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Rethinking the Gig Economy

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The gig economy, alongside the future of work, has become a well-known subject of conversation. The gig economy involves working arrangements that are closer to “gigs” than traditional jobs. This originates from the idea that work is turning out to be more similar to playing a music gig at a bar, with no assurance of continuing with work, and workers are free to choose where to work next. The current surge in the gig economy has been influenced by rise of digital technology and the use of on-demand platforms. Often, when discussing the gig economy, the subject usually is consumer-focused platforms like Uber, Lyft, or DooDash. There’s more to the gig economy than work being mediated via technology.

The gig economy is not only reshaping work, but also the way society functions more broadly. The gig economy now plays a monumental role in the lives of workers, platforms and consumers who are all seeking greater flexibility in life. Workers are looking for more flexible ways to work; employers are looking to liberate themselves from stringent local, state and federal employment regulations; and consumers are looking for a greater choice in life, all within a short span of time.

The consumer-facing nature of high-profile platforms like Uber, Lyft, and DoorDash is now directly impacting consumption patterns. For instance, Uber has expanded its pool of independent contractors, with a surplus of drivers, which means consumers often only have to wait for a short while for a pickup. The lower costs have implied expanded take-up of these services, changing transport practices around the globe. On-demand food delivery platforms are also influencing consumption patterns. They have also shifted the relationship with cafés, bars, and restaurants through the establishment of ‘dark kitchens’ where food is no longer prepared in a kitchen, but in special delivery units, often hosted by shipping containers.

Gig economy, a way to achieve flexible occupation

Gig economy could allow work to be flexible for independent workers as well as contractors.

These shifting consumption patterns have a common thread that ties them together. Whether journeys, delivery of food, or other on-demand services, these allow workers to liberate themselves from the burden of ‘social reproduction.’ At the most basic level, on-demand transportation has opened up additional opportunities for workers to stay up later at work or have more non-work time. While on-demand food delivery apps has helped workers save up time that once went into preparing and cooking meals. The gig economy largely interfaces with more extensive patterns of work intensification which can now be seen through other sectors of the broader economy. This involves using hours of our non-work time and freeing them up to market and venture capital.

This doesn’t mean that gig economy doesn’t have the potential to create larger societal problems in the future. In some countries, social security – which often covers healthcare, insurance, and retirement – is connected to the standard form of employment. The momentary flexibility of the gig economy has brought a slew of benefits to independent workers, as well as those who are looking for gigs outside of a standard job. However, given the absence of social provisions for independent workers in the gig economy, the social cost of their work will now be borne by citizens of the city or country in the form of taxes.

As has been observed, the gig economy depends upon an independent work status which frees the company from the obligations to pay various benefits and cover the risks of work. For independent workers driving in the gig economy this is especially significant.

In addition, the incentive systems in the gig economy has encouraged desperate workers to get more work, which further increases the exposure to workplace risks. Independent workers do not have access to pension, which means that there are currently millions of workers who aren’t saving enough for retirement. According to estimates, five million workers are at risk of not having enough pension.

It is possible that all work could get more organized over time. There are jobs that can be split into smaller parts, paid by the task, which employers could prefer due to the many benefits of a flexible workforce. As brought up before, the growth of the gig economy isn’t dependent on technology alone. There are other factors that shape how the gig economy grows. In certain sectors, both businesses and workers would be against this; in other sectors, a range of social, political and technological factors may not encourage this.

There are two factors that continue to influence the future of gig economy: (i) state regulation and (ii) worker power. The dynamic of these factors combined with the platform itself can possibly show massive impact on the future of work. As the number of independent workers increases, so will the demand for how they want to work. For instance, independent workers have been on a strike around the globe so much that platforms like Uber had to amend certain changes to bring in more benefits and flexibility. Independent workers are not only changing the face of the gig economy, but also state regulation. Companies, on the other hand, have been reshaping work in the absence of workers’ unions. This inconsistency between the capital interest of platforms and independent workers is mirroring the historic struggles between employers and workers. Moreover, the state in different countries is beginning to introduce new legislation which oftentimes end up favoring the company, not the workers.

The significance of this issue is that it can possibly reshape more than just the gig economy. The impact of the gig economy isn’t just about the increase in the number of people working for such platforms. It additionally turns into an experiment of a new way of managing the workforce. Hence, while the quantitative effect of the gig economy might be moderately little, it can possibly make an enormous subjective change in how work will be coordinated later on. As the gig economy goes from an experiment to a new form of management technique, it will influence the way we live and work. This is a lot of like how past types of computerized work, similar to call focuses, have early roots in the Taylorism of assembly lines, and will go on to influence the gig economy. Hence, what techniques are successful in this economy will be tweaked and used across the spectrum of the economy more comprehensively. It is, in a way, significant to understand what’s going on inside the gig economy.

(Image Credit: Freepik)

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2021 01 20 US DOL Issues Final Rule to Simplify Analysis of Workers in Gig Economy

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A critical and growing issue facing gig economy platforms and other similar business models is the failure of existing laws to reflect the realities of a modern, adapting workforce. In response to calls for action, the United States Department of Labor recently published a final rule providing a simplified framework to determine if a worker is an “employee” or an “independent contractor” under the Fair Labor Standards Act (FLSA). The final rule, scheduled to take effect on March 8, represents the latest DOL endorsement of the gig economy platform model.

Background

In its final rule, the DOL observed that the FLSA does not define the term “independent contractor.” Instead, the DOL long ago adopted the economic realities test to determine proper worker classification. The economic realities test ultimately evaluates the extent of a worker’s economic dependence on the putative employer: the more dependent the worker is on the business, the more likely he or she could be considered an employee of that business.

The DOL noted that there has been significant confusion regarding the meaning of economic dependence and increasing legal uncertainty against the backdrop of increasingly flexible work arrangements. The DOL therefore promulgated the final rule to provide greater clarity on its own worker classification test under the FLSA.

DOL provides five factors to determine a worker’s ‘economic reality’

In its effort to clarify the confusion caused by the ever-changing meaning of the “economic reality” of a worker’s engagement, the DOL provided five factors to assess a worker’s economic dependence. Although the factors below are not exhaustive, and no single factor is dispositive, the DOL has clarified that the first two factors “are the most probative as to whether or not an individual is an economically dependent ‘employee.’” If these two factors point to the same conclusion, the remaining three factors need not be analyzed in making the classification determination.

  1. The nature and degree of the worker’s control over the work. This factor examines whether the worker exercises substantial control over key aspects of the performance of the work, such as scheduling the hours worked, selecting projects and/or being able to work for competing companies. The DOL noted, however, that even if a business required a worker to comply with specific legal obligations – such as satisfying health/safety standards and carrying proper insurance, or contractually agreed-upon deadlines or quality control standards – this alone would not constitute “control” for the purpose of this factor.
  2. The worker’s opportunity for profit or loss. This factor focuses on the extent of the worker’s opportunity to earn profits or incur losses based on (i) his or her own managerial skill, business acumen or judgment, and (ii) management of his or her investment in or capital expenditure on helpers or equipment or material to further his or her work. By contrast, if a worker “is unable to affect his or her earnings or is only able to do so by working more hours or faster,” the more likely he or she is classified as an employee under the FLSA.

If these first two factors conflict, however, the following three remaining factors can serve as further guideposts for proper classification.

3. The amount of skill required for the work. This factor examines whether the individual’s work requires specialized training or skill that the business does not provide.

4.The degree of permanence of the working relationship. This factor examines whether the relationship is impermanent (i.e., finite or sporadic) or permanent (i.e., indefinite or continuous). If a worker’s engagement falls into the former category, this would be indicative of an independent contractor relationship.

5. Whether the work is part of an “integrated” unit of production. This factor focuses on the extent the work is a component of the business’s “integrated production process” for a good or service. Significantly, in incorporating this rule, the DOL rejected the prior test’s assessment of a worker’s “integrality” – which focused solely on a worker’s “importance” or “centrality” – because it found that identifying the “‘core or primary business purpose’ is not a useful inquiry in the modern economy.” Instead, under this factor, the worker is not likely to be found to be an employee if they are not “integrated” into the business’s production process, which is composed of operational subparts working in coordination towards a “specified unified purpose.”

Also noteworthy, the DOL announced that offering health, retirement and other benefits to independent contractors in and of itself is not “necessarily indicative of employment status.” However, the DOL cautioned that offering the same benefits to both independent contractors and employees poses misclassification risks.

Will the final rule take effect?

