The rise of the gig economy (bolstered by the COVID-19 pandemic) has led many to consider expanding America's current employee / independent contractor employment classification system. This "third way" — neither classifying workers as employees nor independent workers — would allow gig workers to receive some benefits, but not become full employees.
In part 3 of our gig economy series, Zachary Pyers and Kenton Steele will discuss the following questions:
Visit our website for information about our legal services related to emerging technologies.
The rise of the gig economy (bolstered by the COVID-19 pandemic) has led many to consider expanding America's current employee / independent contractor employment classification system. This "third way" — neither classifying workers as employees nor independent workers — would allow gig workers to receive some benefits, but not become full employees.
In part 3 of our gig economy series, Zachary Pyers and Kenton Steele will discuss the following questions:
Visit our website for information about our legal services related to emerging technologies.
KHS Kenton H. Steele, Esq.
ZBP Zachary B. Pyers, Esq.
ZBP
Over the last few episodes, Kenton and I have been discussing the rise of the gig economy and some of the legal implications that have arised from it. Today, Kenton and I are going to explore another topic that deals with the gig economy which is the rise or at least the suggestion of a third category of workers. And Kenton if you could, just explain to us what the third category is and why do we call it the third category and why would we need a third category of worker classification.
KHS
So, as we talked about in some of the prior episodes, there are two sort of classifications of workers. If a person is working on behalf of someone else, they are either an employee or an independent contractor. And, while it’s not always easy to figure out whether a worker is an employee or an independent contractor, those are the only two options. Either the worker falls into the bucket of an employee or the bucket of being an independent contractor and as we talked about last time, this distinction, this sort of dichotomy is presenting a lot of problems. Courts are starting to take notice. Society at large is starting to take notice that there are now these jobs, a lot of them in the gig economy, that don’t neatly fall into one or the other of those categories. In the employment law context is where we see most of the discussion about a third category of worker because for the purposes of a worker’s classification, it depends, in part, on the benefits that are provided to a worker as well as the control that the employer has over the worker. And, as there’s a push towards providing more benefits to workers in the gig economy, that makes them more like employees which classifying gig economy workers as employees creates a lot of problems for the very nature of those jobs. It destroys some of the flexibility that’s there. And because of that tension between the desire to want to provide more benefits to want to have more predictability, and the other benefits in that type of work, there is this push for coming up with a third category of worker.
ZBP
Now Kenton, you talked about that push to create this third category of worker classification. Who is pushing? I mean who is behind this kind of initiative of this thought process?
KHS
I think it’s fair to say that there is some impetus or some desire to create this third classification of worker on both sides from labor from the workers in the gig economy but the most outspoken advocates for creating this third category of worker tend to come from the employer side. So, specifically, perhaps kind of the figurehead of this push for a third category of worker is the CEO of Uber. And, in the last year, year and a half, we’ve seen a lot of sort of open letters from Uber’s CEO asking for this recognition of a third category of worker. Specifically, in response to the Covid-19 pandemic, in March of 2020, Uber’s CEO authored an open letter to then President Donald Trump with the goal of having ridesharing drivers included in any stimulus package or legislative response to the Covid-19 pandemic. In that letter, Uber’s CEO started by outlining that Uber had taken steps to protect its drivers including providing financial assistance for drivers who were diagnosed with Covid or were placed into quarantine. But, Uber’s CEO highlighted that this type of benefit creates a problem. It puts the company in a dilemma because, as we talked about, as more benefits are provided to drivers, it blurs the line between whether or not they’re independent contractors or employees. But the end result of this open letter and, you know, maybe you can tie the two things together, but ultimately gig economy workers including ridesharing drivers were included in the two trillion-dollar economic relief package that was passed known as the CARES Act and in that Act, gig economy workers, short term workers, temporary employees or independent contractors were entitled to benefits like unemployment or other forms of economic stimulus that were included in that law. And that was a big step forward as it was sort of one of the first times that the federal government had taken the step of recognizing this third category of employee in the gig economy space.
ZBP
Now when we talk about creating this third category or third classification of workers, we think about it, you know, in the terms of how these changes are going to impact legal situations. How is the outlook as to how it might impact employment law?
KHS
In the employment law space, I think that there would ultimately be a lot of clarity, predictability, and stability that would come from the creation of a third category worker. As we talked about, you know, the CARES Act included these benefits, unemployment benefits, pay for when a person is diagnosed with Covid or forced to take time off because they’re in quarantine, workers compensation is another type of benefit that often creates questions. And for companies operating in the gig economy space and for workers who work with those companies, these are often left as a lot of open questions. Does the company need to take into account, you know, workers compensation? Do they need to provide unemployment benefits for people working for them? Ultimately, sometimes these companies are forced to guess as to how they will be treated down the road when an issue comes up. A lot of the cases that we work from related to gig economy companies are cases that stem from employment law disputes. Whether or not wage and hour benefits are being complied with. Whether or not minimum wage is being paid where it needs to be paid to certain workers. In all of those questions that lead to those big legal disputes come from the fact that there’s a lot of uncertainty in the employment law space as it relates to gig economy workers. If there were a statutorily created or common law created third category of workers that it was easy to identify, yes, these ridesharing drivers, these people who work for delivery services on a flexible basis, they fall into this category, they are entitled to these benefits, they do have to have workers compensation, they don’t have to have unemployment benefits. If there were answers to those questions, I think it would provide a real benefit in the employment law space for new companies entering that space, for the companies that are already there having answers to those questions beforehand would really be helpful to the way they operate.
