Is the Gig up?
Florida Supreme Court Certified Circuit Civil Mediator
Florida Supreme Court Qualified Arbitrator
Many are contemplating the implication of the 2024 FLSA rule changes on the gig economy due to the expansion of
the “economic realities” test. The Department of Labor (DOL) recently rescinded the 2021 Independent Contractor (IC) Rule and issued a new IC Rule. Although the implication of the 2024 FLSA rule changes have yet to be seen, many anticipate an immediate challenge given the size of the gig economy and its economic impact.
In case you are wondering what the gig economy is, the gig economy is comprised of digital platforms that provide freelance workers the ability to engage with clients to perform short-term services as “contingent-workers” (i.e. think door dash or Uber), independent contract work, per project work or asset-sharing. The gig economy is deemed “non-standard work” made up of “contingent workers”.
As of 2024, surveys performed by the Bureau of Labor and Statistics (BLS) estimated 41 million people in the U.S. participated in the gig economy with 1 in 10 (10.1%) workers relying on the gig economy for their primary income. On average, 1 in 4 workers participate in the gig economy in some capacity. According to Statista, the global gig economy generated 455.2 billion dollars (measured in U.S. dollars) in 2023. Gig work effects more than just the economy, it also effects the morale and satisfaction of the worker.
Studies performed by BLS and Statista reflect gig workers are more satisfied with this type of work arrangement verses traditional work. In fact, the share of full-time independent workers who prefer traditional employment has decreased over the years by 22% (as of 2018). Furthermore, job satisfaction with gig work has continued to increase primarily due to the limited hours, flexibility, and nature of the work.
Given the significant impact gig work plays in the lives of workers and the overall economy, it is believed by some that the recent DOL changes to the Independent Contractor rule, applicable to gig workers, may be deterimental to the gig workforce arragements and the economy as a whole.
On March 11, 2024, after rescinding the 2021 Independnet Contractor (IC) rule, the DOL’s revised Rule (see Fact Sheet 13) regarding the classification of independent contractors under the Fair Labor Standards Act (FLSA) went into effect. The Rule expands the breadth of the economic realtities test codifying a six-part test that is to be used to determine if, as a matter of “economic reality”, if a worker is financially dependent on the employer or is essentially in business for themselves as an independent contractor.
DOL’s final regulation indicates that each factor in the six-part legal test used to determine a worker’s classification and status under the FLSA should be considered equally. The factors of the “economic realities” test include the nature of the degree of control over the work performed; the worker’s opportunity for profit or loss based on their managerial skill; investments made by the worker and the employer; the degree of permanence of the work relationship; skill and initiative; and the extent to which the work performed is an integral part of the business. It is expected that the Rule changes are intended to narrow the scope and applicability of the independent contractor classification and increase the employee classification status. Therefore, challenging the current gig economy and the status of the “contingent”, non-standard worker.
Litigation is anticipated with the scope and breadth of the new Rule and current challenges remain pending on the DOL’s delay in implementing the prior 2021 IC Rule. Resources such as prior case rulings regarding the application of the FLSA rules and the totality-of-the-circumstances test will prove resourceful although, there remains great uncertainty do the fact-specific findings and the undetermined breadth of the new Rule.
For best practice, employers are encouraged to revisit their classification of all independent contractors to determine if they meet the revised Rule. If an employer finds they are not in compliance, they should determine if a reclassification is necessary by applying the six-part test. If a reclassification is found to be warranted from contractor to employee, it is necessary to determine the exposure for wages that may be due, including over-time exposure. Wage and hour litigation is costly and can be quite protracted. Often where there is one re-classification, there may be more which could lead to a potential class action claim.
In my experience, I recommend auditing your employee classifications on a regular basis. In addition, I suggest aligning your job descriptions with the actual tasks performed in the position along with the compensation associated with the position. This will be beneficial should you be subject to a wage and hour audit.
If you are concerned about exposure or have pending wage and hour litigation, mediation is an effective and cost-saving option for any employment matter you may have, especially wage and hour. I am available to mediate or arbitrate your case and help you determine if the GIG is up!