In a large independent contractor misclassification case, the court accepted Elizabeth Newlon’s economic testimony, reversing the prevailing attitude in federal courts that economic analysis provided by experts cannot aid the finder of fact in answering the question of contractor misclassification.

In June 2023, the US Department of Labor (DOL) brought a claim of independent contractor misclassification against Arise Virtual Solutions Inc. (Arise), a digital platform on which small businesses transact with large companies in the market for customer services. The DOL alleged the owners of the small businesses operating on the Arise platform were willfully misclassified as independent contractors by Arise when they were economically dependent on Arise for work and, thus, employees under the Fair Labor Standards Act (FLSA). 

Arise retained Dr. Newlon to provide expert testimony about the structure and economics of Arise’s business as a two-sided transactional platform. She also opined about the economic behavior of the allegedly misclassified contractors that operated small businesses that contract with Arise to provide customer service to companies looking to outsource their customer service needs through the Arise platform. The DOL attempted to exclude Dr. Newlon’s testimony on grounds the question of misclassification is purely a legal question that leaves little room for “expert testimony on the substantive issues in this case.” Until this case, this was the prevailing attitude of courts in independent contractor misclassification matters.

Dr. Newlon’s analysis addressed the nature of economic transactions on Arise’s platform. The DOL alleged Arise acted as an employer by buying the labor of independent contractors and selling their services to large companies in the market for outsourced customer services. Dr. Newlon’s investigation found that Arise facilitates transactions, which otherwise would not be economically feasible, between individual contractors and large corporate clients by facilitating network effects on its platform and driving demand for its services.

Using voluminous transaction data, Dr. Newlon presented analyses exploring the extensive range of choices available to the contractors and the wide variation in decisions ultimately made by them, such as the types of services they provide and when and how much they provide. Dr. Newlon also determined the labor market offered contractors numerous full- and part-time employment opportunities contractors could have selected instead of transacting on Arise’s platform. She demonstrated Arise drove demand for its platform by offering contractors non-pecuniary benefits employers could not, such as highly flexible schedules and the freedom to be their own boss.

Judge Donald Middlebrooks rejected the DOL’s claims about Dr. Newlon’s testimony and denied its motion to exclude her testimony. He was “persuaded that Dr. Newlon’s testimony will be relevant and that she is qualified to opine on the Defendant’s business structure.” Her analysis of defendant’s business model was particularly important to the judge as it relates to the question of “whether the services rendered by the alleged employees are an ‘integral part’ of Defendant’s business.” As was successfully argued by the defense, an understanding of Arise’s business model is necessary when determining whether Arise is a technology company that provides platform services or a call center company that provides customer support services.

Ultimately, by entering her report into evidence and allowing her to testify at trial, Judge Middlebrooks opened the door for economic analysis to be offered by experts in independent contractor misclassification cases. While economists still cannot opine about the answers to the individual factors in misclassification tests, such as whether a defendant exercised control over the alleged employees, this case demonstrates economists can provide a meaningful understanding of the economic structure of a defendant’s business and a better-developed evidentiary basis from which the finder of fact can determine individual economic factors.