Problems in the Gig Economy – Part 4

EU Courts

In the last 3 years (2019-2021) this blog has published three articles on problems in the Gig Economy. We have seen serious problems in China, the US, the UK and now they are spreading to the 28 countries in the European Union.

The problems we have been reporting on involve four powerful groups.

  1. The large web-based “Gig Economy” platforms like Uber and Lyft and many others (Uber alone operates in over 700 cities worldwide and claims 91 million users with 14 million trips each day.
  2. The millions of independent contractors who work for the Gig platforms.(36% 0f U.S. workers participate in the Gig Economy according to Gallup)
  3. Government entities that traditionally protect employees via minimum wage laws, safety regulations, etc. (Andalso, very significantly,they collect taxes from these traditional employees through their employers).
  4. The traditional companies that must compete with the “new” Gig platforms.

The Problem:

The basic issue is older than the staffing industry itself and is centered on who qualifies as an independent contractor and who should be classified as an employee. Because the gig platforms often operate worldwide, the issue is also worldwide.

Here in the United States the IRS is usually the final arbiter of who can be classified as an independent contractor. But even here the issue is often unclear and is compounded by the new reality of the Gig platforms.

For example, the IRS has a checklist that provides fairly specific guidance on who may claim “independent contractor” status. Their most important determinant is who controls what the worker does. Within the Gig Economy the worker is largely free to take a gig (job) or not so he or she is “independent”.  Also, workers in the gig economy do not have long term contracts or fringe benefits, which the IRS rules would accept as evidence (together with the “control” factor) for independent contractor status.

California’s legislature, nonetheless, passed. in the summer of 2020, Assembly Bill 5 (AB5) that defined Uber and Lyft drivers as “employees”. But as we reported this past February (2021) theAB5 legislation was superseded,in the Fall of 2020, by California’s ballot initiative, “Proposition 22”, that exempted Uber and Lyft drivers which allowed them to remain independent contractors.

But not in the U.K.!Here the battle over independent contractor or employee status of Uber’s drivers had an extremely significant legal ruling that seems to be holding and spreading to other areas.  Britain’s Supreme Court ruled in February of this year (2021) that Uber’s 65,000 drivers were actually “employees” and therefore entitled to the legal benefits of unemployment insurance, minimum wage, paid vacations etc.

The court’s ruling tried to strike some sort of balance by creating a “hybrid” solution where a new category was created of “worker”, i.e., not fully an “employee” nor an “independent contractor”. Personally, I believe this “hybrid” category is, in large measure,a legal “fig leaf” and was a clear loss for the Uber company by definitively making their drivers“employees”.

Even more than the California legal experience, that ultimately failed, this UK Supreme Court’s ruling may have profound and lasting effects for the entire Gig economy.

For a fuller examination of the implications of this ruling for both Uber and other Gig Economy companies, see the Society for Human Resource Management (SHRM) article published just two months after the UK Supreme Court’s decision and titled “UK Supreme Courts Uber Ruling May Prompt Gig-Economy Changes” (April 2021)

Where things stand today:

It now seems that the implications that the SHRM article discussed will soon becoming to the entire 28 member states of the EU. The British newspaper “The Guardian” published an article this month (Dec 2021) titled “Gig economy workers to get employee rights under EU proposals

The Guardian article goes so far as to refer the EU’s “plans for new laws to crack down on fake self-employment”. It also quotes the EU commissioner for “jobs and social rights”, Nicolas Schmit, as telling European newspapers that internet platforms have “used grey areas in our legislation and all possible ambiguities” to develop their business model resulting in a “misclassification” of millions of workers.

This development, on top of the UK’s Supreme Court’s recent decision, does not bode well for either Uber or other gig economy companies.

It is interesting to me that in the legal history of this ongoing controversy, the governmental entities (California, UK and the EU)have consistently made the claim that their interest is in protecting gig workers.While this may be true, to some extent, they hardly ever mention the lost tax revenue (or significantly reduced) to governments resulting from the independent contractor status versus that of an employee.

Yet, there is also the 4th player in this controversy which strongly supports the government’s position and that is the traditional company, with traditional employees,which must compete with the gig platforms. They believe that the “virtual exemption” from payroll taxes,that the gig companies largely enjoy,amounts to unfair competition. They have a serious and justifiable concern.

The governments, including the IRS, have also been pushing the gig platforms, with some success, to report their “workers” income via an annual 1099 (or similar). India, which has millions of Gig economy workers, has required, for some time, that the Gig platforms report workers income to the Indian government.

So, what do the gig workers themselves think of all this legal and legislative activity? If the California experience with AB5 and Proposition 22 is used as an indication of their opinions, then the answer is they are strongly opposed.

You will recall that after California’sAB5 legislation passed in 2020 and redefined Uber and Lyft drivers as “employees” and not as“independent contractors”. This law was almost immediately rescinded,just four months later, by the California ballot initiative, Proposition 22, which passed with 57.6% of the vote. That proposition called for Uber and Lyft drivers and other gig workers to be classified as independent contractors.

Even though Proposition 22 was immediately challenged by the California courts, which struck it down, that decision was appealed by stakeholders. Yet throughout this controversy the evidence seems to be that Uber and Lyft drivers strongly supported the measure.

This seems to be consistent with other surveys of workers in general who have consistently expressed a desire for more flexibility and independence in the work place with the more generalized desire to create a better balance between work and leisure or work and family/social life.

In any case, the workplace is changing,and changing worldwide.  No doubt the Gig economy is here to stay but their will be changes both with these newer internet platforms and the traditional staffing companies. Some of these changes will be in making a more “level playing field”. Other changes will be to give workers greater freedom and flexibility. There seems to be real support for both.

In the meantime, there will be more legal and political battles and we hope to cover them all.

Stay Safe! (Just remember Yogi Berra’s famous comment; “It ain’t over till it’s over”!)