May 02, 2025
The Pendulum Swings Again: U.S. DOL Reissues Opinion Letter on Classification of Gig Economy Workers
In 2019, the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued an opinion letter explaining that certain service providers working for a virtual marketplace company (VMC) are not employees under the Fair Labor Standards Act (FLSA) and may be properly classified as independent contractors. In 2021, that opinion letter was withdrawn. On May 2, 2025, the 2019 opinion was reproduced verbatim and from that date forward, “is an official statement of WHD policy.”
The VMC operates in the so-called “on-demand” or “sharing” economy. Generally, a VMC is an online and/or smartphone-based referral service that connects service providers (the workers / independent contractors) to end-market consumers (like you and me) to provide a wide variety of services, such as transportation (Uber, Lyft), delivery, shopping, moving, cleaning, plumbing, painting, and household services.
The letter explains “An employee, as distinguished from a person who is engaged in business for himself or herself, is one who, as a matter of economic reality, follows the usual path of an employee and is dependent upon the business to which he or she renders service. The employer-employee relationship under the FLSA is tested by economic reality rather than technical concepts.”
So, how does WHD test by economic reality? By assessing the:
- nature and degree of the potential employer’s control;
- permanency of the worker’s relationship with the potential employer;
- amount of the worker’s investment in facilities, equipment, or helpers;
- amount of skill, initiative, judgment, or foresight required for the worker’s
services; - worker’s opportunities for profit or loss; and
- extent of integration of the worker’s services into the potential employer’s
business.
May other factors come into play? Yes, “Other factors may also be relevant…”
How much weight is given to each factor? “[T]he appropriate weight to give to each factor depends on the facts.”
What are some examples? When the alleged misclassification of a worker is challenged, control is often a key factor. The letter explains, “A business may have control where it, for example, requires a worker to work exclusively for the business.” So, watch your use of non-compete agreements with independent contractors. That may give rise to an argument that you are controlling the person’s “viable economic status” and making the person more economically dependent upon you.
Another is the nature of the work performed and whether it is integral to the would-be employer’s business. The answer is “Yes” if “they form the ‘primary purpose’ of that business.” For example, an IT firm engages the services of an IT technician as an independent contractor.
Tips. If you consider engaging the services of an independent contractor:
- review the six factors and the corresponding examples given in this Opinion FLSA2025-2
- talk to your company’s legal counsel;
- know if the state in which the individual will work has its own worker classification rule and apply that as well; and
- check out the DOL’s related Fact Sheet #13, published the day before this Opinion Letter.
