A gig economy worker vacuuming confetti from a floor.

DOL Rules That ‘Gig’ Workers Are Not Employees

The “gig” is up—according to the Department of Labor (DOL), anyway. An opinion letter recently published by the agency rules that gig-economy workers are independent contractors, not regular employees.

That distinction matters, as contractors aren’t subject to the same federal protections as employees, including minimum wage rules and the Fair Labor Standards Act (FLSA), which dictates overtime eligibility. It also means employers don't have to provide them with health insurance, as otherwise required by the Affordable Care Act.

The letter's publication is largely seen as a win for businesses reliant on contingent workers, including popular services like Uber and TaskRabbit. On average, contractors are 30 percent less expensive than traditional employees, not including potential wage and hour litigation. 

Opinion Letters

The stance was released in a recently-revived medium, the opinion letter. Think of it as one of our “Ask HR” letters, but coming straight from the DOL. The agency invites employers to submit their questions, which typically relate to some ambiguity around wage and hour rules. The DOL then selects a question to publicly answer, effectively setting a precedent for how it plans to administer or enforce that issue moving forward.

The opinion letter format dates back to early nineties. It was retired by the Obama administration and subsequently reinstated by the current one.

The company that submitted this specific opinion request did so anonymously, only specifying that it was “virtual marketplace company” that connected service providers with consumers. The language of the letter implied that it was a house-cleaning service app.

Legal Limitations

Though opinion letters offer a glimpse into how the DOL plans to handle its own enforcement activity, they aren’t binding to courts. Judges sometimes consider opinion letters, but also frequently make their own determination based on their independent interpretation of the FLSA and other wage and hour regulations.

Additionally, several states—including California, Massachusetts, Connecticut, Illinois, Vermont, Nevada, New Hampshire, and New Jersey—have their own rules determining who counts as an independent contractor. Under these states’ more stringent requirements, an individual who classifies as a contractor under federal standards might actually be considered an employee by state courts.

While the release of the opinion letter represents a major victory for companies reliant on contingent workers, it by no means dispels all of the ambiguity surrounding the gig economy.

That said, the issue appears to be reaching a critical mass. In an interview last year, Secretary of Labor Alex Acosta shared that the DOL was actively looking into issuing a formal rule addressing the matter. And just this year, a “gig law” proposal was introduced in the Senate by Senator John Thune (R-SD).

The Namely team will continue to monitor regulatory and legislative activity related to the gig economy to help you stay compliant.

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