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An Early Holiday for Gig Workers: SEC Proposes to Expand Ability of Companies to Grant Equity Compensation to Gig Economy Workers | K&L Gates LLP

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Introduction

On 24 November 2020, the Securities and Exchange Commission (SEC) proposed rules that would meaningfully expand the ability of companies involved in the “gig economy” to grant equity compensation to their workers under Rule 701 of the Securities Act of 1933 (Rule 701) and on the Form S-8 Registration Statement (Form S-8).

The proposed rules summarized here were issued in tandem with a second set of proposed rules, issued by the SEC on the same date, that would significantly modernize and simplify the ability of companies to grant equity compensation to their workers under Rule 701 and on Form S-8. Our client alert summarizing those proposed rules may be found here.

Background

By way of background, for companies that are not required to file reports under the Securities Exchange Act of 1934 (i.e., “private” companies), Rule 701 provides a broad exemption from registration for equity compensation granted to employees, consultants, and certain other service providers. For companies required to file such reports (i.e., “public” companies), equity compensation granted to employees, consultants, and certain other service providers may be registered on the Form S-8, a simplified registration form.

Rule 701 is the most prevalent exemption from registration used by private companies for equity compensation granted to their employees and consultants. Similarly, the Form S-8 is the most common registration statement used by public companies for equity compensation granted to their employees and consultants.

Proposed Rules

In recent years, practitioners have raised concerns that, by their terms, Rule 701 and the Form S-8 are not available for equity compensation granted to “platform workers”—individual workers who use a company’s internet or other technological platform to provide work to end users other than the company. One common example of a platform worker is an individual worker who uses an app to provide riding services to third-party riders. Platform workers are also prevalent in businesses involving food delivery, household repairs, dog-sitting, and tech support.

In response to these concerns, the proposed rules would amend Rule 701 by adding a temporary rule, effective for five years, allowing private companies to use Rule 701 for equity compensation granted to platform workers. In order for a private company to avail itself of this proposed rule, the following conditions must be met:

  • The private company must operate and control the platform (i.e., provide access to the platform, establish the terms of service for using the platform, establish the terms for paying workers, and retain discretion to accept and remove workers from the platform);
  • The equity compensation must be under a written compensation plan and not paid in exchange for capital-raising or market-maintaining services;
  • No more than 15 percent of a worker’s platform-related compensation during a 12-month period, and no more than US$75,000 of such compensation during a 36-month period, may consist of equity compensation from the private company;
  • Such equity compensation may not be subject to individual bargaining or the ability of the worker to elect to receive it in cash; and
  • The private company must take reasonable steps to prohibit the transfer of any equity received pursuant to the equity compensation, other than a transfer to the private company or by operation of law (i.e., pursuant to the laws of descent and distribution and domestic relations orders in divorces).1

The proposed rules would also permit public companies to use the Form S-8 to grant equity compensation to platform workers. The same conditions described above would apply to public company equity compensation registered on the Form S-8 (other than the proposed transferability restriction).

It is important to note that the proposed rules do not extend to platform worker activities relating to the sale of tangible goods (for example, a seller of books on an online marketplace), though the SEC note that it may in the future consider extending the proposed rules to such activities.

In order to help the SEC evaluate whether the proposed rules are being used for legitimate compensatory purposes (e.g., not for capital-raising purposes) and having their intended beneficial effect, the proposed rules would expire five years from the date of their effectiveness and would require a company that grants equity compensation to platform workers to furnish certain information to the SEC at six-month intervals.

The proposed rules are subject to a 60-day public comment period following their publication in the Federal Register.

Conclusion

The proposed revisions to Rule 701 and the Form S-8 are welcome news for companies engaged in the “gig economy,” and will enable them to provide equity compensation to individuals who do not fit within traditional categories of “employee” and “consultant.”

1The SEC noted that such transfer restrictions would “help ensure that the shares are obtained for compensatory and not speculative purposes” and “would prevent the development of a market in such securities until after the issuer becomes” a public company.

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Need for greater clarity in Labour Codes to accommodate gig workers: Industry

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While the pandemic and onset of technology has created new opportunities of employment such as work from home, part time employment, contract workers, and gig workers, it has also provided opportunities to women and students to reap the benefits of the digital wave. However, as we find new job opportunities on the rise, the traditional avenues have been severely affected by the pandemic. In this regard, it will be critical to have a coherent and well thought out Labour Code.

The new Labour Codes have a unique opportunity to foster recovery. It is imperative to find balance and provide accommodative support to the new forms of employment. The labour codes need to recognize small contract labourers and businesses and make provisions for them.

Lack of uniformity and varied regulations at the state level have had an impact on other aspects of employment as well. These variations are disruptive to businesses with operations across various states and may result in workload disparity and deterioration in quality of the production. The rules skirt over the realities of the digital economy and seek to transpose legacy regulation and limitation on growth. In line with this, Mr. Kazim Rizvi, Founding Director, The Dialogue, was of the opinion that, “Businesses, especially small organisations and startups, are still coming out of the repercussions of the COVID-19 pandemic. The labour laws, if implemented in the current form, will not only increase the pressure and compliance burden on the companies but also affect their financial output. The role of gig workers is vital in this new economy, and provisions must be made towards giving them adequate compensation and recognition.”

The Panelists highlighted some key focus areas such as flexibility in work hours, need for clarity in the definition of core activity, social security for the gig workers and taking into account emerging job models that need consideration to help guide the discourse towards an enabling framework. Centre, state and other stakeholders have to work together in order to ensure that maximum benefits are accrued to the gig workers while being mindful that businesses are not overburdened. Given the subject matter these codes regulate, there is a constant need of dialogue among the stakeholders to improve the legislation while securing the workforce.

Speaking on this, Mr. Ram Rastogi, Digital Payments Strategist, stressed that, “The e-commerce platforms have revenue-sharing arrangements with the people on their platforms. Thus, there needs to be a differentiation for people working full-time and people working in flexible models. Labour codes shouldn’t deter industries that are performing well and consider a performance-based pay model.”

He further stated, “Gig workers do the most hard work and make only a small fraction of what permanent workers make. Policymakers should think about them before coming out with the codes and should encourage state governments to work on policies for them.”

Suchita Dutta, Executive Director, India Staffing Federation, “Formal Contract work and employment is growing in India. It is helping people pick up new skills and become more industry relevant. While Formal contract labour is well protected for social security and all applicable labour laws including wages, the Gig workers still find the similar format of protection. To realise the full potential of the labour codes, there needs to be continuous dialogue across the sectors to tap the maximum impact for the benefit of gig workers.”

Avik Biswas, Partner, Indus Law, “The gig economy workers, for the first time, has been statutorily recognized in India. While the objective of the Codes vis-à-vis the gig economy can be predicted given the way several international regulations on this subject has been structured, we are however still at a stage where a lot more clarity is required on the operative parts of the regulations and how they would substantively affect both companies and workers alike. The obvious way forward appears to be the necessity of a constant dialogue and consultation between the government, employers and other relevant stakeholders.”

There is a need for the government to acknowledge the various types of workforces across different sectors. The one-size-fits-all approach may not work since the codes haven’t taken into account rising digital industries such as e-commerce. Additionally, this code might be exclusionary in nature to the small businesses and gig workers in the country especially in states like Maharashtra where people receive work on contractual basis. Hence, it is essential to examine the grey areas in the codes and rework the same.

Published on: Wednesday, September 22, 2021, 08:26 PM IST

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Singapore looks into more protection for gig workers

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An advisory committee expects to provide recommendations that require legislative change by the second half of next year.

A newly formed committee in Singapore will be looking into more protection for gig workers, in the areas of retirement and housing adequacy, work injury financial protection and bargaining power.

The advisory committee expects to be done with the work by the second half of 2022, with a possible end goal of putting out recommendations that require legislative change, said Senior Minister of State for Manpower Koh Poh Koon. 

“It could well be a set of tripartite guidelines, for example, to guide either workers or platform operators on what is the expected behaviour… It may well be other things that require legislative changes to bring into effect; some of the measures that need to be secured and guarded by law to give adequate legal protection,” he said, reports the Business Times. 

“Or it could well be something that we leave to the union, for example, to have the flexibility to negotiate with the platform operators, because the situation can evolve; platform business models can change as well, so we do not want everything to be a one-size-fits-all.”

READ: Singapore urges SMEs to adapt, build workforce for post-pandemic

The committee is focused on three groups of gig workers: delivery workers, private-hire car drivers and taxi drivers. It comprises industry experts, academics and government representatives, and is headed by Goh Swee Chen, chairperson of the Institute for Human Resource Professionals.

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Help gig workers get social security benefits: Plea in SC | India News

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NEW DELHI: A petition has been filed seeking intervention of the Supreme Court in helping secure social security benefits for gig workers engaged by Uber, Ola Cabs, Swiggy, Zomato and other app based service providers.
The petition, jointly filed by a registered union and a federation of trade unions representing app-based transport and delivery workers, and two individual drivers who have worked with Ola Cabs and Uber, alleged that denial of social security like pension and health insurance to them is violation of their right to life and right against forced labour. “The present petition is being filed raising questions of the great public and constitutional importance namely whether the ‘Right to Social Security’ is a guaranteed fundamental right for all working people- whether employed in the formal or informal sectors,” the petition, settled by senior advocate Indira Jaising, said.
“It is the case of the Petitioners herein who are known as gig workers and platform workers that they are in an employment relationship with the aggregators and hence covered by the definition of ‘workman’ within the meaning of all the applicable social security legislations including: The Workmen’s Compensation Act, 1923; The Industrial Disputes Act, 1947; The Employee’s State Insurance Act, 1948; Employee’s Provident Funds and Miscellaneous Provisions Act, 1952; The Maternity Benefit Act, 1961; The Payment of Gratuity Act, 1972 and ‘Unorganised Workers’ Social Welfare Security Act, 2008’,” it said.
The petition seeking SC’s direction to Centre said the mere fact that their employers call themselves “aggregators” and enter into so-called “partnership agreements” does not take away from the fact that there exists a relationship of employer and employee between them “At present these workers are not being provided the benefit of social security under any of the labour legislations. This defeats the very purpose of the social- welfare legislations, which seek to ensure social security-a facet the right to work and livelihood on decent conditions of work under Article 21 of the Constitution,” it said.
“These legislations have been enacted pursuant to the Directive Principles of State Policy with a view to ensuring basic human dignity to the workers. The inaction on part of the State in ensuring social security to the “gig workers” and “platform workers” notwithstanding the existence of the said laws, is the clearest violation of Article 21 apart from a violation of Article 14 and Article 23 of the Constitution.



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