Legal Briefings

TESTING: CONTRACTORS IN THE VIRTUAL MARKETPLACE
Recognizing the proliferation of virtual marketplace companies (VMC) like Uber and TaskRabbit, the Wage and Hour Division of the Department of Labor issued an opinion letter applying the six-factor test to evaluate whether a service provider is an employee or independent contractor.

Control: The service provider has the flexibility to choose if, when, where, how and for whom they will work. The VMC lacks oversight concerning the quality of the service provided.

Permanency: The service provider is engaged on a project-by-project basis and is free to accept work from a competitor of the VMC. There are limited grounds upon which a service provider can be terminated.

Investment: The service provider invests their own money in the facilities, equipment or helpers needed to provide services on the VMC’s platform.

Skill and initiative: The service provider, through their own skills, initiative or judgment, is able to independently manage the work, and is not dependent on the VMC for training.

Opportunity for profit/loss: The service provider’s own skills, initiative and judgment dictate their opportunity for greater earnings or exposure to loss of their investment.

Degree of integration: The service provider does not develop the VMC’s platform and they are not integral to the business of referrals.

INDIVIDUAL VS. CLASS ACTION A COST CONSIDERATION

When Convergys hired Sean Abner, it required him to sign an agreement stating that he would not pursue any collective or class action lawsuit against Convergys. This waiver of Abner’s rights was not accompanied by an arbitration clause in the agreement. Abner brought a collective action against Convergys under the FLSA, claiming that he and his co-workers worked three to five hours of off the clock each week and were not compensated for that time. Convergys filed a motion to strike Abner’s collective action claim under Epic Systems Corp. v. Lewis, upholding mandatory arbitration clauses in employment agreements that waive class and collective action procedures. Convergys claimed under Epic, the FLSA’s collective action mechanism was a procedural rule that could be waived, not a substantive right. The U.S. District Court for the Southern District of Ohio disagreed, holding that a class or collective action waiver outside of an arbitration clause is unenforceable. The court noted that Epic found arbitration agreements, which waive class and collective action procedures in court in favor of single-plaintiff arbitration, are enforceable. Critically, in Epic, the Supreme Court counterbalanced the right to pursue a collective action under the FLSA against the right to enforce arbitration agreements under the Federal Arbitration Act. Thus, as the district court in Abner recognized, without an arbitration agreement, there is “no countervailing federal policy that outweighs the policy articulated in the FLSA,” and a waiver of class or collective action procedure is unenforceable.

IMPACT: When exploring class action waivers, weigh the economic impact of arbitrating individual claims versus litigating class or collective claims in court.

Rachel L. Schaller and Daniel Saeedi are attorneys at Taft Stettinius & Hollister LLP. To comment, email editors@workforce.com.