How does the new independent contractor rule proposed by the Department of Labor impact couriers for Doordash, Uber Eats, Instacart and others? What does it mean for rideshare drivers with Uber, Lyft, etc.?
Will this rule mean that delivery and rideshare contracting will come to an end?
A lot of factors that go into answering that question. Will the final rule be the same as what they proposed? And will it stand up to the inevitable court challenges?
The purpose of this article is to examine the rule, as it is proposed, and look at whether delivery and rideshare pass or fail the test. We'll look at the six tests and the criteria in each.
There is a lot to this rule. Therefore, instead of trying to cover it all in one article, I wanted to break it down into a series. This is the second of that series.
- What is the new independent contractor rule proposed by the Department of Labor?
- How do delivery and rideshare companies stand up to the tests of the new rule?
- What happens to delivery and rideshare if this rule stands?
Understand that I am not a lawyer or a legal expert. I'm a delivery driver myself. This is my guess about how the Department would rule on gig economy companies under their proposed rule.
The new rule and how it works
This rule from the Department of Labor is meant to guide them in determining when a company can use independent contractors and when they must hire employees.
The Department of Labor must enforce existing labor laws such as the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA). Those laws include overtime, minimum wage, child labor protections, record-keeping requirements, and other employment issues.
However, the law states that an independent contractor is not an employee. Many businesses try to get around these laws by claiming someone is an independent contractor.
The law says you can't misclassify someone who should be an employee. Unfortunately, there is no clear law to define who is and is not an employee.
This is not a law. The Department can not change laws. It is only guidance for how the Department will interpret the law when enforcing certain labor laws.
The Department of Labor proposes this new rule to create a six-factor test. That test will examine the relationship between a contractor and the business to determine if the worker is classified correctly.
The Department proposes to weigh each factor in the relationship. It doesn't say precisely HOW each factor is weighed.
The simplest explanation is that it's like each factor is a vote. If one aspect points to an employee relationship, it's like a vote in favor of employment. If it is more consistent with a contractor relationship, that's a vote for being a contractor.
What happens if it's a tie? What if three tests pass (indicating a contractor relationship) and three fail? At that point, it's up to whoever is making the decision to decide whether certain factors outweigh others. In the end, it's a very subjective process up to whoever is making the interpretation.
Test 1: Opportunity for Profit or Loss
Is the worker able to control their profitability? Can they make strategic decisions that impact their profits, and is it possible to lose money? Simply working more doesn't cut it.
Beyond the overall question, the Department asks four specific questions:
- Can the worker determine their charges or meaningfully negotiate their rate?
- Can the worker accept or decline opportunities? Are they able to negotiate the order of tasks or the time they perform them?
- Does the worker engage in marketing, advertising, or other efforts to expand their business?
- Does the worker make decisions to invest in hiring, purchasing equipment, or renting space?
How do delivery and rideshare workers stand up to the profit or loss test?
Before introducing the four questions, I believe that gig workers easily pass this test. I've discovered that my decisions as to when and where I work and what offers I accept all make a tremendous difference in what I earn. At the same time, it's very possible for the cost of driving to exceed earnings. That means there's a potential for loss.
However, the four questions change everything. They take the focus away from the bigger picture of profit and loss.
Delivery and rideshare contractors can influence their earnings and profits through their decisions to accept or reject delivery orders. However, the first question asks only if they can set or negotiate the rate. Uber did experiment with the option to set their own prices but ended that test. Delivery and rideshare drivers can not set or negotiate the fares or pay model.
Workers can accept or reject delivery and ride offers. Many are able to work with multiple platforms at once. Unfortunately, some delivery companies like Uber Eats do not allow you to choose which order you can deliver when there are multiple stops.
Delivery and rideshare drivers do not engage in marketing or advertising. Some do expand their business by spreading out to multiple platforms and multi-apping. A minimal number will seek out their own direct customers.
