The Gig Economy: Employee or Independent Contractor?

January 4, 2017 | By

The gig economy is a domain where companies hire workers for specific projects or “gigs.” Generally these workers retain control over the manner and the means of performing their work and are classified as independent contractors. Currently, the gig economy is booming, as Time Magazine’s recent survey estimated that it includes over 14 million people. Gig economy companies benefit because they need significantly less capital and avoid payments of employee taxes and benefits (e.g. paid sick days, health insurance, and retirement benefits). Gig economy workers benefit in a gig economy due to flexible work schedules, control over the work, and a lack of oversight.

Two well-known ride sharing companies that have experienced considerable success operating within the gig economy, Uber and Lyft, have classified all of their drivers as independent contractors. Both companies are currently involved in various lawsuits across the country wherein drivers are seeking to be reclassified as employees.

Two of the leading gig economy cases (O’Connor v. Uber Techs and Cotter v. Lyft) are currently being litigated in the Northern District of California. In O’Connor, the plaintiffs allege they are employees and therefore should be paid minimum wage and reimbursed for work expenses. Uber takes the position that it is a “technology company” that partners with independent contractors to connect them with consumers who desire rides. Uber further notes that its drivers have full control over the hours they work, the vehicles they use to transport customers, and are subject to little supervision. The Court denied Uber’s motion for summary judgment on grounds that the plaintiffs established a rebuttable presumption that they were employees. In particular, the Court noted that Uber exercised control over its drivers through its interview process, city knowledge exam, and unilateral determination of rates. As a result, the Court held that the ultimate decision of whether Uber’s drivers are employees or independent contractors is a question of fact for the jury to decide.

Similarly, in Cotter, the plaintiffs (current and former California Lyft drivers) allege that Lyft should have reimbursed them for expenses and at times failed to pay them minimum wage because it misclassified them as independent contractors. Lyft contends that it only served as an intermediary between drivers and riders, who should be classified as independent contractors because Lyft’s instructions to the drivers were mere suggestions. The Court denied both parties’ motions for summary judgment and held that it was for a jury to decide whether the drivers were employees or independent contractors. The Court further reasoned that the current worker classification test used by the California state Courts was outdated because some factors under the test favored an independent contractor classification while other factors pointed to an employee classification. However, a jury verdict determining the classification of these drivers is unlikely, because a Motion for Preliminary Approval of Class Action Settlement was granted on June 23, 2016, and a Motion for Final Approval of Settlement is currently pending.

Some within the legal profession have called for the creation of a third hybrid category of workers, which could encompass gig economy workers. Regardless of whether a third category is created, change is likely on the horizon. In October 2016 HR Legalist reported on the Equal Employment Opportunity Commission’s (EEOC) updated Strategic Enforcement Plan (SEP) for the Fiscal Years 2017-2021. The SEP details the EEOC’s focus and plans for the upcoming term. The October 17, 2016 SEP states that the EEOC intends “to address issues related to complex employment relationships and structures in the 21st century workplace, focusing specifically on temporary workers, staffing agencies, independent contractor relationships, and the on-demand economy.” Thus the EEOC plans to increase scrutiny of employers and their employment relationships with gig economy workers.   However, this could change with the election of Donald Trump, considered to be more employer-friendly.  As the gig economy continues to expand, the legal issues it presents will also increase.  HRLegalist will continue to monitor and report on this as it develops.

Categorized In: Equal Employment Opportunity Commission
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