The gig economy is often touted as a natural evolution of the employer-employee relationship, with companies enjoying access to a larger and cheaper pool of talent and workers enjoying flexible hours and a better work/life balance. But as the gig economy continues to redefine the nature of work, many workers are finding themselves shortchanged and are now fighting back.
The criticisms of the gig economy vary widely, but center around two themes: a lack of benefits and unfair pay. Most current gig economy jobs lack paid leave or health care, so a personal injury or illness can become a potentially costly setback. Many gig economy workers also lack access to a corporate retirement plan, or even equivalent self-funded plans, which could become a larger problem as they approach retirement age. Furthermore, gig economy work is often pursued as a de facto full-time job by workers in areas with a dearth of well-paying career options, which gives employers leverage to suppress wages.
This imbalance has led to a flurry of lawsuits regarding employee protections and attempts to emulate the benefits formerly provided by career jobs, leaving many companies wondering how to navigate the legal gray area around the definition of an “employee” or “worker” and what that designation entails.
Intuit estimates that on-demand work—which ranges from traditionally freelance professions like plumbing or carpentry, to app-based work from platforms like Fiverr and Uber—now constitutes 34 percent of the U.S. workforce, and is projected to grow to 43 percent by 2020. The same poll found that 80 percent of major U.S. corporations will expand their use of a flexible or contingent workforce in the coming years. This includes companies across nearly every sector of the modern workforce.
For example, Facebook announced in May 2017 that it would be creating 3,000 freelance positions to help police the platform for offensive content. Amazon’s Mechanical Turk pays workers a small wage to complete batches of “micro-task” problems that are still too complex for a computer to analyze or handle. TaskRabbit, an on-demand hiring platform that was recently acquired by IKEA, allows users to pay strangers to complete semi-professional manual tasks such as moving apartments or putting together furniture.
This is only the beginning.
But although the gig economy model is popular among both employers and workers, there is a fierce debate throughout the industry about who is or is not an employee, and what benefits they have a right to. This has been a global trend highlighting disputes around the world. Several recent ruling and proposals provide a foundation for understanding both sides of the debate.
- Uber vs. European Court of Justice: In December 2017, the European Court of Justice ruled that Uber is, in fact, a transportation services company and must abide by the same rules and regulations as its peers in the sector. Uber had argued that it was a technology company, and therefore should not be required to pay its drivers minimum wage and for holidays. While this ruling does not immediately impact Uber’s operations in the U.S. or other parts of the world, it does send a strong signal that regulators and legislators are more interested in the service that a company provides than in how the company presents itself. This could have far-ranging implications for other so-called technology companies that are trying to keep labor costs low (The Guardian).
- Pimlico Plumbers vs. Gary Smith: Last February, London-based Pimlico Plumbers lost its ability to designate its employees as independent contractors after contract worker Gary Smith successfully argued that the requirements imposed on him by Pimlico (driving company vehicles, wearing a uniform, working a minimum amount of hours) should require employee status and the benefits that follow (The Telegraph). This should send a warning to companies with extensive requirements for their gig economy workers that these may be used as evidence against a “contractor” designation.
- Bloomberg LP Overtime Settlement: In 2016, Bloomberg LP reached a $3.2 million settlement after it was determined that part-time employees who were expected (but not explicitly required) to come in early, work through lunch, or prepare for work while at home were entitled to overtime (Fortune). This ruling could have a knock-on effect for gig economy employees who work beyond a 40-hour week, or who do not have mandated meal breaks and rest periods.
- Sen. Mark Warner’s ‘Portable Benefits’ bill: A major part of the debate around employment classification in the U.S. focuses on the lack of state-provided healthcare, which is commonplace throughout the EU. To address this problem, Sen. Mark Warner’s (D-Va.) proposed a “Portable Benefits” pilot program bill that would fund “test drives” of benefit schemes that follow workers from job to job. For instance, one proposal calls for a savings accounts for health or other expenses that could be deducted from gig-economy paychecks and transfer across different positions, in a manner similar to social security (Quartz). Joseph Morelle, the number two Democrat in the New York State Assembly, introduced a similar bill, though finding funding for the program has been difficult (Bloomberg). Although neither bill has gained much traction as of yet, it’s a sign that Federal and state legislators are paying attention to the gig economy and actively discussing potential solutions.
- Washington state benefits bill: Washington is another state that is attempting to pass legislation designed to protect gig economy workers. In 2015, the state recognized the ability of gig economy workers to unionize, and, in October 2017, State Legislature Member Monica Stonier introduced a bill that would require gig economy companies to provide contributions to health insurance, paid time off, retirement and workers’ comp. The bill was also endorsed by tech titans like Amazon founder Nick Hanauer, which shows that some companies are also advocating for a solution (Fortune).
Although the EU has taken the lead in regulating the gig economy, companies shouldn’t assume that the U.S. will necessarily follow in their footsteps. It’s important to remember that there are substantial cultural differences between the U.S. and Europe, with the U.S. tending to feature increased corporate influence in federal and state legislatures, less strict regulatory environments and weaker unions, all of which benefit companies more than workers. But with the gig economy expected to represent an ever-larger share of the overall U.S. economy, it may be only a matter of time before American workers start to regain some power.
Already, states like California, New York and Washington are trying to pass bills that would protect workers. At the same time, many companies are competing against each other for gig economy talent by offering better benefits or paying higher wages. This is likely to result in a patchwork of rules, regulations and best practices that vary greatly from state to state, and city to city.
So what steps can companies take today to better position themselves for the gig economy of tomorrow?
First, U.S. employers looking to safeguard themselves against potential litigation should make sure to include arbitration clauses in their agreements with workers. The courts have generally been supportive of employers who want to negotiate in private, and such language is easily incorporated into a retention agreement.
Another easy way to prevent lawsuits is simply to treat workers well. Gig economy companies that embrace corporate transparency and provide good working conditions for their workers are less likely to attract negative attention. While litigators may be more concerned about the legality of any employment agreement, workers are generally more concerned about the spirit of the agreement. If both sides can get what they want out of the exchange, then there should be little reason to pursue a lawsuit.
However, there will almost certainly be more lawsuits and, in time, more federal and state rules and regulations related to the gig economy. Although there may never be a single definition of what a “worker” is, companies should be careful not to run afoul of established industry practices. Even if a judge rules in a company’s favor, the reputational damage of a prolonged lawsuit could threaten the viability of working relationships or, even, the company at issue.
The gig economy is the wave of the future and, like any new and disruptive industry, there will undoubtedly be growing pains. But a smart legal strategy can lay the groundwork for a far more seamless transition into this era.
Jacob Pultman is a partner and head of the U.S. litigation practice at Allen & Overy.