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Gig Economy Companies May Soon Get Benefit Of Federal Misclassification Rule | Fisher Phillips

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The formal regulatory notice released July 1st, 2020, is so short and sterile that the average gig economy business could be forgiven for ignoring it: “The Department of Labor is proposing a regulation for determining independent contractor status under the Fair Labor Standards Act.” But the implications are immense. Given the manner in which the current administration has treated the misclassification question, Wednesday’s announcement seems to be a signal that we will soon see a federal regulation that will provide a flexible standard permitting typical gig economy businesses to classify their workers as contractors under federal law. And according to Bloomberg Law’s Ben Penn, the Department of Labor will aim to fast-track the rule so that it is completed by year’s end, insulating the rule from the possibility that a new administration voted into the White House this November could quickly reverse course. What do gig economy businesses need to know about this interesting development?

Signs Point To Flexible Standard

There have developed two competing schools of thought when it comes to the proper legal standard to determine the status of workers as either independent contractors or employees: a bright-line rule (like the ABC test) that erects barriers making it difficult for the average gig economy business to classify workers as contractors; or a flexible standard that permits for some measure of forgiveness in the legal analysis and generally permits the average gig business to treat workers as contractors. And all signs point to the fact that the new rule expected from the USDOL will provide the flexibility that gig economy companies and other businesses crave. Here’s the supporting evidence:

  • As early as 2017, within months of the new administration assuming control of the Labor Department, the agency withdrew guidance published during the Obama administration that had hampered businesses when it came to independent contractor misclassification and joint employment standards. The guidance letters that had been scrapped didn’t carry the force of law but were relied upon by USDOL investigators and courts when examining allegations of wrongdoing and were often cited by plaintiffs’ attorneys to support their demands.
  • In July 2018, the agency issued a field assistance bulletin further tilting the misclassification scales back towards an even playing field and providing what many assumed was a helpful clue to gig economy companies about how the agency could regulate the concept of misclassification on a broader scale.
  • In April 2019, the USDOL issued a much-heralded opinion letter confirming that certain workers providing workers for a virtual marketplace company are, indeed, independent contractors. It provided the federal government’s official interpretation on whether a certain business model or practice complies with the law and offered solid evidence of how the agency views the misclassification question.
  • Finally, tucked away in Wednesday’s regulatory agenda notice is a single word that signals the purpose of the agency’s action: “deregulatory.” This appears to announce that the rule will further the current administration’s penchant for removing barriers that interfere with a business’s ability to conduct its work most efficiently.

When Will We See The New Rule?

The big question, then, is when we can expect to see this rule unveiled and finalized. The prior Labor Secretary indicated that a misclassification rule was on its way back in 2018, so we shouldn’t be faulted for not holding our collective breath in anticipation. But this time could be different – especially given the political dynamics at play.

According to sources providing information to Bloomberg Law’s Ben Penn, “the administration wants to wrap up the rulemaking in the final months of President Donald Trump’s term in part because a Democrat could be president next year, said the sources, who spoke on condition of anonymity. If a worker classification rule were to be proposed but not finalized and Trump doesn’t get re-elected, a new administration would easily be able to kill the effort. Or new DOL leaders inheriting the incomplete rule could finalize it by interpreting the term “employee” much more broadly than Republican regulators envisioned.”

That would mean a warp-speed effort to finalize the rule. In the six months left in the current administration’s term, the agency would need to reveal a proposed rule, manage a public notice-and-comment period sufficient to pass legal muster, and then finalize the rule in a way that responds to the many comments and criticisms the proposal is certain to face. And of course, even if a rule gets finalized in this tight timeframe, there always stands the possibility that challengers could file litigation and win a court order blocking the rule from taking effect on the eve of implementation. Which all adds up to the fact that this proposal could face tremendous challenges before gig economy companies can feel comfortable relying upon it.

