The "Gig Economy" And Federal Overtime Law

The concept of the “gig economy” is receiving increased attention. It’s even been mentioned during the presidential race. But what exactly is a “gig worker” and does federal overtime law apply to gig workers?

Individuals who are part of the gig economy share a few general characteristics. They’re independent workers who are paid to perform a discrete task or service (a “gig”) for a business for consumers who need that specific service. There’s usually an electronic platform (an application or a website) that connects the gig worker to consumers. Drivers for companies like Uber and Lyft or food delivery companies are the most well-known examples of gig workers, but gig workers are increasingly found everywhere, even in white collar fields.

These types of relationships raise questions for the companies that use them. The primary issue is whether gig workers are considered employees or independent contractors. That determination has a number of implications, including whether the gig worker is subject to the federal Fair Labor Standards Act (“FLSA). The FLSA only applies to workers who are considered employees, not independent contractors. It governs the payment of overtime and minimum wages.

In April 2019, the United States Department of Labor (“DOL”) issued an opinion letter that touches on this issue, Opinion Letter FLSA2019-6. The DOL analyzed gig workers’ status under the FLSA by using the “economic realities test.” After applying that test to the information the employer submitted, the DOL determined that the workers were independent contractors under the FLSA. The workers thus were not subject to the FLSA’s minimum wage and overtime provisions.

In applying the economic realities test, the DOL concluded that all of the factors under that test indicated that the gig workers at issue were independent contractors, not employees:

  • Control: The company allowed the workers flexibility to choose if, when, where, how, and for whom they’d work. The company didn’t supervise the work. The workers weren’t prohibited from working for the company’s competitors.

  • Permanency: The workers had “a high degree of freedom to exit the working relationship.” This was very important to the DOL in terms of the workers’ status as independent contractors.

  • Investment: The workers purchased all necessary resources. The company didn’t reimburse them.

  • Skill, initiative, judgment, and foresight: The workers had discretion to choose among different opportunities in order to maximize their profits. The company did not provide mandatory training for the workers. These were signs of the workers’ economic independence.

  • Opportunity for profit and loss: Although the company established default prices, the workers could negotiate job prices with consumers.

This letter is the first time that the DOL has issued any guidance regarding gig workers and the gig economy. The effect of this letter remains to be seen. Courts can use DOL opinion letters for guidance if they wish, but they don’t have to. Further, this letter only applies to the FLSA, not other federal or state laws. At the same time, this letter should be taken as strong indication of the difficulties that gig workers will face in trying to bring themselves within the protection of the FLSA and its overtime and minimum wage provisions.

Harley Erbe