Legal Challenges and Constraints of Classifying Workers in the Gig Economy

At first glance, the recent San Francisco Business Portal publication entitled the “Freelancer Guide” – described as “an overview of what it takes to be a part of the gig economy in San Francisco” —authored by a conglomerate of San Francisco civic and industry leaders, appears to be a step in the direction of recognizing gig / on demand workers as independent contractors.  See, https://businessportal.sfgov.org/start/starter-kits/freelancer

Not so fast.  The Freelancer Guide most significantly highlights that gig workers must register with and pay business permit fees to the City and County of San Francisco if they do business within the City limits.  The Freelancer Guide also provides links to the forms and information about the registration process.  Aside from those issues, the Freelancer Guide provides little substantive information to assist either gig workers or hiring companies seeking a “guide” to viable independent contractor services engagements.  Critically, just because a worker registers his or her business and pays the associated fees, that does not mean such worker would, in fact, qualify as an actual independent contractor under controlling law.

 

That said, this type of publication may be a sign of wider acceptance of the need to create a third type of worker classification to add to the current W2 employee vs. 1099 independent contractor construct.  The highly publicized Uber and Lyft misclassification class actions, and the pending federal district court trial against Grubhub highlight the challenges the gig economy poses to our existing and, to some, outdated worker classification model.  And the more lawmakers, courts and government agencies tasked with creating, interpreting and enforcing worker classification laws face these 21st century economic issues, the more likely legislative changes will occur.

A bigger-picture question is whether some gig workers may benefit more as an independent contractor than an employee.  According to a recent Business Times article, non-employee / contract workers, on average, earn $103 per hour, or some $80,000 more per year more than full-time-employee software engineers.  See, https://www.bizjournals.com/sanfrancisco/news/2017/09/27/freelancers-full-time-workers-salary-san-francisco.html?ana=e_me_set2&s=newsletter&ed=2017-09-27&u=B4oO7%2BACzRoW1rYanI7otQ0bc4998a&t=1506524600&j=78892661

 

Admittedly, San Francisco software engineers represent a tiny sample size of primarily high wage earners.  Nonetheless, statistics like these raise thought-provoking questions warranting more research.  In seeking to protect workers’ rights to wages and benefits as employees, are we helping or hurting them?  Or, is this fight more about government agencies collecting payroll taxes to fund the “tax gap” created by the independent contractor / gig economy?  We will continue to closely monitor developments in this dynamic legal arena.  In the meantime, you be the judge…