The Latest from the DOL Regarding Independent Contractors
Miller & Martin PLLC Alerts | May 13, 2019
The Department of Labor (DOL)’s latest Opinion Letter regarding independent contractors (and how to distinguish them from employees) uses the same six (6) factors we have seen in previous letters.
(1) The nature and degree of the potential employer’s control;
(2) The permanency of the worker’s relationship with the potential employer;
(3) The amount of the worker’s investment in facilities, equipment, or helpers;
(4) The amount of skill, initiative, judgment, or foresight required for the worker’s services;
(5) The worker’s opportunities for profit or loss; and
(6) The extent of integration of the worker’s services into the potential employer’s business.
What is unique about the latest Opinion Letter is the way some of these factors are interpreted in an extremely business-friendly/non-employee classifying way.
The letter was requested on behalf of an anonymous on-line cleaning referral business. Similar to Uber or Lyft for transportation, this business allows individuals and businesses who need their homes or offices cleaned to connect with those who perform these services.
The most unique interpretation of the six (6) factors listed above when applied in this context was the DOL reasoning that those providing the cleaning services were not “integral” to the cleaning referral service’s business. So, even though there would be no one to “refer” to customers who need cleaning services if not for the individuals offering such services via the referral service, the DOL stated that these individuals were not “integral” to this referral service business. Perhaps the thought was since the referral service has a multitude of individuals who have “registered” as being available to provide cleaning services, the cleaning referral service is not reliant on any one or group of particular individuals to fulfill the needs of its customers as an “employer” would be if an entire production line of workers failed to show up for work.
The second most unique interpretation of the six (6) factors was “permanency.” The cleaning referral business who requested the Opinion Letter apparently did not provide any information regarding this factor, yet the DOL opined that “even assuming that service providers maintain a lengthy working relationship” with this business, “because they do so only on a project-by-project basis” “this factor strongly weighs in favor of independent contractor status.”
This Opinion Letter thus stands in stark contrast to previous ones which found that, for instance, nurses who were provided on a short-term basis by a placement agency and who had the ability (like the cleaning workers in the current Opinion Letter) to work for other placement agencies while working for the placement agency in question were “employees” of that agency.
In the present Opinion Letter, the DOL also did not take issue with the fact that the cleaning workers needed little to no unique skills or training in order to perform their work per factor (4) above. The DOL’s focus in this area was solely on whether the cleaning referral business provided the workers with any training, which they did not. The DOL also cited the workers’ “judgment and initiative” as being displayed in their choice of cleaning job assignments (rather than necessarily in the nature of the services being performed as themselves requiring “judgment or initiative”). The DOL also was not bothered by the fact the referral service set the rates the cleaning customers paid for the workers’ services based on regional location and type of work to be performed.
Unsurprising factors supporting the finding that these cleaning workers were independent contractors was their ability to decide which cleaning jobs they wanted to accept through the referral service and their ability to work for competing referral services simultaneously with the one who requested the letter.
This extremely business-friendly Opinion Letter, while on the whole not applicable to all businesses based on the on-line, virtual nature of the cleaning referral services provided, contains several new interpretations of the six (6) factors the DOL uses to distinguish employees from independent contractors.
Prior interpretations which were deemed to support a DOL finding that the worker was an employee, such as a long-term relationship with the business at issue or the reliance of the business on the work being performed, here were not found to indicate an employment relationship. Similarly, applying some “quality control and compliance monitoring” measures were not found to indicate such an relationship – such as performing background checks, using customer rating systems, imposing “fines” on the workers for canceling a cleaning job without adequate notice and even terminating a worker’s relationship if their customer ratings fall below a certain level or the worker develops a pattern of canceling jobs without adequate notice.
Some elements which the DOL still considers to be “important indicators” of an employment relationship are: (1) non-competition restrictions either during and/or after the worker/business relationship ends; (2) the workers’ degree of autonomy to determine when, how or even if they will accept the work offered by the business; (3) the workers’ ability to control how much they earn from the business (not just by working more but by the type of work they choose to accept, how they choose to perform it [directly vs. hiring others to assist] and the rates they negotiate to be paid for the work, as even though the referral service set the general service rates, individual workers could request “special pricing arrangements” for “special customers”); and (4) the fact the workers are responsible for providing their own materials/supplies and equipment and are not reimbursed for them.
As always, please contact Stacie Caraway or any other member of our Labor & Employment Law Practice Group if you have further questions regarding this alert or the topic of properly classifying those performing work on behalf of your business as “independent contractors” vs. “employees.”