Contractors generally do not rent office space or make any significant investments outside the car they use. However, the Department uses language prohibiting consideration of one's personal vehicle, as they would already have a car for personal purposes.
Ultimately, delivery and rideshare workers likely fail on three of the four questions. Under the proposed language, gig companies probably fail this test.
Test 2: Investment by the worker and employer.
This has often been a discussion about who must pay the cost of providing services. It's more likely a contractor relationship if the worker pays those costs out of their own pocket.
The Department puts many things in its proposal that tightens its definition of investment. They state that the investment must be entrepreneurial or capital. Simply paying for your own tools doesn't cut it.
The Department also uses language that limits consideration of one's vehicle as an investment. Because you already own the car and use it for personal reasons, they don't see it as an investment.
Do delivery and rideshare contractors invest in their businesses?
Without the proposed rule's limitations, I believe you could say yes. There is a significant cost related to using your car. That cost goes far beyond gas and occasional maintenance. A vehicle is a considerable capital investment. The amount of driving involved significantly reduces the value of a car and adds a lot of future repair and maintenance expenses.
Investments outside of vehicle expenses are minimal in comparison. You may have delivery bags or items to improve a passenger's experience. However, language that limits including things needed for the tasks means those cannot be counted.
On top of that, if one is prohibited from considering the cost of their vehicle, there is pretty much no investment. By the Department's rules and language, delivery and rideshare work fails this test.
Test 3: Degree of permanence of the relationship.
The assumption here is that independent contractor relationships tend to have a limited timeframe. Employment relationships tend to be ongoing or indefinite.
Does the period of delivery or rideshare work favor employment or contractor status?
This is a tossup with strong arguments both ways.
Several of my delivery contracts are nearly five years old (as of late 2022). None of my contracts have any expiration date. Based on that, this appears to favor employment status.
However, the nature of the contract says something different. Delivery and rideshare contracts are not in force on an ongoing basis. They're delivery-by-delivery or trip-by-trip. In other words, the contract only goes into effect once the contractor accepts an opportunity. It ends once the trip is completed.
Drivers have no contractual obligation between those trips. They're not required to accept a certain number of offers, nor do they have to work certain times.
There's a valid argument that the contract itself is very limited in scope and term. It begins with the acceptance of a delivery or ride offer and ends once the contractor completes the trip. It does not automatically renew, and each order acceptance is a renewal of the agreement.
I believe that under the terms of the proposal, delivery and rideshare work pass this test. However, I would not be surprised to see the Department interpret this differently.
Test 4: Does the company control the worker?
How much control does the company have over the work of the contractor? The more they control things like when you work and how you do it, the more likely it's an employment situation.
The Department has added to the definition. They now say that if government regulations require control, that still counts towards employee status.
There are four specific factors that the Department proposes to look at in this test:
- Scheduling: Can workers schedule their own work? Does the company interfere with that ability?
- Supervision: Does a person, organization, or technology oversee a worker?
- Setting a price: Is the worker free to set their own price?
- Ability to work for others: Can workers provide their services to other organizations?
Are delivery and rideshare contractors controlled by the gig companies?
We'll examine the four criteria and see how they stack up for delivery and rideshare companies.
Scheduling: A significant advantage in doing gig work is flexibility. Delivery and rideshare companies cannot set schedules for workers. However, give scheduling priority to drivers based on control-based factors like acceptance rate.
Supervision: In my experience, supervision is relatively minimal. There's no boss to tell you what to do and when to do it. However, the Department adds that supervision by technology is a factor. There are examples where gig companies supervise by technology:
- The app tells you that ‘you don't appear to be heading in the direction you should be
- Uber requiring you to take a selfie showing you are wearing a mask before you can log in
- Failure to meet time limits and deadlines can result in contract deactivation.
Setting a price: I believe you can set a price by accepting or rejecting offers. However, the Department may focus only on the inability to negotiate pay models and fares.
