Tag Archives: compliance

The Independent Contractor vs. Employee Issue Gets Kinky

Although some think whether an individual is an independent contractor or an employee is a new legal question brought about by the gig economy digital platforms like Uber, the truth of the matter is the issue has been around for decades. As I say in my new book, Thriving in the Gig Economy  due out in May , when the news of the Uber lawsuit first broke, my former CFO called me from Toronto just to reminisce about old times in the compliance wars.  It was remarkable to us, that so many people and the media for sure seemed to view the Uber situation as a new development.

Of course the employment lawyers in the crowd also appreciate how pervasive this problem has been.  In its recent blog post, Littler chose to honor April Fool's Day by recounting some of the more bizarre employment cases that occurred this year.  http://www.jdsupra.com/legalnews/these-foolish-things-the-oddest-56353/,  My favorite was the case of a strip club in Ohio, where an exotic dancer sued the bar on the grounds that she should have been classified as an employee rather than as an independent contractor.

Credit J.D.S. from Shutterstock.com

There were several considerations arguing for independent contractor status.  Dancers were not paid by The Brass Pole, but rather by its patrons for individuals dances.  Dancers also made their own schedules and provided their own materials/costumes.  The bar offered no training; only experienced dancers were engaged.  Whether they were able to work for other establishments was a bit murky, but there was no explicit prohibition.  The Brass Pole did have a number of rules  the dancers needed to abide by including no chewing gum on stage, never refusing a drink and no boyfriends/spouses in the bar during the performances. http://www.lazzarolawfirm.com/Lester-opinion.pdf These rules were not meant to impose direction or control, but rather to ensure the efficient operation of the establishment.

The definition of an independent contractor, or for that matter, an employee, is never simple.  The Sixth Circuit court in Ohio used what they refer to as an "Economic Realities" test.  The six factor test, as outlined in the legal opinion in the case is based on:  "1) the permanency of the relationship between the parties; 2) the degree of skill required for the rendering of the services; 3) the worker’s investment in equipment or materials for the task; 4) the worker’s opportunity for profit or loss, depending upon his skill; ... 5) the degree of the alleged employer's right to control the manner in which the work is performed[; and] ... [6)] whether the service rendered is an integral part of the alleged employer’s business."

The first five items seemed to indicate that the dancers could be valid independent contractors. The dancers were regular, experienced and supplied their own costumes.  They determined when and how long they performed, which determined their income, and little to no control was exerted over them.  The problem, however, was whether the dancers were an integral part of the business.  Apparently the proprietor did attempt to claim that they were a bar which happened to have exotic dancers, rather than an exotic dancing locale that served drinks.  The judge didn't buy that argument and ordered a summary judgement for the plaintiffs, saying, "“[n]o reasonable juror could conclude that customers primarily came to the club for its other offerings, which included beer, liquor, and frozen burgers from Sam’s Club.”http://www.jdsupra.com/legalnews/these-foolish-things-the-oddest-56353/

At least the Brass Pole case was resolved.  The larger Uber lawsuit still has yet to be fully argued.  I for one am hopeful that it will be put to the test, because it could be this high profile case which finally puts some clarity on this very ambiguous area of the law.

A New Operating System for the Gig Economy

An article in Forbes today suggested the title of this post, that companies need a new operating system for the Gig Economy.  The article entitled, "How Businesses must Adapt to Accommodate the Growing Freelance Workforce",  http://www.forbes.com/sites/under30network/2016/12/05/how-businesses-must-adapt-to-accommodate-the-growing-freelance-workforce/?utm_source=TWITTER#17edc57f42f5 was written by Peter Johnston, the CEO  and Founder of Lystable,  one of the companies that now comprise what I like to call  the Gig Economy EcoSystem.

dreamstimemedium_44572162

These firms and their founders, like Peter, have recognized that the independent work trend in the United States is not going away.  Between workers wanting more flexibility, technology reducing the market frictions of just in time expertise and a highly mobile workforce the usage of independent workers will only increase.  Given this expected growth, there is money to be made in creating enabling mechanisms to make it easy more more companies to jump on the band wagon.

Lystable, https://www.lystable.com  along with others like ShortList https://shortlist.co/about/ promise to eliminate the logistical problems that can make engaging consultants a human supply chain nightmare.  For unlike employment and its sourcing partner, recruiting wherein a centralized corporate solution is offered, securing independent consulting services often tends to be a one-off endeavor in most companies.  Procurement ( and not recruiting typically) may imposes guidelines and rules that may be followed or not; many savvy managers have figured out over the years how to get around those pesky rules in order for the department to bring in their talent of choice. These external workforce platforms capture contract details, engagement letters, Statements of Work (SOWs)and payment details. Many handle on-boarding and post project reviews. Perhaps most importantly though, they provide an overall dashboard for how external expertise is being deployed in the enterprise.

