{"id":71390,"date":"2025-08-06T11:18:44","date_gmt":"2025-08-06T15:18:44","guid":{"rendered":"https:\/\/techservealliance.org\/?p=71390"},"modified":"2025-08-27T12:34:47","modified_gmt":"2025-08-27T16:34:47","slug":"back-to-economic-reality-with-virtual-marketplace-companies","status":"publish","type":"post","link":"https:\/\/techservealliance.org\/back-to-economic-reality-with-virtual-marketplace-companies\/","title":{"rendered":"Back to Economic Reality With Virtual Marketplace Companies"},"content":{"rendered":"\n

Written By: Christopher Leddy, Esq. and Maria Matkou, Esq.<\/strong><\/p>\n\n\n\n

This article was provided to TechServe by Becker LLC<\/a>. View the original article here<\/a>.<\/strong><\/p>\n\n\n\n

In line with President Trump\u2019s prior term, the current administration is signaling a more favorable stance toward the classification of independent contractors. In 2024, the Biden administration enacted the Rule titled Employee or Independent Contractor Classification under the Fair Labor Standards Act<\/em>, 89 Fed. Reg. 1638 (the \u201c2024 Rule\u201d), which reinstated the six-factor \u201ctotality of the circumstances\u201d test. Many employers viewed this test as burdensome, and the rule faced immediate legal challenges.<\/p>\n\n\n\n

Once the current Trump administration took office, the Department of Labor (\u201cDOL\u201d) postponed oral arguments in some of these pending cases involving the 2024 Rule, signaling a reevaluation of its position. Ultimately, the DOL issued Field Assistance Bulletin No. 2025-1<\/em>, announcing a pause in enforcement of the 2024 Rule and a reversion to earlier guidance\u2014specifically, Fact Sheet #13<\/em> (July 2008) and Opinion Letter FLSA2025-2<\/em>.<\/p>\n\n\n\n

1. Fact Sheet #13 \u2013 \u201cEconomic Realities\u201d Test<\/strong><\/h2>\n\n\n\n

Fact Sheet #13<\/em> set forth the \u201ceconomic realities\u201d test to determine whether a worker is an employee or an independent contractor under the FLSA. It identifies the following factors as relevant:<\/p>\n\n\n\n

    \n
  1. Opportunity for profit or loss depending on managerial skill;<\/li>\n\n\n\n
  2. Investments by the worker and the employer;<\/li>\n\n\n\n
  3. Permanence of the work relationship;<\/li>\n\n\n\n
  4. Nature and degree of control;<\/li>\n\n\n\n
  5. Whether the work performed is integral to the employer\u2019s business; and<\/li>\n\n\n\n
  6. Skill and initiative.<\/li>\n<\/ol>\n\n\n\n

    The DOL clarified that certain facts\u2014such as the location of the work, the absence of a formal employment agreement, or the worker\u2019s licensing status\u2014are not determinative of employment status.<\/p>\n\n\n\n

    2. Opinion Letter FLSA2025-2 \u2013 Updated Guidance on Virtual Marketplace Companies (VMCs)<\/strong><\/h2>\n\n\n\n

    In Opinion Letter FLSA2025-2<\/em>, the DOL\u2019s Wage and Hour Division (\u201cWHD\u201d) revisited the employment status of individuals working through Virtual Marketplace Companies (\u201cVMCs\u201d), expanding upon and superseding Opinion Letter FLSA2019-6<\/em>. VMCs operate digital platforms\u2014typically accessed via apps or websites\u2014that connect consumers with service providers for on-demand services such as delivery, house cleaning, or home repairs.<\/p>\n\n\n\n

    Ultimately, and in line with the current administration\u2019s position, the WHD concluded that these service providers are independent contractors under the FLSA. The analysis emphasized several key facts: providers agreed to terms designating them as independent contractors; they were not interviewed or trained by the VMC; and they retained discretion over when, where, and how they worked. Further, providers frequently worked across multiple platforms, used their own tools, bore their own business expenses, and could hire helpers. Although the VMC set default pricing, providers could negotiate rates and retain customers who engaged them off-platform.<\/p>\n\n\n\n

    Applying the economic realities test, the WHD analyzed six factors:<\/p>\n\n\n\n

      \n
    1. The nature and degree of the potential employer\u2019s control;<\/li>\n\n\n\n
    2. The permanence of the relationship with the potential employer;<\/li>\n\n\n\n
    3. The worker\u2019s investment in facilities, equipment, or helpers;<\/li>\n\n\n\n
    4. The amount of skill, initiative, judgment, or foresight required;<\/li>\n\n\n\n
    5. The worker\u2019s opportunities for profit or loss; and<\/li>\n\n\n\n
    6. The extent of integration of the worker\u2019s services into the potential employer\u2019s business.<\/li>\n<\/ol>\n\n\n\n

      In applying the foregoing factors in the matter before it, the WHD emphasized that VMC providers were not economically dependent on the platform. Notably, the services they perform were not integral to the VMC\u2019s core business, which was limited to facilitating connections\u2014not providing the services themselves. The WHD found that the VMCs did not supervise, direct, or control how the work was performed. As a result, these workers were not covered by FLSA employee protections, including minimum wage and overtime requirements.<\/p>\n\n\n\n

      The Field Assistance Bulletin No. 2025-1<\/em>, Fact Sheet #13<\/em> (July 2008), and Opinion Letter FLSA2025-2<\/em> reflect the current administration\u2019s effort to revive the independent contractor regulation issued in 2021 under the first Trump administration. Although that rule was never implemented\u2014having been repealed and replaced by the Biden administration\u2019s 2024 Rule\u2014the recent guidance signals a shift back toward the 2021 framework.<\/p>\n\n\n\n