Ability to work for others: The nature of gig work lets contractors accept offers one at a time. They can take one from Doordash and the next from Uber Eats. However, when Grubhub doesn't allow you to pause delivery offers while on a block, or Doordash limits the time you can pause orders, there's still an element of control.
Overall: Ultimately, I believe that delivery and rideshare companies pass the test. Three of the four criteria lean more toward a contractor relationship. However, with many of the ways gig companies try to manipulate drivers, this is far from a clearcut win.
Test 5: How much of the work is integral to the employer's business?
The question here is, how central is the work performed to the hiring company's business? Is it the work necessary for the company's ability to survive?
In previous interpretations, the question was more about whether the work performed was the same as the service provided by the company. But the Department has broadened the definition by asking if it's critical to a business.
Is delivery work critical to delivery companies? Can a rideshare company survive if no one provides rides?
I believe that delivery and rideshare companies have always struggled to pass this test, even without the broader definition that the Department uses here.
Uber Eats, Doordash, Instacart, and other delivery services would cease to exist if no one provided deliveries. Uber, Lyft, and other rideshare services would go under quickly without someone providing rides. The business models rely almost entirely on the contractors.
You may have noticed that Doordash says they are not a delivery company and that Uber claims not to be a transportation company. They claim to be technology companies that connect providers to customers. This particular factor is the reason they make this claim.
However, courts often reject that argument. When the company markets the service and coordinates every part of providing that service, it pretty much tells you what their business is about. Therefore, I don't believe gig companies would have passed the test under traditional interpretations.
The Department's new interpretation has expanded from “being the same type of business” to whether the work is critical. The business model for delivery and rideshare companies relies almost exclusively on the work performed by contractors.
Test 6: The skill and initiative of the worker?
How much skill is required to perform the work? Does the contractor have specialized skills and training that allow them to provide a service for the contracting company?
Do delivery and rideshare companies pass the skill and initiative test?
Delivery and rideshare drivers do not need to demonstrate skill to land the contract. The hiring requirements mostly boil down to whether you have a valid driver's license and can pass a background check.
I do believe that skill is necessary to be more profitable. One needs to know how to evaluate an offer and be good at estimating whether an offer is worth one's time. Juggling multiple applications takes skill as well. Customer service skills make a tremendous difference for rideshare drivers.
However, there's a difference between needing the skill to complete the work and using skills to set oneself apart. Picking up food from a restaurant and taking it to a customer doesn't require exceptional abilities. Neither does giving someone a ride. As a result, I don't think the gig companies would pass this test.
Do Delivery and Rideshare Companies pass the test in the Department of Labor's proposed rule?
Based on my reading of the language used and the descriptions provided by the Department, I believe both delivery and rideshare companies would fail. It would look like this:
- Profit and loss: Fail
- Investment by the contractor: Fail
- Length of the relationship: Pass (maybe)
- Control: Tossup
- Nature of the work: Fail
- Skill and initiative: Fail
With four factors failing and two factors possibly passing (but not by much), I don't think there's much chance that delivery or rideshare companies would pass these tests.
Remember that, at this time, it's just a proposed rule. It's not a final rule and isn't official.
However, if it does become final, chances are high that the Department of Labor would rule that these companies should use employees.
That doesn't mean contractors will become employees once it's final. These are only guidelines that the Department will use to determine whether to take action.
The Department could use this to order companies to stop using contractors. Those companies can (and likely will) take those orders to court.
The language is obviously skewed towards an employment verdict. I believe that without some of the provisions in the rule, a traditional evaluation of these factors would be in favor of contractor status on both the Profit and Loss and Investment tests. So based on language and definition changes implemented by the Department, gig companies go from 4-2 winners to 2-4 losers. The skewed language alone may be a reason to overturn.
What actually will happen is yet to be seen. However, if the Department gets its way with this proposal, this could entirely change the landscape for the gig economy.