US labor law divides workers into \”employees,\” who are entitled to the coverage of certain laws like those relating to workers’ compensation, overtime pay, and the right to unionize, and \”independent contractors\” who are not covered by these laws. But a variety of jobs in what is sometimes called the \”gig economy\” don\’t fall neatly into either category. Someone who drives for Uber on an ongoing basis, and thus makes their availability known via Uber\’s computer system, follows pricing and service guidelines laid down by Uber, and participates in Uber\’s various rating systems, doesn\’t quite seem like an \”independent contractor.\” But given that this worker is essentially free to set their own hours, and is not overseen by a supervisor, it doesn\’t quite seem like a standard employer-employee relationship, either
Rather than taking the round peg/square hole approach and trying to classify gig economy jobs as either \”employees\” or as \”independent contractors,\” it may be more useful to think about creating an additional legal category. Seth D. Harris and Alan B. Krueger offer some thoughts in \”A Proposal for Modernizing Labor Laws for Twenty-First-Century Work: The `Independent Worker,\’\” published in December 2015 by the Hamilton Project of the Brookings Institution. They propose a third legal category, which they call the \”independent worker,\” to fall between legal categories of employees and independent contractors. (In passing, it seems to me that there must be an alternative name for this group that would differentiate it more clearly from \”independent contractors.\” I like \”gig workers,\” myself, but I\’m open to suggestions.)
Harris and Krueger point out that the current legal standard for distinguishing between \”employees\” and \”independent contractor\” involves nine different distinctions–and these distinctions are made in different ways in the Fair Labor Standards Act, the Employee Retirement Income Security Act (ERISA), in tax law, and in various court decisions about all of the above. The nine distinctions are:
\”Role of work: Is the work performed integral to the employer’s business?
Skills involved: Is the work not necessarily dependent on special skills?
Investment: Does the employer provide the necessary tools and/or equipment and bear the risk of loss from those investments?
Independent Business Judgment: Has the worker withdrawn from the competitive market to work for the employer?
Duration: Does the worker have a permanent or indefinite relationship with the employer?
Control: Does the employer set pay amount,w ork hours, and manner in
which work is performed?
Benefits: Does the worker receive insurance, pension plan, sick days, or other benefits that suggest an employment relationship?
Method of Payment: Does the worker receive a guaranteed wage or salary as opposed to a fee per task?
Intent: Do the parties believe they have created a employer– employee relationship?\”
Harris and Krueger define their proposed legal category of \”independent workers\” in this way:
\”Independent workers operate in a triangular relationship: they provide services to customers identified with the help of intermediaries. The intermediaries create a communications channel, typically an “app,” that customers use to identify themselves as needing a service—for example, a car ride, landscaping services, or food delivery. (An intermediary need not utilize the Internet to match independent workers and customers …) … The intermediary does not assign the customer to the independent worker; rather, the independent worker chooses or declines to serve the customer (sometimes within broadly defined limits). However, the intermediary may set certain threshold
requirements for independent workers who are eligible to use its app, such as criminal background checks. The intermediary may also set the price (or at least an upper bound on the price) for the service provided by independent workers through its app. But the intermediary exercises no further control over how and whether a particular independent worker will serve a particular customer. The intermediary is typically rewarded for its services with a predetermined percentage of the fee paid by the customer to the independent worker. … The independent worker chooses when and whether to work at all. The relationship can be fleeting, occasional, or constant, at the discretion of the independent worker.\”
They estimate there are about 600,000 \”independent workers\”, which is about 0.4% of US employment, working with online intermediaries. in the gig economy. This number seems to be growing rapidly. They also mention a number of existing jobs that don\’t operate through on-line apps but seem to share many of the traits of \”independent workers,\” and discuss how many traditional taxi drivers (as opposed to Uber and Lyft drivers), temporary staffing agency employees, labor contractors, members who secure jobs through union hiring halls, outside sales employees, and (perhaps) direct sales employees occupy the points of triangles with other economic actors.\”
Here\’s a quick summary (with more discussion in the paper) of Harris-Krueger proposal for how \”independent workers\’ would be treated under law:
In our proposal, independent workers — regardless of whether they work through an online or offline intermediary — would qualify for many, although not all, of the benefits and protections that employees receive, including the freedom to organize and collectively bargain, civil rights protections, tax withholding, and employer contributions for payroll taxes. Because it is conceptually impossible to attribute their work hours to any single intermediary, however, independent workers would not qualify for hours-based benefits, including overtime or minimum wage requirements. Further, because independent workers would rarely, if ever, qualify for unemployment insurance benefits given the discretion they have to choose whether to work through an intermediary, they would not be covered by the program or be required to contribute taxes to fund that program. However, intermediaries would be permitted to pool independent workers for purposes of purchasing and providing insurance and other benefits at lower cost and higher quality without the risk that their relationship will be transformed into an employment relationship.
Like any compromise choice, a new legal category like the Harris-Krueger proposal for \”independent workers\” is going to be somewhat unpopular with many parties. Many companies would prefer to treat their gig workers as independent contractors, to whom they have no additional legal responsibility. Some gig workers would prefer to have both their existing freedom of action but also the legal protections of employees. To resolve these issues, we can either go with the full-employment-for-lawyers approach and litigate the issues over and over in every new context in which they arise–an approach that is already underway–or we can settle on a compromise position. I don\’t have a strong opinion on whether the Harris-Krueger proposal for the legal status of \”independent workers\” is the right compromise. But it almost certainly beats smothering the gig economy in red tape and legal briefs.