This week the Department of Labor issued an opinion letter signaling that it's siding with business owners when it comes to determining whether gig workers like Uber drivers should be classified as employees or independent contractors.
The DOL letter concluded these workers are contractors, not employees, and as such, they're not entitled to federal protections like minimum wage and overtime pay. This is a reversal of the DOL's position under Obama, which held that many gig workers should be classified as employees.
Though the letter was issued to an unnamed company which requested the DOL's guidance, the business community looks to such letters for insight into the department's stance on hot-button issues. While DOL policy prevented the company's name from being revealed, the business in question reportedly runs a mobile platform connecting customers with gig workers offering residential cleaning services.
Though this platform is not exactly the same one used by Uber, Lyft, and Handy, the letter sends a clear message to the industry: Under Trump, the DOL doesn't intend to crack down on these types of companies for classifying their workers as contractors.
What does this mean?
This doesn't mean that gig workers can no longer sue companies for misclassification, only that the department doesn't plan to aggressively target operations with a similar business model. The message comes at a particularly critical time, as both Lyft and Uber are taking their companies public and want to assure investors that their underlying business model is legally sound.
Up until recently, regulatory agencies did little to enforce worker classification laws. But with Obama's election and the rapid increase in the number of businesses that rely primarily on independent contractors for labor, there's been heightened scrutiny from regulatory agencies at all levels.
Such aggressive enforcement by the DOL was halted soon after Trump took office, and this new letter seems to make the Trump administration's relaxed position even more clear. That said, you shouldn't assume you no longer have to worry about properly classifying your workers, no matter what kind of operation you run.
Outside of potential lawsuits from workers, there are numerous other federal and state agencies with the power to penalize you if you fail to properly classify your workers, even if done by mistake. For example, because the agency might miss out on your share of a worker's Social Security and Medicare taxes, the IRS has a keen interest in making sure you maintain the proper employment classification—and they can audit and fine you if you aren't careful.
What should you do?
Even though the Trump DOL is taking a less aggressive position, if you use independent contractors, you must remain vigilant about proper worker classification. However, the recent letter does shed some light on what the department will be looking for when deciding similar cases.
To support its conclusion that the workers in question were not employees, the DOL cited several facts about the unnamed company's workforce: the workers had the freedom to choose when, where, and how long they worked; they provided their own equipment; and the company did not require the workers to undergo a training program.
While there's no single test to determine a worker's proper classification, it generally comes down to the level of control you have over those who work for you. If you control or direct how the work gets done, the worker is more likely to be classified as an employee.
With independent contractors, you're only permitted to control the end result of their work, not the manner and methods they used to complete the job. One of the best ways you can safeguard yourself against misclassification is by always using a properly drafted contract with every single person you hire, without exception.
The contract should clearly define the terms and parameters of the individual's role and relationship with you, including a clear scope of the work involved, the job's time frame, and the terms of payment. And as highlighted by the recent DOL letter, the agreement should also clearly state that the worker is responsible for his or her own workplace, equipment, and expenses.
Before you sign on the dotted line, you should always allow us to review and if needed, revise your independent contractor agreement, even if it was created by another lawyer.
Better safe than sorry
While the DOL letter will likely be heralded as great news by the burgeoning collection of companies (perhaps even yours) that have predicated their business model on the use of independent contractors, you shouldn't let your guard down.
Whether you need new contracts created, want your old ones analyzed, or have questions about the current legal landscape, you should meet with us. Contact our office today to schedule your appointment.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.