Compliance and the Gig Economy


By Steve Treagus
EverFi Legal Editor

The “gig economy,” in which workers use primarily online intermediaries to connect with buyers on demand, looks like it’s here to stay. This trend dovetails with the perception that the 9 to 5 workday is a thing of the past, and may attract millennial workers who feel disengaged from the traditional office environment. But recent lawsuits and shifting legal standards are changing the relationships between workers and online intermediaries almost as quickly as the technology that enables these relationships.

One compliance problem with the gig economy is in the legal novelty of the worker/online intermediary relationship. This becomes especially problematic when employees are misclassified as independent contractors — or at least when such allegations are litigated. For example, Lyft recently settled an employee misclassification lawsuit for $27 million. In the order approving the settlement, a federal court in California wrote that “the agreement is not perfect. And the status of Lyft drivers under California law remains uncertain going forward.” A 2015 lawsuit against Uber, also based on employee misclassification claims under California law, was allowed to go before a jury despite Uber’s summary judgment motion asking the court to enter judgment in its favor without a trial.

On the other hand, the Connecticut Supreme Court just made it easier for companies in the Constitution State to defend employee misclassification claims. In ruling on an appeal of a worker’s claim for unemployment insurance, the court held that the Southwest Appraisal Group (SWG), for whom the worker had performed appraisals of damaged vehicles, did not have to prove that the worker had actually performed services for companies other than SWG to justify the worker’s independent contractor classification.

Not all battles are being fought in the courts. Last year, New York City passed the Freelance Isn’t Free Act, a first-in-kind law that would grant new rights to any “freelance worker” (generally, someone who is “hired or retained as an independent contractor by a hiring party to provide services in exchange for compensation”). The Act requires companies that hire freelancers for work valued at $800 or more to have written contracts with specified provisions and to pay within 30 days of any service provided unless another time period is specified. Retaliation against freelancers who file complaints is prohibited, individual lawsuits are permitted, and the Act implements civil penalties of up to $25,000 for repeat violations. The New York Law Journal cites the Freelance Union for data tallying up 54 million independent contractors nationwide, and for a survey finding that 71 percent of such workers had trouble getting paid.

In another move to catch law up with the gig economy, the Hamilton Project at the Brookings Institution has released a discussion paper in which it proposes a new category of worker, the “independent worker.” Because workers in the gig economy have some freedoms of independent contractors (such as the ability to set their own hours and to work for multiple intermediaries), but have the constraints of traditional employees (for example, through set pay rates or fee caps, and the intermediary’s power to “fire” the worker by barring them from using the service), the proposal suggests that the independent worker should reap a hybrid of legal benefits from both worlds.

Under the proposal, independent workers would have civil rights, the right to organize, tax withholding, insurance, and employee benefits, the same as traditional employees. However, because of the difficulty of accounting for hours worked and for work with multiple intermediaries, independent workers would not be guaranteed “benefits tied to hours such as minimum wage and overtime pay,” according to a Hamilton Paper blog post related to the proposal. The proposal would apply to any worker who uses an intermediary to connect them with clients, regardless of whether the intermediary is online or offline.

Considering the rapid technological and legal changes in the gig economy’s orbit, compliance professionals would be wise to periodically reevaluate and update their policies and protocols for determining when a worker is an independent contractor. And since even the best policies don’t promote themselves, effective training is needed as part of implementation. Otherwise, a lawsuit may drive the point home instead.

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