2015 was a full year for independent contractor classification with the Department of Labor issuing guidance on what its approach to classification, states passing legislation to formalize the classification of drivers as independent contractors, and commentators exploring the possibility of a “dependent worker” and trying to find out how may gig workes there really are. Here are some of the highlights from 2015.
- Uber — In 2015,the year started with judges in several cases involving drivers – whether for Uber or Lyft — commenting that juries “will be handed a square peg and asked to choose between two round holes” and that “many of the factors in that test appear outmoded in this context.” 2015 was also the year where “Uberization” entered the our lexicon with commentators discussing the Uberization of healthcare, money, banking, airlines and other industries.
The year ended with Florida deciding that Uber drivers were independent workers, Bloomberg saying that your Uber driver should be an independent contractor; and a number of states passing legislation stating Uber drivers were independent contractors. Uber’s popularity with drivers and riders may its biggest asset in the debate about classification in 2016. In 2016, look for more states to address the classification of Uber drivers through legislation rather than letting the courts decide.
- Department of Labor Administrator’s Interpretation 2015-1 — In July, the United States Department of Labor (DOL) issued guidance on how it viewed the economic realities test for evaluating whether employees were classified properly as independent contractors. Commentators such as Richard Reibstein observed that the interpretation was nothing new legally, but showed the DOL’s commitment to investigating allegations of misclassification. In 2016, look for the DOL to continue to focus on large groups of lower-paid workers that might be misclassified. By using classification to try to help more vulnerable workers, the DOL will make it harder for highly skilled professionals to embark on their own and engage with companies as independent contractors.
- A new type of worker? The concept of a “dependent contractor” has been proposed and discussed by a number of commentators in 2015. See Could Creating A New Class Of Worker Solve The Sharing Economy’s Labor Problems? Andrei Hagiu suggests that companies need an option between contractor and employee. See also On-demand work force: Time for a new worker classification? and A Third Classification of Worker? Don’t Count On It. Robert Reich suggested that a company that pays more than 80% of a workers compensation should be the employer. Commentators have looked to other countries and suggested that introducing a new type of worker may address some of the problems with the current dichotomy. See The US needs to follow Europe’s lead and create a “grey area” class of workers. Other commentators have recommended creating portable benefits — disassociating benefits from employment, similar to the approach to healthcare under the Affordable Care Act (ACA). See Creating A New Kind Of Safety Net For The Gig Economy, How can we protect workers in the gig economy? and Tech companies, labor advocates, and think tankers of all stripes call for sweeping reforms to the social safety net. Look for more discussion in 2016 but it is not likely there will be any legislative action in an election year.
- “Hard cases make bad law.” There’s an old adage that says that difficult cases lead to bad judicial decisions. The idea is that when fairness is on one side of a case but the law is on the other, courts may stretch the law to prevent an injustice but by doing so create a precedent that is difficult to follow. One wonders if that might have happened in Massachusetts which has one of the strictest tests for being and independent contractor. Recent Massachusetts cases seems to go to great lengths to avoid finding that the workers were employees. Courts said that real estate brokers, taxicab drivers, insurance agents, and delivery truck drivers were all independent contractors because:
- The legislature amended the law governing real estate brokers AFTER it amended the independent contractor statute;
- The business of transporting passengers is not part of the usual course of business of leasing medallions that allow taxicab drivers to transport passengers;
- Selling insurance policies is not part of the usual course of business of issuing insurance policies; and
- The Federal Aviation Administration Authorization Act (FAAAA) preempts the independent contractor statute.
- How many gig workers are there anyway? In 2015, there were many attempts to measure how many gig workers are there and what is the scope of the gig economy. See for example, See also: How Big Is the Gig Economy? People tried a number of approaches including:
- Analysis of US Census Bureau data which reports the number of people who are self employed. This may miss gig workers who are employed full-time and moonlight. See Self-employment rate remains steady for the past several decades; and How many people work in the ‘gig economy’?; We Are Not a Nation of Freelancers
- Analysis of the number of 1099 forms issued. One challenge is that an analysis of the number of 1099 forms doesn’t capture if there is a $600 project or a $25,000 project. High school basketball referees, for example, frequently receive 1099 forms. If a school uses one referee more frequently, it may issue fewer 1099 forms at the end of the year although the number games remains constant. See also Here’s How Many Gigs Are In The Gig Economy
- Surveys. One survey concluded that 1/3 of workers were independent workers which includes independent contractors, freelancers, small business owners, temps or even moonlighters. Gig economy: A third of U.S. workers say they’re “free agents”
Attempts to measure the number of gig workers face many challenges including:
- Definitions of one “definition of contingent workers included anyone who was not a standard full-time employee; i.e., it encompassed agency temps, on-call workers, contract company workers, independent contractors, self-employed workers, and standard part-time workers.” Including standard part-time workers in the definition of a contingent worker may measure contingent labor but may not measure gig workers. Part of the problem is that people are measuring different things — if you are measuring the decline in “regular full-time employment,” then you may want to include part-time workers. But that’s something different from measuring gig worrkers. See Independent Contractors and the Emerging Gig Economy
- Aggregated data collects dissimilar situations. If the number of self-employed ranchers declines but the number of self-employed cleaning people increase, the aggregated number of self-employed workers may increase, decrease or not change at all and it wouldn’t capture the change in the economy. Proof of a ‘Gig Economy’ Revolution Is Hard to Find
Because of these and other challenges, perhaps the best approach was the one taken by Ian Hathaway who looked at specific industries (rooms and rides) in a specific geographical area (San Francisco). Ian’s data showed the increase in gig economy for those providing rooms and rides. See The Gig Economy Is Real If You Know Where to Look
2016 promises to be another fascinating year for classifying workers properly as employees or independent contractors. With the Affordable Care Act (ACA), workers are not dependent on employers for healthcare benefits. See Affordable Care Act swelling ranks of self-employed, report says. This enables workers to choose alternate work arrangements and workers may not choose to work regular full-time jobs. At the same time, companies may classify workers as independent contractors to avoid hiring regular full-time employees and providing the traditional benefits and protections of full-time employment. It will continue to be fascinating to watch the effort to balance what workers may want with what is needed to protect vulnerable workers.