Tag Archives: independent contractor

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.

Advice for the Gig Economy on Retirement

Mark Miller, a journalist who writes about financial matters surrounding aging and retirement wrote a nice piece today  called "Retirement in the Gig Economy".http://www.wealthmanagement.com/retirement-planning/retirement-gig-economy  He discussed how Uber has a partnership with Betterment,https://www.betterment.com/why-betterment/ a fintech company that optimizes returns for investors through technology-enabled smart rebalancing and global diversification.  For Betterment it is a lead generation play, for Uber it is a way to deflect attention from the no benefits independent contractor issue, by providing some elective options.

He also mentions Honest Dollar, another fintech player that developed specialized retirement products for clients. One of those enabled  clients who engaged independent contractors to offer those contractors access to retirement products (IRAs, SEP IRAs etc.)  directly through its platform by a deduction from their fee payments. Goldman Sachs bought Honest Dollar in March, because they are "revolutionizing the retirement industry" by appealing to small businesses and gig workers.

Another firm in the space is Ubiquity,  a San Francisco based “fin tech” firm that is focused on providing retirement vehicles for small business and sole proprietorships, or as their website says, the “other 40 million”https://www.myubiquity.com/educate/. The company has their own version of an individual 401K, which they call a “single (k)”.  It has a flat fee and can be set up online. A single(k) enables an independent to make a larger contribution to retirement then would be allowed in a typical IRA or Roth IRA.

These firms are important for gig workers to know about, because they are providing solutions in today's environment.  What is more exciting are the opportunities that may come tomorrow. With very little fanfare, the Senate Finance Committee unanimously recommended Senate Bill 3471, The Retirement Enhancement and Savings Act. (RESA) The bill would enable a pool of employers to contribute to retirement programs.  No action was taken by the 2016 Congress, but given the support for the measure, there is an expectation it will be taken up in 2017.

That would bode well for other efforts that are underway for pooled employer programs.  New legislation  is expected to be introduced in New York state in this year. Handy, a digital platform for handymen and household workers, along with Tech NYC, a New York state trade association, is introducing a portable benefits bill Gig Economy workers. http://www.villagevoice.com/news/uber-but-for-benefits-ny-tech-companies-propose-a-gig-economy-solution-9517993 The proposed voluntary program envisions a 2.5% fee paid by participating companies into a benefits fund. Workers could access the fund to purchase benefits, whether health insurance or pensions.  The catch, according to some, is that the bill defines the workers as independent contractors, effectively cutting these gig workers off from employment benefits like overtime.  The bill’s proponents point to the need for incremental progress toward the goal of improving the social safety net.

Little steps can help.  As the saying goes, a journey of 1000 steps begins with one.

A Merger in the Gig Economy…Or Not

As part of my research for my new book, Thriving in the Gig Economy, which will be coming out next spring, I had the opportunity to interview Stephen DeWitt, the  CEO of WorkMarket. http://www.workmarket.com

Although it sounds banal to say it, Stephen is a visionary about the future of work and how technology will enable on-demand access to skilled workers globally  in a marketplace that many will find hard to _dsc5674imagine or even anticipate.  As I explain in my book, in today's environment, the immediacy of access to resources is highly conditioned by the skill set sought; I want my Uber driver right away, but I may be a bit disconcerted if my interim CFO showed up on my doorstep in 5 minutes.  Our mental models are not quite set at the right speed  now, for the way Stephen sees the future. Stephen sees that CFO, or chemical engineer or strategist arriving seamlessly when a company needs it  thanks to custom talent pools and the algorithms that will continue to evolve and load balance expertise levels.

As he shared with me as well as John Battelle in his great newco piece, A Total Rethink of How Work Should Work  https://shift.newco.co/a-total-rethink-of-how-work-should-work-5dc3980ea52#.76ychzmxi , to imagine the future you need to think of the futures you know.  Think Star Trek, for example, if Captain Kirk is in need of new expertise to make the next voyage, do you think he is just going to list it on LinkedIn?

Which brings me to the point of this post.  A major acquisition was finally approved last week to remarkably little fan fair, especially when compared to the press when the deal was announced. LinkedIn is now officially owned by Microsoft, an organization not known for successfully integrating acquisitions. LinkedIn is of course the largest talent marketplace  in the world, even if it doesn't operate like a digital talent platform. (With apologies, of course, to LinkedIn Profinder, which is trying. )

It has a significant role in the Gig Economy, though, since it is a key element of an independent worker's digital brand. Look at me -- I am posting this on LinkedIn in addition to my own blog as part of my own branding strategy. I even have a section in my book on how to optimize your digital image on LinkedIn. So will this primacy as a venue for independent experts to showcase expertise change in the new Microsoft world?

It is hard to say. An article on this topic by Dina Bass on Bloomberg yesterday https://www.bloomberg.com/news/articles/2016-12-13/how-microsoft-and-linkedin-can-make-this-expensive-deal-work said a key to the deal is to "let LinkedIn be LinkedIn." The public plan is to keep the two companies separate and develop those ever popular "synergies" to enable skilled professionals to be more productive.  As an Apple fan who has always thought apple design far superior to Microsoft and other platforms,  that didn't seem like a natural outcome to me.  (Let's face it the Microsoft stuff never works quite as well on a mac...)

