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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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Economy

Why faster payments are critical to the gig economy

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More people are joining the gig economy, and a major driver of this trend — particularly for those working multiple gigs — is a need for faster access to cash to meet expenses.

The gig economy has proven flexible during the pandemic. When ride sharing cooled as fewer consumers traveled, food delivery services exploded. As Airbnb vacation rentals dropped, they were replaced by Airbnb home rentals as newly sequestered workers decided remote work could allow them to trade apartments in New York and Chicago for beach and mountain homes in Florida and Colorado.



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European Commission to consult over future of gig economy

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Photo: Shutterstock

The European Commission on Wednesday began its consultation on the rights of gig economy workers whose labour is governed by digital platforms.

The commission’s process is made up of two parts: the first, which will last six weeks, will see businesses, workers and unions consulted on “the need and direction of possible EU action to improve the working conditions in platform work”; the second, to take place later in the spring, will see concrete proposals formulated and legislation introduced if no agreement is reached in the first stage.

Among the key issues to be addressed, in addition to employment status, will be algorithmic management, collective representation and access to social protections with the EU officials aware that, according to jobs commissioner Nicolas Schmit, “there is not white and black or there is not just one-size-fits-all. There is a big variety in the world of platforms.”

First soundings suggest the commission wants to preserve platorm-based gig economy work. Margrethe Vestager, competition commissioner and chair of the Europe Fit for the Digital Age group, said: “The platform economy is here to stay– new technologies, new sources of knowledge, new forms of work will shape the world in the years ahead.”

However: “And for all of our work on the digital economy, these new opportunities must not come with different rights. Online just as offline, all people should be protected and allowed to work safely and with dignity.”

She identified the most crucial issue was “to find a balance between making the most of the opportunities of the platform economy and ensuring that the social rights of people working in it are the same as in the traditional economy” adding there was “also a matter of a fair competition and level playing field between platforms and traditional companies that have higher labour costs because they are subject to traditional labour laws.”

She said she was not looking at creating a new category of worker: “In my experience, discussions become extremely complex when you want to create a new category. We’re not in any process to create a third category. But we think that here in the consultation, it’s important that we get the feedback on exactly this.”

Uber said it welcomed the consultation: “We welcome the steps taken by the European Commission to improve the conditions of platform work,” said a spokesperson. “Any legislative initiative should be grounded in what platform workers value most – flexibility and control over their work, transparent and fair earnings, access to benefits and protections, and meaningful representation.”

Last week’s judgment in the UK Supreme Court, which ruled Uber drivers were workers because, said the judge, the relationship between it and its drivers was one of “subordination and dependency”, could lead to changes in the UK that will inform the commission’s discussion.

However, centre and left-wing political groupings in Europe are campaigning on the basis that platform workers should be employees. Alongside trade unions such as the European Transport Workers’ Federation – a participant in the consultation – they believe the onus should be on the platforms to prove that their “contractors” aren’t employees, rather than the other way round.

“To change the game of the gig economy, in principle all platform workers must be considered as employees,” said Dutch MEP Agnes Jongerius, a European parliament spokesperson for the employment and social affairs committee. Another member of the committee, French MEP Sylvie Brunet, published a draft report on the rights of platform workers this week, which called on the EU to draw up legislation to “counter bogus self-employment”.

Groups representing companies’ interests such as BusinessEurope do not wish to see an EU-wide definition of employee, which they say should be defined on a national level. Unless an agreement is reached at stage one of the European Commission’s consultation, it is likely that digital platform workers on the Continent will be subject to a patchwork of national case law for at least a year to come, because it is thought coming up with legislation will be a long drawn-out process.

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Economy

How the Gig Economy Helps American Workers, Explained

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Sure, you know that being an Uber driver is great for someone who wants to make their own hours. But did you know that many Americans are choosing freelance work because they need flexibility because of family or other responsibilities?

Did you know that small businesses rely on independent contractors? Or that Americans who were once discouraged because they couldn’t make a job work with their lifestyle are now able to work?

But unfortunately, the gig economy is under attack by leftists. In California, a new law has made many such flexible jobs illegal.

In this “Policy Lab” episode, posted above, we have the facts on the gig economy. Check it out—and if you’re interested in watching more “Policy Lab” episodes, you can view them here.



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