As OnLabor covered last week (here and here), the Department of Labor recently issued an “opinion letter” finding that the workers deriving income from an unnamed “virtual marketplace company” are independent contractors and not employees covered by the Fair Labor Standards Act.  This action is significant – it marks the Department’s first articulation of how the traditional test for FLSA coverage applies to workers in the “gig economy,”  Ben aptly described this coverage question as “maybe the major contemporary issue of employment law.”

My threshold criticism of the opinion letter goes not to the substance, but to the procedure by which the Department chose to make this first foray into the gig economy.  As I wrote for OnLabor when Secretary Acosta announced that he was bringing back opinion letters after we in the Obama Administration had jettisoned the practice, I believe that opinion letters are generally a poor policy tool and an inefficient use of scarce enforcement resources.  This “virtual marketplace company” opinion letter plays out some of the concerns I raised then.  Even more alarming, however, is that the way that the Department drafted this particular opinion letter raises additional concerns that portend more difficulties in the future for gig economy workers attempting to prove their employee status.

One reason opinion letters are problematic is because they are based on facts and arguments provided by only one party to a labor dispute.  Opinion letters explicitly are bounded by the facts that the requesting party provides.  The Department does not engage in any independent assessment of the facts.  In this respect, the opinion letter process stands out from the other policymaking processes that were available to the Department in making this significant decision:

  • Guidance Documents – The Department could have issued a guidance document and given the public an opportunity to weigh in through the notice-and-comment process under the Administrative Procedures Act. The Trump Administration has suggested in other contexts that it believes important policy decisions should be subjected to the notice-and-comment process. Most significantly, former Attorney General Jeff Sessions issued a memorandum requiring that all DOJ guidance documents go through the APA process, stating that “it has the benefit of availing agencies of more complete information.”  Such an approach also would seem more consistent with the Trump Administration’s position in Kisor v. Wilkie that the Court should abandon Auer deference for agency policy interpretations that are not the product of notice-and-comment rulemaking.
  • Administrator’s Interpretations – When we abandoned opinion letters in the Obama Administration, we began issuing Administrator’s Interpretations. In contrast to opinion letters, AIs were not limited to just a single requester’s version of the facts.  Instead, the experts in the Wage and Hour Division culled different relevant fact patterns that had come to the Division’s attention through litigation, outreach and data, allowing the Administrator to reach broadly applicable principles, instead of narrow, skewed conclusions.  For example, the Obama Administrator’s Interpretation on “the Identification of Employees Who Are Misclassified as Independent Contractors,” which the Trump Administration withdrew, included numerous examples and multiple variations of each example.
  • Amicus briefs – The Supreme Court in Auer recognized that agencies use amicus briefs to issue statutory interpretations and accorded deference to the Department of Labor’s FLSA interpretation offered in that case in an amicus brief. Following that precedent, the Department could have filed an amicus brief in litigation on this issue, which would have subjected its view of the facts and law to scrutiny by plaintiff-workers and a neutral judge.

While I share concerns about the letter’s conclusion, I think it is impossible to determine from the facts included in the opinion letter whether the “service providers” that work on the requester’s platform are covered by the FLSA or not because of the deficiencies in the opinion letter process.  For example, the letter states that the “control” element of the economic dependence test has not been met because the requester does not require service providers to perform “a minimum amount of work.”  What we don’t know is whether the requester offers incentives for service providers to work more hours on the platform in order to influence their behavior and, if so, how powerful those incentives are.  Similarly, we don’t know very much about how service providers can negotiate prices that differ from the default prices set by the requester.  We have no information as to how often such negotiations occur, whether there are any limits on those negotiations or whether there are any consequences for service providers who regularly depart from the default prices.

More information about just even these two factors could yield a very different conclusion about the service providers’ status.  The Department ignores, however, the ambiguities in the facts upon which it has based its decision.  Because parties who receive an opinion letter and follow the advice contained therein are shielded from liability if their conduct is challenged in court, even if the court disagrees with WHD’s conclusions contained in the letter, as long as none of the facts provided by the requester are inaccurate, this opinion letter grants the requester a get-out-of-jail free card for denying its service providers FLSA protections.

Although guidance documents and Administrator’s Interpretations do not provide the same in-depth analysis of a particular set of facts as an opinion letter, they can be helpful even in fact-dependent situations, such as employee status in the gig economy.   As discussed above, they usually include numerous hypotheticals and variations on those hypotheticals, as did the Obama Administrator’s Interpretation on misclassification.  Through this method of contrasting fact patterns, they can provide an explanation with great depth.

Even more concerning, however, are the indications in this opinion letter that the Department intends for it to have application beyond just the requester’s workforce.  The lack of specificity of the facts opens the possibility that it will be applied broadly throughout the gig economy to classify workers as independent contractors without consideration of the more nuanced differences in how the platforms operate.  In the New York Times article on the opinion letter, even a management lawyer noted the unusual nature of this opinion letter:  “This doesn’t read like a normal opinion letter . . . You go back historically to most opinion letters and they are short, defined, with multiple disclaimers. . . . This is expansive – it’s back to the basics, applicable to numerous situations.”

While broad guidance is needed in this area, such guidance would yield fair results only if takes on the complexity of the questions presented.  Instead of dealing with complexity, this opinion letter serves as a roadmap for other gig economy companies who want to protect their 1099 business model.  As long as they hit the same vague notes highlighted in the opinion letter, they can rest easy that this Department of Labor won’t find their workers to be employees.  Widespread use of forced arbitration agreements in the gig economy makes it hard for workers to argue for FLSA protections in court.  This opinion letter signals that not only is the Department of Labor unlikely to argue on their behalf, but it also is determined to put as much weight as possible on the gig economy companies’ side of the scale.