Department of Labor Cautions “Gig Economy” Companies against Limiting Workers’ Freedom

The Department of Labor (DOL) said on Wednesday, January 6, that if someone is currently working for one or more of your business rivals, then they are probably not your employee even if they do freelance work for you too. The DOL has just made that bit of common sense one of the key differences between contractors and regular employees.

In a rulemaking for the Fair Labor Standards Act published Wednesday, the department said that one key indicator of whether person is a traditional employee or a contractor is “whether a worker has freedom to pursue external opportunities by working for others, including a potential employer’s rivals.” Only contractors can do that, the department said. That’s because, legally speaking, these workers are considered independent businesses.

Conversely, the department said that if a company restricts a worker’s ability to earn money from its rivals, then that suggests the worker is an employee. It noted an allegation that rideshare company Uber had attempted to limit drivers’ ability to accept jobs from app-based services and said, “Under this rule, Uber’s monitoring and controlling certain drivers’ ability to multi-app would be a consideration under the control factors of the economic reality test as applied to those drivers.”

In short, a worker is a contractor if they can sell his or her labor to the highest bidder. Any company that tries to interfere with that will find itself subject to heavy regulation.

The employee/contractor distinction is important because it is key to the so-called gig economy. Most such companies exclusively hire contractors. That means the work can be short-term and exempt from federal and state rules on matters like overtime, health insurance, and unemployment, all of which apply only to employees.

Gig economy companies like the ridesharing services Uber and Lyft say this flexibility is crucial because many of their drivers only work when they want, often for just a few random hours a week. Critics, especially in organized labor, claim that’s a dodge to get around abiding by the state and federal labor regulations.

Wednesday’s rulemaking supports the gig economy companies argument but adds the crucial caveat that if they want things to stay that way, they cannot restrict the workers’ freedom. That was the right call and a very pro-worker one.