The gig economy is the future of the workforce, right? Or is it an old concept with a modern twist? After all, using workers on a “freelance” or “independent contractor” basis is not a new idea. Whether old or new, there are legal traps that businesses should be aware of and precautions they can take to minimize their liability.
What is the gig economy?
At its core, the gig relationship has three main elements: (1) an independent worker who is paid to perform a discrete task or service (a “gig”) for a business, (2) a consumer who needs that specific service, and (3) a digital platform that directly connects the gig worker to the consumer.
The classic example of a gig worker is a ride-hail driver for a company like Uber or Lyft, but the gig economy also encompasses people who deliver groceries, walk the dog, or perform household services. Gig workers can also be white-collar professionals, especially when it comes to short-term projects, or for work in areas like marketing, graphic design or coding.
Using gig workers can be a great way to lower costs, increase the talent pool, provide flexibility for short-term or one-time projects, and scale up or down quickly. But gig work does create some legal challenges and anxiety for companies operating in this realm, particularly misclassification.
Litigation trends and agency involvement
As Juliet so famously said, “A rose by any other name would smell as sweet,” and a worker by any other name may still be an “employee.” If the worker is legally an “employee” rather than an independent contractor, the company may be liable for payment of the applicable minimum wage and overtime, among other things.
The gig economy complicates the question of classification, at least in part because many of the applicable statutes and standards were put into place long before the Internet existed. When the Fair Labor Standards Act was enacted in 1938, no one dreamed that a worker would be clicking an app on a smart phone to find a job for the day. Thus, it is not surprising that determining whether a gig worker is an “employee” or an “independent contractor” causes confusion â€“ and litigation. After discussing whether a Lyft driver was an employee or independent contractor, a federal judge in California aptly said, “[T]he jury in this case will be handed a square peg and asked to choose between two round holes.” To make matters worse, it is possible for a court to find that a worker is an independent contractor under one legal test, but an employee under a different legal test. And it is also possible to have different outcomes when different courts apply the same legal standard to the same set of facts.
Congress has not enacted legislation to clarify this issue, but several federal administrative agencies have now weighed in. In April 2019, the U.S. Department of Labor issued an Opinion Letter in which it evaluated whether workers using an unidentified “virtual marketplace company” platform to offer household and personal services to consumers were employees or independent contractors. The DOL considered the degree of control exercised over the worker, the permanency of the relationship between the worker and the company, the worker’s investment in facilities and equipment, the required skill, the ability of the worker to provide services through competing platforms, the individual’s opportunity for profit and loss, and other factors. The DOL concluded that the workers at issue in that opinion letter were independent contractors under the FLSA and thus were not legally entitled to the minimum wage or overtime.
Similarly, the Office of the General Counsel, Division of Advice, of the National Labor Relations Board released an Advice Memorandum this year saying that certain Uber drivers were independent contractors rather than employees covered by the National Labor Relations Act. Applying the newly reinstated common-law agency test, the Advice Memorandum considered the extent of Uber’s control over the drivers, the method of payment, the work schedules, work locations, and the drivers’ ability to work for competitors of Uber. Because the drivers were not covered by the NLRA, the Advice Memorandum recommended that unfair labor practice charges filed by them in 2015 and 2016 be dismissed if not withdrawn.
Although the federal government under the Trump Administration has been relatively “business-friendly” on the classification issue, many state and local governments have more “worker-friendly” standards that apply under their own wage and hour laws. In addition, some states and cities have enacted general marketplace statutes or ordinances specific to ride-hailing companies. As in so many other areas of employment law, this patchwork of differing standards related to gig workers has created more challenges for multistate employers.
Recommendations for businesses
Although it seems nearly impossible to guarantee that a worker is correctly classified, what should companies considering gig workers do to minimize the risk that they will be found to have misclassified a worker?
There is no simple answer to the fact-specific question of classification. However, here are some general tips that may help:
Treat your employees like employees, and treat your independent contractors like independent contractors. For example, it is a good idea to contractually spell out the details of a gig, including duration, exit procedures, confidentiality considerations, freedom to work for competitors, and other expectations, such as scheduling and whether necessary equipment and supplies are furnished by the business or by the worker.
Consider having an independent contractor policy manual, separate from your employee handbook, that sets forth the information a gig worker needs to know about workplace safety and applicable standards of conduct. The policy manual should not provide information about employee benefits, overtime, performance review schedules, or other topics that should be of interest to employees only. The onboarding process for new gig workers should similarly be more abbreviated than the process that applies with new employees.
Focus on the bottom line. Rather than directing the manner in which the work is performed (a strong sign that the worker is really an “employee”), with gig workers and all independent contractors, focus on the result to be achieved.
Offer training to employees about the proper use of independent contractors. Management will definitely need to be aware of the distinction. It may even be helpful to provide training on a more basic level to non-management employees.
Regardless of whether the gig economy is an old concept or a new one, now is always the best time to ensure your company’s policies and procedures are both lawful and useful.
Susan Bassford Wilson is a partner with the nationwide labor and employment law firm of Constangy, Brooks, Smith & Prophete, LLP. Susan focuses her practice on management-side employment law, particularly on counseling and litigation prevention for technology, transportation, healthcare and retail companies. She handles a wide range of employment matters in federal and state courts, and she enjoys assisting employers in proactively addressing employee issues through policy development, audits, and training. She can be reached at email@example.com.