Navigating Employment Law in the Gig Economy

​For as long as there have been employment laws, business leaders have been confused about whether and when to classify workers as employees versus independent contractors. And the issue has only intensified with the rise of the gig economy and myriad technologies connecting short-term talent with project-based employment opportunities. Unfortunately, our criteria for approaching the employee-versus-independent-contractor question impose 20th century constraints on a 21st century labor model.

For example, companies’ obligations to collectively bargain, pay Social Security taxes, comply with wage and hour laws, pay benefits, and comply with anti-discrimination laws are all based on workers having “employee” status. Independent contractors, who have become a significant portion of the workforce, have no such protections under federal and most state employment laws—at least so far.

What issues do you need to consider under both established and developing law when interacting with the gig worker talent pool?

Make the Determination 

Start by distinguishing independent contractors from employees using the same analysis you always have, says Daniel Eaton, an attorney with Seltzer Caplan McMahon Vitek in San Diego. “It’s the same. It’s all about control,” he says.

That’s not necessarily reassuring for HR, since decades of making such distinctions have been challenging. There has never been a single test that provides legal certainty, says Richard Meneghello, an attorney with Fisher Phillips in Portland, Ore. “By and large, these are very similar issues as those of 10, 20 or 30 years ago,” he says. Slightly different standards may apply under federal tax and employment laws, and states and localities often have their own statutes as well. 

Moreover, the regulators who formulated the traditional tests could not have contemplated the number and nature of new gig jobs being created—so employers will need to bring a modern sensibility to this traditional determination process. 

Before engaging gig workers, consider the tasks at hand. It’s generally not a good idea to bring on short-term talent to perform the organization’s core functions, as opposed to work supporting individual projects. The greater the similarity between what your employees and your gig workers do, the greater your risk of blurring the lines—and running afoul of the law. 

Apply the Most Stringent Definitions

When classifying gig workers, apply the most stringent employee and independent contractor definitions applicable in the relevant jurisdictions. Keep in mind, however, that “relevant” could very well refer to the workers’ locations as opposed to the employer’s physical sites. 

In addition to having various classification tests, state and local lawmakers are considering and enacting other protections for gig workers, notably those mandating paid sick leave and portable benefits. 

“We are hearing more and more about this from multistate employers,” notes Mike Aitken, the Society for Human Resource Management’s vice president of government affairs. “They’re talking about how difficult this is from a compliance standpoint.”

Create Distance

Regardless of the formal classification, what matters most is how you treat gig workers—especially if they work onsite or interact virtually with the company’s employees. “Create distance between you and them,” Meneghello says. “No handbook, no supervisor, no performance evaluations. … The more you insert yourself into their work life, the more it appears you are an employer.”

That said, in the case of potential harassment, employers should provide the same protections they would to regular employees. If an employer knew or should have known about a gig worker’s misconduct, the employer “has the same responsibility to act as it would if the conduct were committed by one of its own employees,” Eaton says; that is, the employer has a “responsibility to prevent and correct.” Similarly, follow normal procedures when investigating complaints on behalf of a gig worker accuser, Eaton advises. 

“Taking steps to provide a workplace free of harassment will never be sufficient to establish the level of control necessary to create an employment relationship with a gig worker,” he says.

Prepare for an Uncertain Future

As project-based talent plays a greater role in the employment landscape, all stakeholders are looking for greater certainty in classifying workers. Some experts are pushing for a third employment category, which Aitken refers to as “employee-light,” that entitles gig workers to certain workplace rights while retaining the flexibility embodied in the independent contractor relationship for both parties.

“The problem with a third category is that you are just going to add another layer of [expensive] litigation,” Eaton says. Aitken agrees, stating that this in-between form of employment “gets complicated very quickly.” 

It’s also not clear who would set the standard for the different work categories. Blanket rules from the federal government might not work for all employers. “One size may not fit all,” Eaton says. “You may preclude jurisdictions from adopting measures that would better suit their business climate.”

In lieu of adding new worker categories, Eaton favors doing “the hard work—whether in the legislatures or in the courts—of figuring out how to address the gig economy in the framework of the broader economy.” When unemployment goes up, more people will resort to gig work. “That itself may create pressure to address this legislatively in ways that don’t seem quite so urgent now,” he says.  

Margaret M. Clark, J.D., SHRM-SCP, is a freelance writer in Arlington, Va.

Illustration by Adam Niklewicz for HR Magazine.