Employers Must Not Get Lost in the "Gig" Economy - They Are Either Employees or Independent Contractors

The Gig Economy refers to the growing trend where workers disregard the traditional job market, and work for themselves on piece-rate jobs through mobile applications such as Uber, Grubhub, Task Rabbit, or one of the various other service oriented mobile applications.[1]  As the Gig Economy continues to grow, employers must not lose sight of how they classify Gig Economy workers.  This article discusses the Gig Economy and its quasi-independent contractor/employee nature, and how courts continue to use traditional tests to determine whether Gig Economy workers are independent contractors or employees.

A.        The Gig Economy

While the Gig Economy currently represents less than one percent of the American workforce,[2] it is growing rapidly, with some estimating that up to 40 percent of the American workforce will be engaged in the Gig Economy by 2020.[3]  Because of the quasi-independent contractor/employee nature of workers in the Gig Economy, employers may question how those workers should be classified and paid.  Gig Economy workers may look like independent contractors because they have tremendous flexibility in their schedules, use their own tools (i.e. cars, computers, phones), and have the ability to work for various different companies.  For example, a Gig Economy worker could transport Uber customers in the morning, return home and transcribe audio for Amazon’s Mechanical Turk, deliver lunch to Grubhub customers, take the afternoon off, and then transport Lyft customers during the evening commute.  The independent contractor is typically paid Form 1099 income and the company for which they work does not withhold traditional payroll tax from the compensation.

Gig Economy workers look like employees because the companies they work for exert significant control over how they perform their jobs.  For example, Uber requires its drivers to dress professionally, and either turn the car radio off or play soft jazz or National Public Radio when transporting a customer.[4]  Further, Uber’s drivers are instructed on the precise way to pick up a customer.[5]  To many companies, Gig Economy workers seem to fall somewhere between an independent contractor and employee.

B.        Court’s Continue to Use Traditional Tests to Determine Whether a Gig Economy Worker is an Independent Contractor or Employee.

While Gig Economy workers have unique traits, courts continue to follow traditional tests to determine whether the worker is an independent contractor or an employee.  The traditional tests are generally based on whether the employer controls or has the right to control the work performed by the worker.  While states and federal agencies vary on what factors to consider in making this determination,[6] some common factors include:

(1) the extent to which the services in question are an integral part of the employer’s business;

(2) the amount of the contractor’s investment in facilities and equipment;

(3) the contractor’s opportunities for profit and loss;

(4) the amount of initiative, judgment or foresight in open-market competition with others required for the success of the claimed independent enterprise;

(5) whether the contract gives any right to the engaging party to detail how the work is to be performed;

(6) whether the engaging party has control over the business of the contractor;

(7) whether the contract is for an indefinite or relatively long period;

(8) whether the engaging party may discharge the contractor’s employees;

(9) whether the engaging party has the right to cancel the contract at will; and

(10) whether the purported independent contractor is performing work that is the same or similar to that performed by the engaging party’s employees.[7]  

 

It is extremely important for employers to properly classify their workers.  There has been an increased effort from government agencies to investigate and prosecute companies that misclassify workers, and this has also been a focus area for Plaintiff employment lawyers.[8]  Incorrectly classifying Gig Economy or any workers can have drastic effects on companies.[9]

C.        Employers Must Follow Applicable Test to Ensure Gig Economy Workers are Properly Classified.

While some commentators propose adding additional classifications to fit Gig Economy workers,[10] no such classifications have been adopted.  Courts continue, however, to use traditional tests to determine whether a worker is an independent contractor or an employee, and companies dealing with this issue must follow the applicable state and/or federal agency test to ensure the worker is properly classified. 

 

[1] Emily Hong, Making It Work: A Closer Look at the Gig Economy, Pacific Standard (Oct. 23, 2015), http://www.psmag.com/business-economics/making-it-work-a-closer-look-at-the-gig-economy (last accessed Feb. 18, 2016).

[2] Seth D. Harris and Alan B. Krueger, A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The “Independent Worker,” The Hamilton Project (December 2015).  Determining exactly how many workers participate in the Gig Economy is extremely difficult, but estimates range between 600,000 and up to 5,000,000 workers.

[3] Vivian Giang, 40 Percent of Americans Will Be Freelancers By 2020, Business Insider (Mar. 21, 2013), http://www.businessinsider.com/americans-want-to-work-for-themselves-intuit-2013-3 (last accessed Feb. 18, 2016).  See also Harris and Krueger, supra note 2.

[4] See Order Denying Defendant Uber Technologies, Inc’s Motion for Summary Judgment, O’Connor v. Uber Tech., Inc., No. C-13-3826 EMC, at *21-22 (N.D. Calif. filed Aug. 16, 2013) (Doc. No. 211).

[5] Id.

[6] It is important to stress that states and federal agencies use different tests that are highly fact sensitive.  While the tests usually come to the same conclusion, it is possible for the same worker to be classified as an independent contractor under one test and an employee under another.  Accordingly, employers seeking to classify a worker as an independent contractor should consult with counsel to ensure the worker is properly classified.

[7] This is the test used by the Department of Labor, the agency that enforces the Fair Labor Standards Act.  See U.S. Dep’t of Labor, Field Operations Handbook (hereinafter “FOH”) ch. 10, § 10b05-10b-09 (1993).  Federal agencies use differing tests, so it is possible for the same worker to be classified as an independent contractor by, for example, the Department of Labor, while classified as an employee by a different federal agency, such as the National Labor Relations Board.

[8] See, e.g, Jillian Volkmar, Focus Areas Of Enforcement For DOL in 2015, Law 360 (Jan. 12, 2015) http://www.law360.com/articles/607362/focus-areas-of-enforcement-for-dol-in-2015 (last accessed Feb. 18, 2016).

[9] See, e.g. Wage and Hour Division, Judge finds Ohio-based Cascom Inc. liable for nearly $1.5 million in back wage damages to employees misclassified as independent contractors (Aug. 29, 2013) http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Midwest/20130829.xml (last accessed Feb. 18, 2016); Wage and Hour Division, US Department of Labor recovers more than $1 million in back wages and damages for 196 employees misclassified as independent contractors (May 9, 2013) http://www.dol.gov/whd/media/press/whdpressVB3.asp?pressdoc=Southeast/20130509.xml (last accessed Feb. 18, 2016).

[10] See Harris and Krueger, supra note 2.

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