Johnston points out thee business benefits which are real.  Speaking as someone who dealt with the initial forays of procurement in the vendor management world, creating an appropriate environment for independent talent us well overdue. Changing that operating system is key, but so too is changing the mindset.  Efficiently and effectively using independent talent is a competitive advantage.  And now, as deployment methods are becoming more enabled and thereby  making the workers more mobile, those workers have more options.  They can go to their client of choice.  So just as employers want to be the "Employer of Choice", they also need to give some thought to being the "Client of Choice. " For many firms, that will be quite an operating system change.

The Trump Administration and the Gig Economy

The co-founder of WorkMarket, https://www.workmarket.com/about#jeff-wald Jeff Wald, hosted a webinar today on what the new Trump administration will mean for the on-demand economy.  Since I differentiate the Gig Economy from  the On-Demand one in my new book, Thriving in the Gig Economy, which will be coming out next spring, I listened more for the implications for the career gig workers, experts who have chosen to create a careers as  independent workers.

With the disclaimer that no one REALLY knows what may happen, Wald's prediction was two fold - what is likely to happen in 2017 and what may happen in 2018.  Immediately after the inauguration, regulations , especially those resulting from the 2010 Obama task force meant to tackle worker misclassification would be discontinued or not enforced.  The misclassification, of course, refers to the independent contractor vs. employee issue, which I have probably blogged too much about.  ( See my post I am Uber the Uber Lawsuit ) Moreover, he thought the task force would be disbanded immediately. This could bode well for many senior consultants who would like to work independently as an independent contractor but have clients who are wary of the misclassification risk.

Wald did not think the Affordable Care Act (ACA), commonly referred to as ObamaCare would be repealed, rather he thought it would be revised into "DonaldCare", where certain elements would be maintained, like the coverage of children up to 26 on their parents' plans. The ACA has been a key enabler in the gig economy, since the ability to secure health insurance make the decision to go solo a more viable one.  Although I hope Wald is correct on this prognostication, I am withholding judgement until the Labor Secretary is named.

Perhaps the most important action, and the one which will have the least attention, is the appointment of a new Commissioner for the National Labor Relations Board. (NLRB) One of two recent NLRB decisions adversely impacted the staffing industry, by  increasing the risk of co-employment when using temporary staffing/gig workers.  A new NLRB appointee could reverse that decision, which would be a boon for temporary and specialty staffing firms.

And finally, the Supreme Court  appointment could have a major impact on the workplace. Frederick vs. the California Teachers' Association was denied a hearing in a 4 to 4 decision in June. The case involved mandatory union fees.  The tea leaves Wald reads suggests that a rehearing with a new more conservative court would strike down the mandatory fees, which would be a major blow to organized labor. Since many are suggesting the gig economy should become unionized, much like Hollywood back in the day, such an action may alter that thinking.

Looking into his crystal ball for 2018, Wald thought there could be some movement in the chronic problem of worker classification.  Trump likes to simplify complexity, and the rules governing independent contractor compliance are nothing if not complex.  Wald thought there is a chance that certain benefits, like retirement, may be unbundled from employment.  (Again something I just blogged about as well - Work, Jobs and the Gig Economy ).  Finally, tax reform will likely take until 2018, since it is a complex problem.  Again, in the interest of simplification, the new tax regulations could eliminate many of the business deduction provisions that have been a mainstay of the self-employed career consultants. That said, a lot will happen between now and then.  Time to strap on for the ride.

What is gig economy? - Definition from WhatIs.com

A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements.
What is gig economy? - Definition from WhatIs.com

A gig economy is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements.

The Gig Economy – A Class Act…or not…

gig economy

Since I am working on my book, Thriving in the Gig Economy, I have been paying particular attention to the various Uber  employment lawsuits.  Even though  I am focusing on the high end of the gig economy where independent consultants sell their services and intellectual capital, the commodity end of Uber drivers can't be ignored, since it seems to garner all of the headlines.

This week a rather important ruling occurred that seemed to receive very little attention, which is surprising, since it suggests Uber's independent contractor lawsuits may lose class action status.

