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Labor Department says gig workers aren't employees

Employee or contractor? Here's the difference
  • The U.S. Department of Labor sees those who labor for companies like Uber and Lyft as contractors rather than employees.
  • That decision will help the many such virtual marketplaces that have been sued for wrongful classification of workers.
  • A key reason the DOL cited for its decision is that these platforms give workers a great deal of control.

The Trump administration is no fan of big tech companies. But a recent decision from its Department of Labor could give a long-term boost to tech giants like Uber, Lyft and the soon-to-go-public Postmates.

These companies -- and many like them -- rely on a wide pool of on-demand workers who sign up through the companies' platforms to drive cars, make deliveries, run errands, walk dogs or clean houses. Many people doing this work disagree with the companies' assertion that they're not employees, but rather solo small-business proprietors using the platform of choice to perform their cleaning (or driving, or delivery) business.

Now the Department of Labor has weighed in, with an opinion letter stating that an on-demand company that appears to provide a cleaning service is correct to classify its workers as independent contractors rather than employees. The decision adds more heft to behemoths like Uber and Lyft and house-cleaning company Handy, all of which face lawsuits accusing them of wrongly classifying workers as independent contractors.

"For that particular company, the letter is sort of a get-out-of-jail-free card," said Maya Pinto, a senior researcher at the National Employment Law Project. "It will be used by this one company and could prod other companies to get similar letters. We believe in most cases, if not all cases, the workers are under control of the company and are in fact employees," she said.

In the "gig economy," more injuries for construction workers and truck drivers

Handy, which wasn't named in the letter, is "a virtual marketplace company that "operates in the so-called 'on-demand' or 'sharing' economy,'" the DOL wrote. The marketplace requires workers' name, email and Social Security number to sign them up. It connects them with customers who pay on a per-job basis, and it provides training materials that workers can choose to review or not. The app does allow customers to rate workers and removes workers after they haven't been "active" for some time.

A key reason the DOL cited for its decision is that the workers on Handy's platform have a great deal of control. The platform itself doesn't require a minimum of cleaning jobs, allows the workers to sign up with competitor apps or to work directly with customers, and it allows workers to sometimes ask for higher pay than the platform sets.

Thousands of lawsuits

That's substantially different from Uber and Lyft drivers, whose rates are determined by the companies' ever-shifting policies and who are liable to get thrown off the platform once their customer rating dips below about 4.3 stars. Lyft, which went public recently, faces six class actions and "thousands" of individual actions accusing it of misclassifying employees, it told the Securities and Exchange Commission. Uber faces two such lawsuits, according to securities filings. Handy has been sued five times by workers.

"If workers are misclassified as independent contractors, and [a] court were to find they're employees, the employer could be responsible for back pay, overtime and minimum-wage violations and record-keeping violations. There could be [family and medical leave] implications, tax implications, workers' compensation implications," said Susan Harthill, a partner at Morgan Lewis, representing employers. "Classification is a big concern for all businesses."

The nature of "platform" work can sometimes create a truly gray area on the employee-contractor spectrum. But the cost difference between paying a employee and an independent contractor is so large, companies often choose to err in their favor while the decisions are fought out in court, saving themselves potentially millions of dollars. (A study last year on ride-hail drivers in New York found that if Uber considered its drivers employees, it would be the largest employer in the city.)

Hitting low-wage workers hardest

In exchange for freedom and flexibility, independent contractors give up most benefits that employees get, such as paid sick time, family leave, overtime or minimum-wage laws, and the right to start or join a union. That tradeoff often hits lowest-paid workers the hardest, labor advocates say.

"Where we see misclassification of workers is a lot of low-wage jobs that have a service sector aspect, or in construction, where companies have a lot of workers and they're trying to cut costs," said NELP's general counsel, Catherine Ruckelshaus. "But the gig companies have made this a key part of their profitability."

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