But my bigger concern came from the video conference the day they announced the deal. Microsoft CEO , Satya Nadella, said he wanted to help make the LinkedIn members more successful in their "jobs".  https://www.linkedin.com/pulse/linkedin-microsoft-changing-way-world-works-jeff-weiner In the new world of work, the one that I see and the one Stephen DeWitt sees, it isn't about "jobs" it is about the work and skill sets and managing independent careers. Hopefully the new combined Microsoft and LinkedIn leadership will see that and plan accordingly.

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.

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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.

Wrestling the independent contractor problem

Independent Contractors and Entertainment Law

This week  World Wrestling Entertainment (WWE) was sued on behalf of dozens for former wrestlers who claim the company hid the adverse neurological effects of repeated poundings received in the wrestling ring. This misrepresentation and concealment of the potential injuries faced was compounded by the fact that the wrestlers are not employees, but independent contractors  who are not covered by insurance .images

In the spirit of full disclosure, I must first say I have never understood why wrestling is considered a sport. ( Similarly I never understood why boxing is  in the Olympics either. )

The truth of the matter is  WWE is not a sport, but rather  entertainment. They are not legitimate contests, but rather scripted promotions, with specially choreographed moves designed to titillate the  audience.   These intentional moves are part of the reason the plaintiffs are seeking to be seen as employees; they were required to do these moves , hence WWE exerted direction and control, ergo there is an employment relationship. 

Of course, it is not that simple.  This claim has been made several times over the years , yet the issue has never been resolved.  The claims were not dismissed, but settled which means the body of law governing the relationship has never been addressed. In other words, WWE has successfully avoided the legal determination of  the employment status of the wrestlers.

As a rational and fairly non violent person, it is hard for me to believe that any entertainer engaged in body slamming and head bashing moves would be unaware of the inherent physical and neurological risks involved.  Given the litigious nature of America, entertainment and sports, it is also hard to believe that the contracts committing the talent were silent on this subject. None the less, it does appear this suit could have merit.

In response to an earlier lawsuit in 2007, the WWE replied that its talent were independent contractors because they could negotiate their own contracts aimages-1nd had no corporate duties.   They were much like the talent on soap operas, the company argued. However, the argument is specious on several counts.  First, employees can also negotiate their agreements, so that is not a differentiation.  Second, they have duties in terms of dress code and appearance requirements.  And although a comparison could be made to soap opera talent, that  talent is unionized.  Jess Ventura tried and failed to unionize the WWE talent, but perhaps that is another option.

Various legal experts have chimed in on the independent contractor issue. Since independent contractor is an undefined term in the law, it is typically governed by the IRS 20 points.  These 20 conditions need not all be true to make one an independent contractor, which adds to the ambiguity.  According to a recent University of Louisville Law Review study, the  consensus seems to be that WWE wrestlers meet the employee criteria in 16 of the 20 points. Most legal experts seem to see it the plaintiffs way.

Many of the wrestling cognoscenti have lamented the fact that few wrestlers wanted to challenge their employment status in the courts.  Well that day has now come.  I can’t help but wonder if all the focus on uber drivers and independent contractor status didn’t prompt some additional discussions. WWE says the suit will be quickly dismissed.  I am interested to wait and see.

 

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.

 

Expertise 15 years later

Expertise and the Independent Consultant

I recently reread my book, A New Brand of Expertise, published in 2001. It was a book about, as the tag line said, how ” free agents, independent consultants and interim managers are transforming the world of work.”

bookIt was an odd experience, after all of these years to read the words. Perhaps more prolific authors are used to it, but for me it was very strange. I was surprised at the passages I didn’t recall at all, (really, I wrote that?) including some rather remarkable anecdotes. I had to laugh at the few (and luckily there were only a few) references that didn’t hold up at all; for example, my advice to new consultants to build a personal brand offered Martha Stewart as the role model. Obviously this was written before her prison sentence. My opening chapter referenced the Donna Reed show, because her husband, ” the company man” was becoming an anachronism. My guess is there isn’t a millennial around who could relate to that TV reference. (Oops, I am dating myself, but I only saw the show in reruns as a very young child…)

What dismayed me was one aspect of the forecast I made 15 years ago about what would happen to this nascent independent marketplace in the years ahead. I had suggested that on the horizon there could be some simplification of the legal ambiguity that was a threat to the dynamic growth of an independent talent market. I offered hope that U.S. 344, the Independent Contractor Simplification Act, authored by then Senator Kit Bond of Missouri would pass. I was overly optimistic. Not only did it not pass, it never made it to the floor — It died in committee the following year.

And now, the independent contractor issue is in the limelight again as the “gig ” economy has been caught up in the ambiguous regulatory environment, as firms like Uber, Handy and Instacart try to maneuver in the anachronistic definition of employment today. . In the meantime, the free agent and interim management part of the gig economy has only continued to grow. Perhaps the sharing economy, led by the Uber driver lawsuit, will help bring much needed clarity to this issue. Isn’t it about time?

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