For the past several years, contracted and freelance work has been on the rise in the United States in the form of app-based job opportunities, dubbed the “gig economy.” According to a 2019 report by Upwork, 57 million Americans engaged in freelance work in some capacity last year.[1] A few common examples of these gig economy jobs include ridesharing – such as Uber and Lyft – food delivery, dog walking, web design, and freelance writing. The job usually involves work done at a time and place of the individual’s choosing, making these jobs attractive options for those looking for a flexible schedule or a side-job to make extra cash. It is also great for individuals who have difficulty finding full-time employment due to lack of education or experience. However, the flexibility and opportunity these jobs offer come with a trade-off: federal labor laws generally do not cover gig economy workers.

INDEPENDENT CONTRACTOR VS. EMPLOYEES—WHY IS THE DISTINCTION IMPORTANT?

A worker in the gig economy is almost always considered an independent contractor and not an employee. An independent contractor is typically someone who works on an as-needed basis pursuant to an agreement or contract. By contrast, an employee is someone who works for the same employer on a regular basis. When determining whether an employee is an independent contractor versus an employee, courts typically consider the following factors:

  • The degree of control the business exerts over the worker;
  • The opportunity for worker profit or loss;
  • Whether the business provides the worker with the tools/instrumentalities needed for the work;
  • Whether the working relationship is ongoing or for a set period of time;
  • The method of payment;
  • The worker’s ability to control when and how long to work; and
  • The degree of skill required to perform the work.

The above list is not exhaustive, and courts have repeatedly said that all facts and circumstances must be weighed with no one factor being determinative. However, when applying the factors to gig economy workers, courts have consistently found they are independent contractors instead of employees. This distinction between employee and independent contractor is important as it will generally determine whether a worker is covered by federal labor and employment laws.

For instance, the Fair Labor Standards Act (FLSA) establishes national minimum wage and overtime requirements for workers who are classified as employees. The FLSA does not, however, cover independent contractors. Indeed, the U.S. Department of Labor (DOL) issued an opinion letter last year confirming that, in the DOL’s opinion, gig workers are properly classified as independent contractors for FLSA purposes.[2] While the opinion letter only addressed the FLSA, the same analysis is used across the spectrum of federal and state labor laws, including the FMLA and workers compensation.

CALIFORNIA PASSES ASSEMBLY BILL 5

In response to court rulings and guidance from the DOL, states are beginning to change their own labor laws to extend coverage to gig economy workers. On September 11, 2019, California lawmakers passed Assembly Bill 5 (AB-5), which seeks to codify the 2018 California Supreme Court decision, Dynamex Operations West, Inc. v. Superior Court. The legislation, which went into effect January 1, 2020, establishes the “ABC Test” for determining whether a worker is an independent contractor or employee.  Under this test, a worker is considered an employee unless each of the following requirements can be met to qualify the worker as an independent contractor:

  • The worker is free from the control and direction of the hirer in connection with the performance of the work, both under the contract for the performance of such work and in fact.
  • The worker performs work that is outside the usual course of the hiring entity’s business.
  • The worker is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed for the hiring entity.

The new measure makes several amendments to the California Labor and Unemployment Insurance Codes. Many workers who were previously classified as independent contractors will be covered by California’s minimum wage and overtime requirements, paid family leave requirements, state unemployment, and more.

State legislatures across the country are looking to follow California’s lead in introducing legislation to extend state labor laws to gig economy workers. States including New Jersey, Connecticut, and Massachusetts have even adopted the same “ABC test” for determining who is an employee under state wage and hour laws. New York and Illinois are also considering similar legislation. These bills demonstrate the momentum behind the push for worker classification regulation in the growing gig economy.

As these regulations continue to pop up throughout the country, it is important for employers to be on the lookout for developments at the state level, as changes to federal labor laws are unlikely in the near future. While these changes to state labor laws are intended to target gig economy workers, employers should recognize that there will be unintended consequences and that the changes very well may alter their working relationships with more-traditional independent contractors.

The attorneys at Fishel Downey Albrecht & Riepenhoff, LLP routinely advise public and private employers on labor and employment matters. If you have any questions about federal and state labor law, or any other matter, please contact us at info@fisheldowney.com or call 614.221.1216.

[1] https://www.businesswire.com/news/home/20191003005032/en/Sixth-annual-“Freelancing-America”-study-finds-people

[2] https://www.dol.gov/whd/opinion/FLSA/2019/2019_04_29_06_FLSA.pdf