” as a risk to its business. Both Lyft and Uber face misclassification suits from drivers and other contract workers.

California lawmakers are also considering legislation that would codify the California Supreme Court's 2018 decision in Dynamex Operations West v. Superior Court of Los Angeles County, which created a much more expansive test of what constitutes an employee. The bill's author, Assemblywoman Lorena Gonzalez, D-San Diego, has shown little inclination to create carve-outs for the ride-sharing industry.

A Fisher & Phillips analysis posted Monday afternoon by partner Richard Meneghello in Portland, Oregon, said the opinion letter is no “magic bullet” but still marked a “welcome” development for employers “and a preview as to how today's USDOL will treat misclassification concerns that fall into their laps from gig economy (and other) businesses.”

“The next step is for the agency to take formal action with respect to investigatory decisions based on this same reasoning, or possibly issue guidance or formal regulations along these same lines,” Meneghello wrote. “We can also hope that a court will look to this letter and adopt these same principles in an active piece of misclassification litigation.”

 

The Labor Department's opinion is posted below:

 

 

 

Read more:

Finding a Third Path in Bridging the Employee/Contractor Divide

Divided Labor Board Adopts Business-Friendly Independent Contractor Test

Employers Face Open Questions After Landmark 'Dynamex' Labor Ruling