The Labor Department weighed in Monday on a question whose answer could be worth billions of dollars to gig-economy companies, deciding that one company’s workers were contractors, not employees.
As a result, the unidentified company — whose workers, it appears, clean residences — will not have to offer the federal minimum wage or overtime, or pay a share of Social Security taxes. And while the decision officially applies only to that company, legal experts said it was likely to affect a much larger portion of the industry.
The move signals the Trump administration’s approach to the way gig companies, a growing share of the economy, must treat their work force. As companies like Uber and Lyft begin to sell shares to the public, industry officials estimate that requiring them to classify their workers as employees would raise their labor costs by 20 to 30 percent.
“Today, the U.S. Department of Labor offers further insight into the nexus of current labor law and innovations in the job market,” Keith Sonderling, an official in the division that oversees such issues, said in a statement. It is a longstanding policy for the department not to disclose the names of companies receiving such letters.
Under the Obama administration, the Labor Department issued guidance suggesting that gig workers like drivers for Uber and Lyft were likely to be employees, a stand the department rescinded several months after President Trump took office.
“There are few more contentious issues currently than the status of workers operating on platform-type business models,” said David Weil, the administrator who issued the guidance under President Barack Obama and is now dean of the Heller School at Brandeis University.
Unlike the broad guidance the Obama administration issued, the action announced Monday took the form of an “opinion letter” applying only to the company that sought it. But other businesses in the industry tend to parse such letters closely for insight into the department’s approach.
And the letters have more practical legal force than departmental guidance for the company in question. They are often referred to as “get-out-of-jail free cards” because they mean that the Labor Department won’t initiate enforcement proceedings against a company with a favorable letter.
The letter can also provide a powerful defense to the company if workers sue it or initiate arbitration proceedings to resolve allegations of improper classification.