Independent Contractors

Protecting the Sharing Economy: Creating an FLSA Dependent Contractor Status

Last week, I answered a question about whether the FLSA is outdated in the affirmative.  For the reasons I discussed last week, forcing every worker into the employee bucket, as the DOL seems to prefer, does not serve the workers or employers well.  The alternative undermines the protections that employment laws are supposed to provide.  In my opinion, the most balanced approach creates a dependent contractor classification under the FLSA that enjoys a floor of rights common to all workers.  What would the “dependent contractor” regulation look like?

Building on the Spanish and Italian models, FLSA dependent contractors would be those who, pursuant to a written agreement and in return for remuneration, carry out an economic activity or a profession, personally and directly, for an employer, and who:

  1. Possess at least some material and/or infrastructure necessary for the conduct of the activity, independent of the employer’s material and/or infrastructure;
  2. Work subject to at least some of their own criteria, subject to organizational, technical and procedural criteria that the employer provides, such as business production cycles, scheduling and other employer or end-client requirements;
  3. Perform the activity autonomously, that is without being subject to the close supervision of the employer and regardless of the time needed to carry out the task;
  4. Receive remuneration based on the quantity and quality of the work performed.

This proposed definition expands the current FLSA protections in two fundamental ways.  First, it broadens the control/subordination test to one measuring what other researchers have called “democratic deficits.”  Democratic deficits refer to the fact that people work together mainly for efficiency reasons, whether division of labor, the efficient use of resources and greater specialization, or the minimization of transaction costs.  To reach those efficiencies, workers establish a structure of governance that necessarily limits individual worker autonomy.  It is this lack of autonomy that employment laws seek to protect. Second, the definition expands economic dependence to measure more than the economic realities stemming from the risk of loss or chance of profit (the nearly exclusive focus of the DOL’s recent Administrator’s Interpretation and 6-factor test).  “Economic dependence” under this proposed definition instead reflects the extent that workers take on the risks of the relationship, thus relying and depending on it, rather than spreading those risks in the market for products/services and/or labor. Both parts of the work relationship are equally important to determine the scope of the protection of labor and employment laws.

Under a dependent contractor classification, regulators and courts can more easily distinguish among the three classifications, using them to decide and explicitly state which groups of people should be covered by each regulation. The first, and by far the largest, group will remain employees, who are in a position of both democratic deficits and economic dependency on a relationship with a specific employer.  Those without any of those characteristics, by far the smallest group under this approach, are independent contractors. Dependent contractors sit in between.

Most importantly, this proposed FLSA classification captures workers that the current FLSA contractor/employee dichotomy leaves underserved or unserved.  For instance, the dependent contractor classification captures currently underserved workers who experience few or no democratic deficits but are economically dependent on the specific needs of an employer. These are the people who seem to operate their own businesses – they are free to make their own choices and are not subject to control – but who are economically dependent on one or two clients.  It also captures currently unserved workers in the opposite situation who have little or no economic dependency, but experience significant democratic deficits during their relationship with an employer.

Furthermore, the classification captures a wide range of sharing economy and alternative workers.  Freelance workers, like coders, writers, consultants, and others at the skilled end of the sharing economy can typically find a job any time and have almost no employer-specific ties, in effect spreading their economic risks by frequently changing jobs or taking on new/additional work.  While not economically dependent, these dependent contractors are still potentially subject to democratic deficits during each individual job.  At the other end of the skill and/or earning scale, dependent contractors would also include the infrequent Lyft driver, Instacart shopper, or other pieceworker who has little attachment to the occasional employer beyond an app and no economic dependency, but is still subject to democratic deficits while working.

With this intermediate dependent contractor classification in place, the FLSA (and other areas of labor and employment law that depend on it) would better protect sharing economy and other “alternative” workers without destroying either the business model or workers’ choices to participate in it.

With the definition in place, what balance should the FLSA strike for employers and their dependent contractor workers?  That’s a question I’ll return to in coming months.

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