It is also worth noting that such a rule would not be a magic bullet for all gig economy businesses across the country. After all, this rule would only regulate the treatment of classification questions under the federal wage and hour law, while state rules and laws that provide a heightened state of regulation would remain in place.

All that being said, seeing a uniform flexible rule addressing the misclassification question would be a step in the right direction. The USDOL may even attempt to craft a standard that specifically addresses the unique nature of the gig economy when it comes to misclassification. We’ll continue to monitor the situation and will provide an update when we see movement in this area – which could be sooner rather than later.

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FlipServe Cloud Gig Model Seeks to Disrupt Traditional MSPs

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A startup called FlipServe has launched a cloud IT services platform that seeks to disrupt the traditional MSP (managed IT service s provider) market. The goal: Blend one-demand talent and cloud technologies to simplify IT services delivery for end-customers.

Similar in some ways to Uber’s on-demand talent, FlipServe’s business takes a page out of the gig economy playbook by focusing on outcome-based services delivery via on-demand access to a certified global workforce and emphasis on meeting service-level agreements, according to the statement.

Rather than paying for IT services based on output, FlipServe users pay for IT services based on measurable outcomes or business impacts they can objectively assess, the company says.

FlipServe Harnesses On-Demand IT Services Talent

The FlipServe platform will also provide opportunities to gig employees globally, the company said. Information about FlipServe’s IT associates such as their credentials and ratings will be provided to the customer. Once a task is assigned to a FlipServe associate, their progress will be tracked, and all of their activity from start to finish will be recorded for full transparency.

In some ways, the effort sounds similar to WorkMarket, the former OnForce, and other on-demand IT platforms that attempted to align IT talent with end-customer needs.

On FlipServe platform, users can select the service they want to accomplish along with its associated SLA’s and KPI’s, view the associated costs, track the progress of the service, and pay only after the service is completed to satisfaction. All services on the FlipServe platform are non-contractual.

Here’s how FlipServe works:

  1. Select a Service: The customer selects a service with clearly defined SLA’s and KPI’s. Multiple services can be purchased for a single server (e.g. monitoring, patching, and upgrade).
  2. Select Service Options: The customer chooses from three service options: Silver, Gold, or Platinum. The customer also has the option to choose hours of service for each server to minimize cost.
  3. Service Transparency: Cost associated with selected options will be shown. Customers have the ability to adjust service options to control costs. Once the selected service and service options are confirmed, a FlipServe-Certified cloud professional will be engaged, and the customer dashboard will be updated with progress on both desktops and mobile smart devices for complete transparency.
  4. Simplified Payment: Customers only pay based on the condition that the work meets defined SLAs. If work does not meet SLA, FlipServe will credit the customer’s account.

Infrastructure Services as a Service

Instead of focusing heavily on classic PC and server support, FlipServe bills itself as an Infrastructure Services as a Service (iSaaS) company offering managed services for Microsoft Azure, Amazon Web Services (AWS), and Google Cloud, according to the statement.

FlipServe’s stated mission is to democratize cloud through unparalleled transparency, flexible service offerings, non-contractual agreements and outcome-based work. Available services include cloud subscription management, day-to-day management of cloud operations, performance management, spend management, high availability and disaster recovery.

FlipServe claims to have onboarded roughly 120 customers and 60 terabytes of data so far, according to the company’s website. Still, FlipServe did not disclose whether the company’s underlying platform is home-grown or third-party software. Also, the company did not disclose how it’s funding business development.

Additional insights from Joe Panettieri.

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2021 01 20 US DOL Issues Final Rule to Simplify Analysis of Workers in Gig Economy

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A critical and growing issue facing gig economy platforms and other similar business models is the failure of existing laws to reflect the realities of a modern, adapting workforce. In response to calls for action, the United States Department of Labor recently published a final rule providing a simplified framework to determine if a worker is an “employee” or an “independent contractor” under the Fair Labor Standards Act (FLSA). The final rule, scheduled to take effect on March 8, represents the latest DOL endorsement of the gig economy platform model.