Last week,  a Ninth Circuit panel effectively reversed a decision from 2015 . A year ago, a judge had said that that the arbitration agreement in Uber's contract with its drivers was unenforceable.  The contract was designed to say if you have any dispute with us, Uber, you need to resolve it through arbitration rather than through the courts.  In this particular case, three drivers had sued Uber for saying they violated the Fair Credit Reporting Act (FCRA) when the company ran background checks on their driving records.  The FCRA, as all recruiting managers know, is the law that requires candidates for employment authorize any  background checks.   The decision said that Uber's arbitration clauses were fair, valid and enforceable.

By asserting that the arbitration clauses are valid in this case will have implications in the attempts of some drivers to create a class action.  As an outside observer, I applaud this.  Since I have the gig economy on the brain  and am an avid Uber customer, I have taken to quizzing all of my drivers about there thoughts on the lawsuit.  I wish I had thought to jot down the results, since my sample size is now in statistically valid territory.  That said, my recollections of the results are these:

  • Only one of about 25 wanted to be an employee
  • 2-3 did not know about the lawsuit at all
  • The majority did it part time to fit their schedule , as one said to me last Sunday, "why watch a football game when I can earn some extra cash for 2 hours?"
  • Most had other jobs including teacher, masseuss, contractors, programmers, hairdressers etc.
  • A large minority also worked for the other driving services

My very unscientific conclusion then is that it is a very diverse driver pool.  A key attribute of a class action lawsuit is that the participants in the class are largely similar.  I don't know that this is the case.  It is time for the independent contractor laws to be brought into the current century in a time when the gig economy of indepndent workers of all sorts is growing.  Potentially these lawsuits facing Uber will help make that happen. .

The Gig Economy Eco System

Employment in the Gig Economy

As the politicians debate the implications of the gig economy, they typically just talk about jobs.  They lament that so many gig workers don't have benefits and are being taken advantage of by those running the powerful digital platforms. As I have said here often, they seldom mention the professional gig economy workers, 91% of whom have self selected this career path.  But perhaps the bigger oversight is that they fail to recognize the jobs that are being created serving the new needs of the gig economy and its workers.

Take a recent press release from ShiftPixy. http://www.shiftpixy.com This app is a way for

From the ShiftPIxy website

From the ShiftPixy website

companies in need of shift workers to recruit contingent gig workers to fill their scheduling gaps. This means that a small business can use this app, rather than trying their luck at all the digital sites. what Kayak did for travel, it is doing for low-end contingent labor.

Employment Laws and the Gig Economy

Moreover, the Shift Pixy guys have paid attention to the employment law issues that have bedeviled some of the large talent platforms like Uber and Handy.  ShiftPixy employs the gig workers on behalf of its clients.  By employing them, it enables them to accrue enough part-time hours from various clients to qualify for benefits typically only accorded to full-time employees.

In case you are wondering, I don't have an investment in Shiftpixy so this is not a commercial.  It is recognition that someone has solved not just one but two key problem with the gig economy. First they just bit the bullet and made the employment call. Since the laws are murky ( another favorite subject of mine) they built an employment infrastructure that is easily accessible via an app that takes the employment risk away from their clients.  "You want a shift worker to bag groceries, great, they would have to be an employee.  Since you don't want them to be your employee, we will handle that. " Most of the digital platforms put the onus on the buyer to figure out the employment law issues, so ShftPixy took that off the table, making it safe for any size company to engage a gig worker. In the spirit of full disclosure I  think that is especially brilliant idea, since I did the same thing 15 years ago, when I started Collabrus, a company designed to employ consultants when they need to be employed by nature of the work or as a risk management strategy.

ShiftPixy is solving another more intractable problem though, by creating a structure that consolidates part-time hours to enable benefits eligibility.  It sounds straightforward, but it is actually a pretty complicated business model.

In the end, Shift Pixy is a small start-up with a little staff, but none the less, they are themselves a job creator.  They have their own employees, but they will also be creating opportunities for various part-time workers to get additional shifts in a way that suits their lifestyle and financial needs.

So as the politicians lament the loss of traditional jobs, I say lets applaud the innovators who are creating the economic infrastructure to strengthen the new world of work.

I am Uber the Uber Lawsuit

Uber Lawsuit and The Independent Contractor

Last month, Uber settled the  class action lawsuit involving its drivers in Mass and CA. The court papers reveal that the settlement was $84 million, while some estimates put actual damages, had they lost as trial at anywhere from $750 million to $4.1billion.  Is anyone surprised they settled?

Part of me hoped that the case would continue to the courts, since such a case might  have brought some needed clarity to the mess that is independent contractor  versus employee regulations.