      Under the 2021 regulation, the DOL proposed a simplified approach focusing on two core factors:<\/p>\n\n\n\n

        \n
      1. Control \u2013 the nature and degree of the worker\u2019s control over their work;<\/li>\n\n\n\n
      2. Opportunity for Profit or Loss \u2013 the extent to which the worker can earn profits or incur losses based on initiative and investment.<\/li>\n<\/ol>\n\n\n\n

        If both core factors point to the same classification\u2014employee or independent contractor\u2014that classification would likely be appropriate.<\/p>\n\n\n\n

        In addition to the core factors, the rule included three other factors that were secondary in nature:<\/p>\n\n\n\n

          \n
        1. Skill \u2013 favors independent contractor status if the work requires specialized training or skill not provided by the employer.<\/li>\n\n\n\n
        2. Permanence \u2013 supports independent contractor status when the work relationship is intentionally short-term or sporadic, even if performed on a recurring basis.<\/li>\n\n\n\n
        3. Integrated unit of production \u2013 favors employee status if the individual\u2019s work is part of the employer\u2019s core operations.<\/li>\n<\/ol>\n\n\n\n

          3. Not So Fast Staffing Companies<\/strong><\/h2>\n\n\n\n

          Unlike VMCs, staffing companies are structured around a business model in which placing temporary workers is central to their operations. Staffing firms actively recruit, hire, train, and assign workers to client businesses for temporary, seasonal, or project-based engagements.<\/p>\n\n\n\n

          The relationship between staffing firms and temporary workers tends to exhibit a degree of permanence. Although individual assignments may be short-term or intermittent, workers often remain on the firm\u2019s roster for extended periods, receiving multiple placements over time.<\/p>\n\n\n\n

          Staffing firms typically provide or coordinate necessary tools, equipment, and onboarding. They also exercise significant control over assignments. While workers may decline certain placements, their overall flexibility is limited. Staffing firms may restrict concurrent employment with competing firms and often include non-solicitation or conversion fee clauses in their contracts to prevent direct employment by the client without the agency\u2019s approval or compensation.<\/p>\n\n\n\n

          Temporary workers generally do not have meaningful opportunities for profit or loss independent of their wages. The staffing firm sets compensation based on its agreements with the client, and workers are not positioned to adjust pricing, assume financial risk, or manage expenses in the way independent contractors do.<\/p>\n\n\n\n

          Moreover, temporary workers do not operate as independent business entities. They do not market their services to the public, manage client relationships, or operate with business autonomy. Instead, the staffing firm serves as the employer of record\u2014handling wage payments, tax withholdings, providing benefits, discipline, and providing workers\u2019 compensation and unemployment. This structure typically places staffing firms within the scope of the FLSA, entitling their workers to minimum wage and overtime protections.<\/p>\n\n\n\n

          4. Policy Shift and Business Implications<\/strong><\/h2>\n\n\n\n

          The shift from the 2024 Rule to the reinstated economic realities test reflects a more business-friendly regulatory environment and reduces the likelihood that certain independent contractors will be reclassified as employees. This shift is generally favorable to staffing companies and the broader labor market. However, despite the administration\u2019s current position, businesses should remain cautious when classifying workers as independent contractors. Unless the economic realities test is clearly satisfied, the more prudent course may be to treat such workers as employees to minimize potential legal risk. Furthermore, even though the DOL has paused enforcement of the 2024 Rule, private litigants may still attempt to invoke it in court proceedings.<\/p>\n\n\n\n

          <\/p>\n","protected":false},"excerpt":{"rendered":"

          Written By: Christopher Leddy, Esq. and Maria Matkou, Esq. This article was provided to TechServe by Becker LLC. View the original article here. In line with President Trump\u2019s prior term, […]<\/p>\n","protected":false},"author":25,"featured_media":7616,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_company_domain":"","_price":"","_stock":"","_tribe_ticket_header":"","_tribe_default_ticket_provider":"","_tribe_ticket_capacity":"0","_ticket_start_date":"","_ticket_end_date":"","_tribe_ticket_show_description":"","_tribe_ticket_show_not_going":false,"_tribe_ticket_use_global_stock":"","_tribe_ticket_global_stock_level":"","_global_stock_mode":"","_global_stock_cap":"","_tribe_rsvp_for_event":"","_tribe_ticket_going_count":"","_tribe_ticket_not_going_count":"","_tribe_tickets_list":"[]","_tribe_ticket_has_attendee_info_fields":false,"footnotes":""},"categories":[1],"tags":[],"topics":[44],"member-content":[],"class_list":["post-71390","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized","topics-legal-legislative"],"acf":[],"_links":{"self":[{"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/posts\/71390","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/users\/25"}],"replies":[{"embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/comments?post=71390"}],"version-history":[{"count":5,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/posts\/71390\/revisions"}],"predecessor-version":[{"id":71914,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/posts\/71390\/revisions\/71914"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/media\/7616"}],"wp:attachment":[{"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/media?parent=71390"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/categories?post=71390"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/tags?post=71390"},{"taxonomy":"topics","embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/topics?post=71390"},{"taxonomy":"member-content","embeddable":true,"href":"https:\/\/techservealliance.org\/wp-json\/wp\/v2\/member-content?post=71390"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}