Background

In its final rule, the DOL observed that the FLSA does not define the term “independent contractor.” Instead, the DOL long ago adopted the economic realities test to determine proper worker classification. The economic realities test ultimately evaluates the extent of a worker’s economic dependence on the putative employer: the more dependent the worker is on the business, the more likely he or she could be considered an employee of that business.

The DOL noted that there has been significant confusion regarding the meaning of economic dependence and increasing legal uncertainty against the backdrop of increasingly flexible work arrangements. The DOL therefore promulgated the final rule to provide greater clarity on its own worker classification test under the FLSA.

DOL provides five factors to determine a worker’s ‘economic reality’

In its effort to clarify the confusion caused by the ever-changing meaning of the “economic reality” of a worker’s engagement, the DOL provided five factors to assess a worker’s economic dependence. Although the factors below are not exhaustive, and no single factor is dispositive, the DOL has clarified that the first two factors “are the most probative as to whether or not an individual is an economically dependent ‘employee.’” If these two factors point to the same conclusion, the remaining three factors need not be analyzed in making the classification determination.

  1. The nature and degree of the worker’s control over the work. This factor examines whether the worker exercises substantial control over key aspects of the performance of the work, such as scheduling the hours worked, selecting projects and/or being able to work for competing companies. The DOL noted, however, that even if a business required a worker to comply with specific legal obligations – such as satisfying health/safety standards and carrying proper insurance, or contractually agreed-upon deadlines or quality control standards – this alone would not constitute “control” for the purpose of this factor.
  2. The worker’s opportunity for profit or loss. This factor focuses on the extent of the worker’s opportunity to earn profits or incur losses based on (i) his or her own managerial skill, business acumen or judgment, and (ii) management of his or her investment in or capital expenditure on helpers or equipment or material to further his or her work. By contrast, if a worker “is unable to affect his or her earnings or is only able to do so by working more hours or faster,” the more likely he or she is classified as an employee under the FLSA.

If these first two factors conflict, however, the following three remaining factors can serve as further guideposts for proper classification.

3. The amount of skill required for the work. This factor examines whether the individual’s work requires specialized training or skill that the business does not provide.

4.The degree of permanence of the working relationship. This factor examines whether the relationship is impermanent (i.e., finite or sporadic) or permanent (i.e., indefinite or continuous). If a worker’s engagement falls into the former category, this would be indicative of an independent contractor relationship.

5. Whether the work is part of an “integrated” unit of production. This factor focuses on the extent the work is a component of the business’s “integrated production process” for a good or service. Significantly, in incorporating this rule, the DOL rejected the prior test’s assessment of a worker’s “integrality” – which focused solely on a worker’s “importance” or “centrality” – because it found that identifying the “‘core or primary business purpose’ is not a useful inquiry in the modern economy.” Instead, under this factor, the worker is not likely to be found to be an employee if they are not “integrated” into the business’s production process, which is composed of operational subparts working in coordination towards a “specified unified purpose.”

Also noteworthy, the DOL announced that offering health, retirement and other benefits to independent contractors in and of itself is not “necessarily indicative of employment status.” However, the DOL cautioned that offering the same benefits to both independent contractors and employees poses misclassification risks.

Will the final rule take effect?

This remains to be seen. While the final rule is scheduled to go into effect on March 8, 2021, the future of the final rule remains uncertain because the incoming Biden administration is expected to issue a directive to all agencies to delay the effective date of any pending regulation that is not yet effective. Further, under the Congressional Review Act, the Democratic majority in the Senate and House could rescind the final rule with presidential approval.

What does this all mean?