ZBP
Now, for those of us who are legal practitioners or who are familiar with the law know that one of the other areas that worker classification becomes important in is the area of tort law. You think of injured party who’s injured by an individual. One of the questions that gets asked is, is that person within the course and scope of their employment with an employer. And, if they are in the process of performing a job, are they an employee of a company or are they an independent contractor with that company? And so as we think about this third potential classification of workers, how is that going to impact potential tort liability?
KHS
Yeah, that’s a great question because as we talk about the benefits of creating a third classification of worker in that it provides a lot of clarity and predictability in the employment law space, it has the opposite effect as it relates to tort liability. We’ve talked before about the different ways that vicarious liability is determined as it relates to tort liability looking at that sort of dichotomy between an independent contractor or an employee. That’s really the answer to the question as to whether or not vicarious liability will pass through to the company for the tort committed by the worker. Well, if you throw in this third category of worker where it’s not quite an independent contractor, the person’s not quite an employee, that really presents then a novel question as it relates to how liability will be handled if a sort of, you know, pseudo employee or quasi independent contactor commits a tort, is the company going to be responsible for that. And, the short answer it, it’s unclear at this time as we talked about in the prior episode, we have already seen Courts start to struggle with these questions as to whether or not, you know, these changing employment relationships are going to be handled using the framework for liability analysis that we’ve seen in the past. So while we expect to see an answer on the employment law questions, that answer will ultimately create more questions as it relates to tort liability.
ZBP
Now, you talked a little bit about the open letters from Uber’s CEO to then President Donald Trump and kind of, you know, the fact that they were urging certain benefits to their workers at the time of the pandemic and they were kind of looking or creating a prelude so to speak for a third classification of workers. Now, as we kind of look towards the future, do you have some sort of vision as to how we actually get this third classification recognized in our legal system. I’ll tell you that when I was thinking about this, I had this flashback to my childhood from that School House Rock video that talks about how a bill becomes a law. But, I know that’s not the only situation. And so, give us your thoughts as to if we get this third classification, how is it going to come about?
KHS
Yeah, so the School House Rock answer is certainly one way that we get there, right. Especially as it relates to the employment law side, we are likely to see an answer come from a legislative effort that a law will be passed either at the state level or at the federal level that answers the question as to how gig economy workers should be treated as it relates to employment benefits and minimum requirements for employment things like minimum wage. There also are of course sort of regulatory efforts that are one step short of being full legislation and they’re not as hard and fast. They’re more prone to change than if a law was passed that dictated the answers to those questions. So I think on the employment law side, we are likely to see more legislation and more regulatory efforts that answer these questions. But on the liability side, it’s far less likely that we would see a legislative answer as to how liability will be handled.
ZBP
And when you say liability, you’re talking about like in a tort law situation?
KHS
Exactly. How tort liability will be handled. Typically, a lot of tort law stems from common law meaning judicially created law and that is where we will need to see developments after the fact. So, what we would expect to see happen is that there will be a legislative statutorily created third classification of workers and then it will be up to individual judges, you know, individual Courts to decide how that will be handled and ultimately State Supreme Courts will make decisions as to whether or not vicarious liability will attach for torts committed by the third category of worker. Now the problem there is that the existing frameworks that we have for how those questions are considered don’t match up neatly with what we expect to see from the creation of a third category of workers. So we will likely be looking at a situation where Courts will be adopting new tests or new theories as to why liability would attach to an employer for a tort and that’s very much an open question. There are a lot of different theories, some that we’ve talked about in the past. Things like agency by estoppel or joint enterprise liability that Courts may look to, to provide an answer there but much like we were talking about how the employment law questions are open at the moment, once those questions get answered it really opens a new set of questions for the tort liability side of things.
ZBP
So, there’s at least the possibility as you see it that we could see a federal law kind of addressing or, you know, looking at these third classification of workers, let’s say a federal statute and then there’s a chance we see 50 different state Supreme Courts on a tort liability situation address these situations differently.
KHS
Yeah, absolutely. And that would not, the situation you’re describing would not really come as much of a surprise. You know, a lot of the employment law standards that we look at – so there’s a federal minimum wage. There are federal requirements as it relates to basic worker protections. As those protections are added or a new category of protections is added or gig economy type workers, that will impact existing state standards for vicarious liability for torts. And so, you’re right, it will be sort of a one by one answer as each state and each state Supreme Court decides how it will integrate that third category of worker into the framework for tort liability.
ZBP
Kenton, thanks for this insight as it relates to the potential third classification for workers. Join us in our next episode when we’re going to be looking at California’s Proposition 22 and its impact on the gig economy workers.