May 03, 2019
In two related developments this week, a Department of Labor opinion letter concluded that “service workers” for an unnamed “virtual marketplace company” are not its employees, while the Ninth Circuit ruled that a broad California standard that presumes workers are employees instead of independent contractors could be applied retroactively to wage and hour cases brought under state law.
Background to the DOL letter: In 2015, the Obama administration issued broad guidance on how DOL would determine when workers are independent contractors under the FLSA, but in 2017 the Trump administration rescinded that guidance leaving businesses wondering if the Department would provide new direction for employers.
The opinion letter gave particular weight to the degree of control the company exerts over its “service providers.”
Background to the Ninth Circuit's decision: The California Supreme Court’s April 2018 Dynamex decision embraced a broad standard that presumes workers are employees unless they work outside its usual business.
According to the Ninth Circuit opinion, applying Dynamex retroactively is consistent with the state’s “legal tradition,” which ensures that the workers in the lawsuit can “provide for themselves and their families” and shields California having to support citizens who are paid “substandard wages.”
Takeaway: While its impact is limited to the circumstances of the case, the DOL opinion letter provides a useful framework for companies that connect service providers with end users through an online platform to argue that the service providers are independent contractors, not employees. Companies outside of the gig economy may be able use the opinion letter as a defense because the letter’s language is fairly broad. However, the letter (which could still be challenged in federal court) only applies to the federal wage and hour law. Meanwhile, in California, the Ninth Circuit ruling will likely open the litigation flood gates under California state law to apply to employers relying on the earlier standard.