Unlike the DOL’s 2019 Opinion Letter supporting the gig economy, if implemented, the final rule constitutes binding authority that stands to alter how the DOL and adjudicative bodies analyze and ultimately classify workers under the FLSA. Although its practical impact can be limited by state laws with different and potentially more rigorous standards, the final rule represents another positive development for gig economy platforms and others businesses hampered by worker classification tests that fail to reflect, as the DOL describes it, the modern economy.

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The gig economy – a new category of worker on the horizon?

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Over five years ago, in 2015 we wrote a thought piece about the “gig economy” and where it might be headed. Given the gig economy was then only emerging as a part of the broader economy, the impacts, positive and negative, were not yet known. However, we observed that there was potential for workers and employers to successfully leverage technology as a complement or substitute for traditional ways of working.

In 2017, our colleague Ben Dudley, wrote about the continual rise and development of the gig economy. He observed that employment and industrial laws were slow to catch up with these developments but sophisticated businesses would be looking at their structures and operations to stay ahead of the movement.

Now, we come to the start of 2021.

The global pandemic has put a spotlight on gig work in a real and tangible way. On the one hand, platforms have helped us manage during lockdowns, supporting businesses to pivot to online delivery, providing work and allowing those in self isolation to access necessities. At the same time, tragically, a number of food delivery workers lost their lives on the roads, prompting the New South Wales Government to set up a taskforce to investigate the deaths and assess how to improve the safety of such workers.

The fact that contractors generally do not receive paid sick or carer’s leave was also highlighted in the pandemic response. It was reported that a number of ride-share and food delivery platforms moved to cover their partners’ lost income when required to self-isolate – to the benefit of both the individuals and their communities fighting a highly contagious virus. However, those platforms would understandably have been concerned about providing benefits associated with “employment” to those workers and potentially increasing their risk of misclassification claims.

In short, gig work and platforms are continuing to gain traction as a part of the economy, but governments have only recently recognised that the law must evolve to keep pace with them.

In the Report of the Inquiry into Victorian On Demand Work issued in June 2020, Chairperson Natalie James found a “compelling case for change” in relation to the regulation of gig work. The Inquiry’s recommendations included:

  • codifying work status in the Fair Work Act (rather than relying on “indistinct” common law tests),
  • allowing gig economy workers to bargain collectively with platforms, and
  • providing streamlined advice around work status.

The Victorian Government closed public consultations about the Inquiry’s recommendations in October 2020. It is now considering feedback on the Report.

Where to from here?

The correct classification of gig work is critical for both employers and workers because it determines the application of a broad range of entitlements and benefits. However, that issue is inherently uncertain in “borderline cases” where there are factors pointing in opposing directions.

The Fair Work Act currently applies in the main to employees, but leaves the definition of employee versus independent contractor to the common law. This requires employers to weigh up a series of factors, none of which are conclusive. In one case[1], the application of this multi-factor test resulted in a young backpacker engaged by a labour hire company to work on construction sites in Perth being found to be an independent contractor – an outcome which was queried but not overturned on appeal. One judge who sat on the appeal observed:

“It may be thought that the prevalence of trilateral relationships, the evolution of digital platforms and the increasing diversity in worker relationships has evolved in a way that the traditional dichotomy may not necessarily comprehend or easily accommodate“.

The “traditional dichotomy” between employee and independent contractor in the common law was once described by the High Court of Australia as “too deeply rooted to be pulled out”. However, with the growth of the gig economy and other innovative approaches to work it is now likely that the law will change to (at the very least) allow the provision of employment-like benefits to gig workers. There is a push to take the more radical step of defining “employment” in legislation to expand those rights and protections to gig workers. This would represent a marked shift in the law as we know it. Arguably, it could undermine the value of gig work – to provide workers with greater flexibility than traditional employment (for instance the right to set their own schedule and to accept or reject work). It would be preferable for a national approach to be taken rather than a state by state, piecemeal approach if this can be achieved. Whatever comes next, the gig economy will certainly be one of the most interesting legal and policy challenges for employment and industrial relations in 2021 and beyond.

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