DOL targets gig economy abuses

The United States Department of Labor (“DOL”) recently announced the adoption of an administrative rule that better addresses the escalating problem of employee misclassification. In particular, companies increasingly misclassify employees as independent contractors to avoid paying overtime rates for overtime work and otherwise to evade liability for violating employment laws, such as the Federal Fair Labor Standards Act (“FLSA”), and civil rights laws, such as Title VII. Given a substantial amount of the employee misclassification happening today occurs in the context of the gig economy, the DOL’s initiative has special importance for technology-driven companies like Uber. Employee misclassification also continues to afflict the healthcare, trucking, and construction industries at significant levels, so the DOL’s rule should have a broad and positive impact across the economy and around the nation.

The DOL’s recently announced rule, which goes into effect in March 2024, essentially restores the law to what it was before the prior Federal administration imposed a standard that made it easier for companies to classify someone as an independent contractor. The DOL’s “new” rule requires analysis of all relevant circumstances when determining whether someone is an employee or an independent contractor. Specifically, companies and courts must consider the extent each of the following six factors applies whenever employee misclassification is a potential issue: (1) the alleged employee’s opportunity for personal profit or loss related to the work they do; (2) the investments in the work at issue by the alleged employee and by the alleged employer; (3) the degree of permanence concerning the working relationship between the alleged employee and the alleged employer; (4) the nature and degree of control exercised by the alleged employer over the alleged employee; (5) the extent to which the work done by the alleged employee is an integral part of the alleged employer’s business; and (5) the specialized skill and initiative of the alleged employee. Each factor receives the same weight and has the same importance when analyzing whether someone is an employee or an independent contractor.

By adopting a totality-of-the circumstances approach to determining whether a company is misclassifying employees under the FLSA, the DOL has substantially helped both public and private prosecution of wage theft claims through individual and multi-plaintiff litigation as well as through collective actions and class actions. In addition, the enhanced enforcement of employee misclassification under the FLSA should have an impact in other areas – facilitating more effective litigation of employee misclassification issues under Title VII and similar employment laws and civil rights statutes.