The U.S. Department of Labor has issued a new Interpretation of the Fair Labor Standards Act’s definition of “employ.” The Interpretation will be broadly relevant to disputes over whether workers are correctly classified as employees or independent contractors for purposes of the FLSA (and other statutes, including the Family and Medical Leave Act). Given the intense focus on the “employment” question in the on-demand sector, here is a quick analysis of how the Interpretation may figure in those particular debates.
At the most general level, the Interpretation – issued by the Administrator of the DOL’s Wage and Hour Division – emphasizes what the DOL views as the sweeping breadth of the FLSA’s definition. Thus, the Interpretation states that the FLSA “was specifically designed to ensure as broad of a scope of statutory coverage as possible.” Now, that can’t quite be true: the FLSA could have covered “everyone who performs work for another,” a definition that would have been substantially broader and would have eliminated the independent contractor category. The statute doesn’t do that. But, clearly, “suffer or permit” provides broad coverage, and – more to the point – it’s the Administrator’s intent in this document to stress breadth of coverage. This comes across clearly in the introductory section, for example, where the Interpretation states flatly, “most workers are employees under the FLSA.”
The Interpretation also cautions that the common law “control” test is too narrow for FLSA purposes, and it reiterates what numerous courts have long held: that employee status under the FLSA is to be determined according to an “economic realities” test. With respect to the economic realities test, moreover, the Interpretation emphasizes that the test turns on a determination of whether the worker is “economically dependent on the employer (and thus its employee) or is really in business for him or herself (and thus its independent contractor).” [NB: The notion of “economic dependence” can be confusing and distracting, for reasons that Judge Easterbrook (among others) has pointed out. But that discussion is a bit beside the point here.]
The heart of the guidance comes with the discussion of the six factors meant to flesh out whether a worker is dependent or “really in business for him or herself,” and it is here that there may be some news for Uber, Lyft and other on-demand firms. The six factors are well known and long-established; it is the focus and emphases contained in the Interpretation’s discussion of the factors that matter.
“What is the Nature and Degree of the Employer’s Control” Control is the last factor in the six-prong test, and it’s the last one the Interpretation discusses, but it may be the most relevant for Uber and Lyft. Why? Because the Interpretation takes up, and then dispenses with, two of the most common views about why on-demand workers ought to be considered independent contractors. First, the Interpretation states that the lack of direct supervision over how work is carried out is “largely insignificant” when workers work offsite. And, second, the Interpretation states that workers’ ability to determine when they work is also “not indicative of independent contractor status.” Citing the Third Circuit’s DialAmerica Marketing decision, the Interpretation thus concludes that “the fact that the workers could control the hours during which they worked and that they were subject to little direct supervision was unsurprising given that such facts are typical of homeworkers and thus largely insignificant in determining their status.” In other words, you can be an employee even if you set your own hours and are never directly supervised. This is a conclusion with unmistakable relevance to the on-demand debate.
“Is the Work an Integral Part of the Employer’s Business?” Here, the Interpretation states that if the work is “integral” to the putative employer’s business, it is more likely that the worker is economically dependent on the employer and thus more likely that the worker is an employee. The Interpretation also highlights the fact that courts have held the “integral” factor to be controlling, and that work can be integral within the meaning of the test even if it is performed by “hundreds of thousands of  workers.” Are drivers “integral” to Uber and Lyft’s business? Continue reading