Gig workers and independent contractor status

Many workers in the gig economy sign an acknowledgement that the worker is an independent contractor and not an employee. However, sometimes that is not the end of the story. For one thing, courts are increasingly evaluating whether the company exercises sufficient control over the worker’s everyday tasks that he or she should in fact be classified as an employee.

This classification is crucial as workers who are classified as independent contractors are not entitled to the guarantees and protections of the Fair Labor Standards Act (FLSA) or other employment statutes. This affects the worker’s entitlement to minimum wage and overtime compensation, unemployment and disability insurance, family leave, workers’ compensation, and sick leave. These statutes only apply to workers who are classified as employees. Further, independent contractors are generally not entitled to employer-sponsored benefits, including health insurance, retirement plans, and paid time off.

As the gig economy evolves, so does the law

On June 7, 2018, the U.S. Department of Labor issued a news release reporting that 3.8 percent of U.S. workers, that is 5.9 million individuals, held contingent jobs as of May 2017. With gig workers numbering in the millions, the classification of these workers as independent contractors is increasingly being questioned.

Gig workers should familiarize themselves with how the law defines “independent contractor,” if that definition applies to their work, and, if need be, take steps to ensure that they are properly classified.

To be properly classified as an independent contractor, several factors are considered under various legal tests set forth by the IRS and other government agencies. These agencies are tasked with enforcing employment statutes such as the FLSA. One commonly-used test evaluates factors such as the permanency of the worker/business relationship, investment of the worker in the business, degree of control over the worker by the business, the worker’s potential for profit or loss, the impact of open market competition on the worker’s success, and the independence of the business.

The degree of control the employer has over the worker has traditionally been crucial in the employee/independent contractor analysis – the more control an employer exercises over the day to day work, the greater the likelihood the worker will be found to be an employee.

These traditional tests are being more closely scrutinized in efforts to protect gig workers from being misclassified and possibly exploited. In fact, laws are being passed in some states and cities to provide gig workers with increased legal protections and guaranteeing certain rights – such as the right to be timely paid under New York City’s’ Freelance Isn’t Free Act.

Some states are using the so-called ABC test when a worker challenges his or her classification as an independent contractor, such as in wage claims under the FLSA.

The ABC test evaluates whether:
A. An individual is free from control over the performance of the service provided;
B. The service provided by the worker is outside the usual course of business and places of business;
C. The service provided is customarily provided in an independent trade or occupation.

It is not necessary to show all three prongs of the ABC test to establish that a worker is – or is not – an independent contractor. In terms of classifying gig workers, a more scrutinized analysis of each prong may be necessary. Increasingly, workers are filing class actions claiming that the work they perform is controlled by the company, and performed within the company’s regular course of business, and they therefore should be classified as employees.

If you have questions about your classification as an independent contractor, contact an experienced employment lawyer. The Murphy Law Group will review the circumstances of your working environment, explain your rights, and answer your questions. Contact the Murphy Law Group now at 215-375-0961 or via email consult@phillyemploymentlawyer.com.