The Rise of the Gig Economy: Can Labor Law Keep Up?

FRANCO PICCININI—The gig economy—the economic arrangement that connects short-term labor with immediate consumer demand via digital platforms—has become a hot topic in the past decade. Assessing the size of the gig economy has proven a difficult task, with estimates ranging from as low as 1% of the U.S. labor force to as high as 34%. But regardless of these discrepancies, nearly all surveys agree that the gig economy is growing.

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While some openly welcome the change, others have signaled a more guarded response. Senator Elizabeth Warren, for example, has warned that the gig economy represents the “next step in a losing effort to build . . . economic security” for average workers. Former Presidential Candidate Hillary Clinton echoed a more cautious sentiment, recognizing that such innovation is welcome, but acknowledging that it also “rais[es] hard questions about workplace protections.” And even President Trump has proposed a plan that, while short on details, will seek to “modernize [labor] rules” aimed at more adequately addressing challenges presented by the rise of a gig labor force. Thus, leaders from across the political spectrum seem to agree on at least one thing: the gig economy threatens to change our society in ways that compel a government response.

The gig economy presents new challenges for modern labor law. Companies that utilize on-demand labor often reap the benefits of having workers that act like employees without incurring the costs of operating like employers. These companies require on-demand workers to perform services in a specific manner while they retain the ability to control precisely how these services are delivered. The capacity to do so provides companies with tremendous value, as they can more adequately protect their brands. For example, some food delivery apps require riders to wear uniforms, and ride-hailing services such as Uber and Lyft often reserve the right to terminate drivers at any time for low ratings. This is important because the law distinguishes employees from independent contractors by assessing the degree of control a company exercises over its workers. Adequate control has been found where employers dictate precisely how a job is to be done, such as when a company requires workers to wear uniforms or subjects them to formal ratings systems.

In FedEx Home Delivery v. NLRB, the D.C. Court of Appeals held that when a company exercises control over a worker in a manner consistent with traditional employment, that worker is an employee under federal law. The implications of being classified as an employee are profound. Employees are entitled to overtime pay under FLSA, unemployment insurance in the case of unexpected layoffs, and often receive optional benefits like health insurance and retirement savings accounts. Furthermore, the NLRA guarantees employees’ right to engage in collective bargaining. But few, if any, of these protections extend to gig workers because they are often classified as independent contractors—regardless of the fact that gig companies often exercise a degree of control over workers more consistent with traditional employment.

In light of this gap in the law, some cities and states have decided to tackle the problem on their own. Seattle, for example, enacted an ordinance in 2015 that granted gig workers the right to collectively bargain with hiring companies over key contract terms. In Berwick v. Uber Technologies, California’s Labor Commissioner held that Uber drivers are employees under the California Labor Code. And in Dynamex v. Superior Court, the California Supreme Court embraced a legal standard presuming that all workers are employees, effectively shifting the burden to employers to prove that workers classified as independent contractors are correctly categorized.

However, not all commentators see the rise of the gig economy as a bad thing. Some argue that the arrangement offers benefits to workers that are not often considered when assessing the drawbacks. Gig workers enjoy greater flexibility in hours and greater variety of assignments. Furthermore, the matching of consumer demand with worker supply may result in less “dead time,” meaning that economic resources are more efficiently used. And finally, many gig workers also hold full-time jobs, so the ability to earn extra money by picking up side “gigs” represents an overall gain in their earning capacity.

Thus, reasonable minds can disagree about the consequences that might stem from a shift to the gig economy. Some may see the shift as representing an efficient allocation of resources in the market economy. Others may view the same change as erecting yet another structural barrier against workers in their fight to gain equal footing in a capitalist society. But missing from both viewpoints is a basic acknowledgement that different opinions on the issue are often colored by which core interests are at stake—and for whom. For example, employers probably benefit from a legal system that maintains the status quo. If gig workers are independent contractors, then traditional rules of employment governance do not apply. On the other hand, workers and labor advocates might benefit from a system that classifies gig workers as employees. When gig workers are locked into this categorization, well established legal rights attach. And when such legal rights attach, workers enjoy access to a neutral court system where they can air out their grievances under the protection of firmly established legal norms.

Nonetheless, regardless of one’s opinion on the issue, one thing remains clear: determining whether gig workers are employees or independent contractors will prove an important task in defining the future of the U.S labor market. And inevitably, courts and legislatures will play a pivotal role in reshaping the relationship between business and labor in the 21st century.