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U.S. Department of Labor Issues Guidance on “Employee-vs-Independent Contractor” Question

Adding more confusion to San Diego and California labor laws, on April 29, 2019, the US Department of Labor (“DOL”) issued a Guidance Letter on the question of “employee” versus “independent contractor” with respect to the federal Fair Labor Standards Act. See DOL Opinion Letter, FLSA 2019-6 (April 29, 2019). The federal DOL is not using the Dynamex ABC test in which an employer must satisfy a stringent set of three criteria in order to safely classify a worker as an independent contractor. The federal appeals court in San Francisco recently held that the Dynamex test is to be applied retroactively in California. When considering these issues and drafting your employee handbook and your employment/independent contractor contracts, you are going to need the advice and guidance of an experienced San Diego corporate attorney.

As is normal with Guidance Letters, the DOL did not identify the specific business that requested the guidance, and details can be a bit murky. It is clear that the business in question is an online platform that allows workers to offer services to end-user consumers. This is a standard feature of many gig-economy platforms. The business in question has, to date, classified the workers as “independent contractors” and the DOL agreed that the workers were properly classified.

The DOL cited a six-part test which included these factual questions:

  1. Nature and degree of employer’s control
  2. Permanency of relationship
  3. Worker’s investment in equipment, tools, etc.
  4. Worker’s level of skill, initiative, judgment, etc.
  5. Worker’s opportunity for profit or loss (entrepreneurial activity) and
  6. Extent of integration of the worker’s services into the potential employer’s business

In many respects, this test has similarities with the Dynamex test except that Dynamex requires that independent contractors have licensure or be part of a recognized independent trade or skill group. This is the factor that will make it nearly impossible for California workers to be classified as independent contractors.

In any event, as noted the DOL held that the workers at issue were independent contractors. Among the key factors are the following:

  • No training
  • No need for worker to appear physically at any location
  • Workers were able to work for multiple employers
  • No control by the business over the timing, location, and other details with respect to the provision of services
  • End-users and workers were put in contact to complete transaction
  • And more

An important fact deserving special emphasis is that the services offered on the online platform were multifaceted. This is key because it allowed the employer to successfully argue that its “core business” was providing a communications platform, not providing services. In theory, companies like Lyft and Grubhub could re-cast themselves as “communications platforms” to position themselves better to make the argument that their users are independent contractors. But, as noted, companies like Lyft and Grubhub cannot overcome the problem that their users must have some sort of licensure. This is obviously an important and fluid legal situation for San Diego employers and we will keep a close watch on developments.

Contact San Diego Corporate Law

For more information, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard has extensive experience in drafting employee policies, employee handbooks, employment contracts, and all other contracts and agreements necessary for running your business. Mr. Leonard can be reached at (858) 483-9200 or via email. Like us on Facebook.

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