In 1993, I started a firm, Collabrus, because of this very ambiguity.   Collabrus acted as an employer for consultants during a project when the nature of the work or the client’s risk profile warranted that structure. It offered health insurance as well as specialized benefits designed for consultants, like low cost errors and omissions insurance. In setting up and running that business I learned more about independent contractor compliance than I ever cared to know, hence my interest in the Uber case.

I thought, had it continued, the Uber case could go either way. One of the reasons that this is such an ambiguous area is because “independent contractor” is an undefined term in the law. Much of our employment law is derived from British master servant laws which date back to the 14th century. In fact, they were developed following the massive carnage of the bubonic plague; since so many had died, laws were needed to define who of the remainder were the masters and who were the servants. Back then independent contractors (ICs) were not part of the picture.

Since there is no legal definition of an IC, though some states have done so, tests have been developed that take into account agency law constructs as well as other factors. The IRS has put the most widely used framework together in its “20 Points” that define an independent contractor. These include things like having their own tools, being able to experience a financial loss, and receiving no training. Unfortunately, not all of the conditions need to be met, and some are more important than others. This makes for a very murky picture of who may be an IC and who may be an employee. In the last 20 years, the two key things that businesses have drawn from the “20 Points” are that the most important considerations are direction and control. If you direct and/or control the work of someone, they are likely your employee.

So lets consider the Uber driver. One thing Uber has going for them is that they don’t train their drivers; drivers come to them knowing how to operate a vehicle. Uber may certify that the driving record be clean, but this wouldn’t be considered training or direction. The fact that drivers can set their own schedule is also a plus for Uber, since it reduces that sense of control. The fact that so many drivers are very part-time, i.e. less than 10 hours, is also a plus for them. Technology, though, muddies the picture. Drivers are given an iPhone by Uber to be able to hook up to their ride-haling platform. As such, Uber is providing the tools to some extent. Perhaps the biggest issue, and the one that an Administrative Law Judge highlighted in a ruling in 2015 where he deemed a Southern California driver an employee, is that Uber sets the pricing of all rides. As such, this is preeminent control over the driver.

Given my interest in the subject and being a very regular customer of Uber, I quiz every driver about their thoughts on the lawsuit.  I have yet to encounter a driver who wants to be an employee.  Most are teachers or students or retirees, who want the flexibility of time. The one suggestion I did get was that Uber could have done a better job helping the driver prepare for the tax implications of being an IC; as one teacher said, he'd always been a W2 employee, so it never occurred to him that he needed to save all of his receipts.  So maybe Uber just needs a wonderful flyer, brochure or even app, entitled"Making the Most Money with Uber  - How to Manage your Business Expenses."  That seems like it would be a lot cheaper than another court case.

 

A Gig Economy Downside No one Mentions

I saw a blog post today from DCR Workforce announcing that there will finally be a "reckoning " of the gig economy.  http://blog.dcrworkforce.com/finally-official-reckoning-gig-economy Like most people who question the value of the gig economy, the author's concerns were about the  lack of a safety net for the workers.  There was also apparent relief that perhaps, in this reckoning, we would also "weed out cases where employees are being misclassified as independent contractors by businesses."  

I too think it would be valuable to have such an accounting  for what is becoming an ever-growing proportion of the labor force.   I too recognize that may of these workers are not doing gigs by choice but out of necessity.

That said,though, so many pundits and economists often overlook the fact that for so many the further maturation of this marketplace is not pernicious but empowering.  Many professionals have self selected into this gig economy labor force, because they can; they have the expertise that will command a market rate that will support their lifestyle.  And now, with the increasing sophistication of search algorithms, the ability to parlay that expertise to the market place is so much  more efficient.

It is not a free market, though, because legal obstacles especially in employment law around independent contractors and employees frustrate the free flow of talent. Yes, some players may inappropriately classify workers, but the flip side is true as well. Many companies are so worried about the employee independent contractor issue, that they refuse to engage anyone who is paid on a 1099, the tax form used to report non wage income.  It is not illegal to work on a 1099 basis, yet many consultants have been forced to change the way they do business to deal with this heightened risk profile. I should know, in 1992, I started a firm, Collabrus,  to employ consultants  for the duration of a consulting project, if  the nature of the work or a risk averse client required it. Similarly, many senior level consultants are forced to work through master vendor arrangements, where they become the employee of someone in order to complete a consulting project.

So the downside that many never seem to mention, for what is albeit the upper end of the gig economy labor pool,  are the marketplace inefficiencies  that institutionalize risk and increase costs to practitioners  who are forced to operate differently with  different clients.

So my question is this --  when the reckoning of the gig economy is done, will they also identify those workers who were misclassified as a temporary employee, when they could have operated as a 1099?  It seems only fair.

%d bloggers like this: