Independent Contractor Misclassification and Compliance News: May, 2019

By MBO Partners | May 31, 2019

Independent Contractor Misclassification and Compliance News May, 2019

As the independent workforce continues to grow, so do the issues of worker compliance and misclassification. It is important for enterprises to remain informed about the latest laws, regulations, and developments surrounding these topics. Each month, we’ll bring you the latest news stories from around the web.

The NLRB and DOL Released Documents Saying Gig Platform Workers Are Independent Contractors

In May, the National Labor Relations Board (NLRB) and the Department of Labor (DOL) released documents saying that gig platform workers were independent contractors, although these opinions may not affect state courts and state wage and hour enforcement agencies.

1. The NLRB released an Advice Memorandum

The NLRB released an Advice Memorandum prepared by the Office of the General Counsel that concluded that Uber drivers were independent contractors. The NLRB is responsible for enforcing labor laws including laws protecting workers rights to organize, form a union, and bargain with their employers. The General Counsel’s Advice Memorandum was the result of three charges that Uber violated various labor laws. The memo reviewed Uber’s operations and policies and determined that the drivers were independent contractors because they had significant entrepreneurial opportunity. The memo relied heavily on three key aspects of the relationship:

  1. Drivers had unfettered freedom to set their own work schedules
  2. Drivers controlled their work locations
  3. Drivers could and did work for competitors

The memo said that these factors outweighed the countervailing facts supporting employee status.

The NLRB is a five-person board that is appointed by the President and confirmed by the Senate. The Board is typically split with a majority of the members belonging to the President’s party and the minority of member belonging to the other party. As a result, the decisions of the

Board reflect the President’s party’s political philosophy. This opinion by the NLRB is beneficial to gig platform companies like Uber but may be limited or changed when the next President is able to appoint new members to the Board.

2. The DOL Issued an Opinion Letter

The DOL issued an opinion letter stating that workers for a virtual marketplace company (VMC) are independent contractors under the Fair Labor Standards Act (FLSA). The DOL reviewed six factors:

  1. The nature and degree of the potential employer’s control;
  2. The permanency of the worker’s relationship with the potential employer;
  3. The amount of the worker’s investment in facilities, equipment, or helpers;
  4.  The amount of skill, initiative, judgment, or foresight required for the worker’s services;
  5. The worker’s opportunities for profit or loss; and
  6. The extent of integration of the worker’s services into the potential employer’s business.

The DOL reviewed these factors and found that the workers were independent contractors. The DOL said:

  1. The VMC did not control the workers—the workers are able to choose if, when, where, how, and for whom they provide services and could work for competitors.
  2. The VMC did not have a permanent relationship with the workers.
  3. The VMC did not invest in equipment necessary to the workers to provide services to customers, the VMC invested in the referral platform that connected workers to the customers.
  4. The VMC did not provide training and the workers were able to choose among virtual platforms to maximize their profits which shows initiative and discretion
  5. The workers have an opportunity for profit and loss by choosing the types of jobs, the number of jobs, and negotiating the price for the jobs.
  6. The workers were not integrated into the referral business because they did not develop or maintain the platform; they use the platform to connect with consumers.

The DOL opinion letter may provide insight into how the DOL will approach cases involving virtual marketplace platforms or how the DOL will enforce the FLSA, but it does not change the law or the legal standard for classifying workers. The opinion letter is not binding on courts although a court may refer to it and rely on it for guidance. Most misclassification cases are brought under state laws with more stringent standards for determining if a worker is an employee or independent contractor.

For more information, check out our resources page on misclassification and compliance, or contractor engagement best practices. If you have any questions about engagement, classification, or management of your independent workforce, we’re always here to help.

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