This remains to be seen. While the final rule is scheduled to go into effect on March 8, 2021, the future of the final rule remains uncertain because the incoming Biden administration is expected to issue a directive to all agencies to delay the effective date of any pending regulation that is not yet effective. Further, under the Congressional Review Act, the Democratic majority in the Senate and House could rescind the final rule with presidential approval.

What does this all mean?

Unlike the DOL’s 2019 Opinion Letter supporting the gig economy, if implemented, the final rule constitutes binding authority that stands to alter how the DOL and adjudicative bodies analyze and ultimately classify workers under the FLSA. Although its practical impact can be limited by state laws with different and potentially more rigorous standards, the final rule represents another positive development for gig economy platforms and others businesses hampered by worker classification tests that fail to reflect, as the DOL describes it, the modern economy.

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The gig economy – a new category of worker on the horizon?

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Over five years ago, in 2015 we wrote a thought piece about the “gig economy” and where it might be headed. Given the gig economy was then only emerging as a part of the broader economy, the impacts, positive and negative, were not yet known. However, we observed that there was potential for workers and employers to successfully leverage technology as a complement or substitute for traditional ways of working.

In 2017, our colleague Ben Dudley, wrote about the continual rise and development of the gig economy. He observed that employment and industrial laws were slow to catch up with these developments but sophisticated businesses would be looking at their structures and operations to stay ahead of the movement.

Now, we come to the start of 2021.

The global pandemic has put a spotlight on gig work in a real and tangible way. On the one hand, platforms have helped us manage during lockdowns, supporting businesses to pivot to online delivery, providing work and allowing those in self isolation to access necessities. At the same time, tragically, a number of food delivery workers lost their lives on the roads, prompting the New South Wales Government to set up a taskforce to investigate the deaths and assess how to improve the safety of such workers.

The fact that contractors generally do not receive paid sick or carer’s leave was also highlighted in the pandemic response. It was reported that a number of ride-share and food delivery platforms moved to cover their partners’ lost income when required to self-isolate – to the benefit of both the individuals and their communities fighting a highly contagious virus. However, those platforms would understandably have been concerned about providing benefits associated with “employment” to those workers and potentially increasing their risk of misclassification claims.

In short, gig work and platforms are continuing to gain traction as a part of the economy, but governments have only recently recognised that the law must evolve to keep pace with them.

In the Report of the Inquiry into Victorian On Demand Work issued in June 2020, Chairperson Natalie James found a “compelling case for change” in relation to the regulation of gig work. The Inquiry’s recommendations included:

  • codifying work status in the Fair Work Act (rather than relying on “indistinct” common law tests),
  • allowing gig economy workers to bargain collectively with platforms, and
  • providing streamlined advice around work status.

The Victorian Government closed public consultations about the Inquiry’s recommendations in October 2020. It is now considering feedback on the Report.

Where to from here?

The correct classification of gig work is critical for both employers and workers because it determines the application of a broad range of entitlements and benefits. However, that issue is inherently uncertain in “borderline cases” where there are factors pointing in opposing directions.

The Fair Work Act currently applies in the main to employees, but leaves the definition of employee versus independent contractor to the common law. This requires employers to weigh up a series of factors, none of which are conclusive. In one case[1], the application of this multi-factor test resulted in a young backpacker engaged by a labour hire company to work on construction sites in Perth being found to be an independent contractor – an outcome which was queried but not overturned on appeal. One judge who sat on the appeal observed:

“It may be thought that the prevalence of trilateral relationships, the evolution of digital platforms and the increasing diversity in worker relationships has evolved in a way that the traditional dichotomy may not necessarily comprehend or easily accommodate“.

The “traditional dichotomy” between employee and independent contractor in the common law was once described by the High Court of Australia as “too deeply rooted to be pulled out”. However, with the growth of the gig economy and other innovative approaches to work it is now likely that the law will change to (at the very least) allow the provision of employment-like benefits to gig workers. There is a push to take the more radical step of defining “employment” in legislation to expand those rights and protections to gig workers. This would represent a marked shift in the law as we know it. Arguably, it could undermine the value of gig work – to provide workers with greater flexibility than traditional employment (for instance the right to set their own schedule and to accept or reject work). It would be preferable for a national approach to be taken rather than a state by state, piecemeal approach if this can be achieved. Whatever comes next, the gig economy will certainly be one of the most interesting legal and policy challenges for employment and industrial relations in 2021 and beyond.

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Alert: US DOL Issues Final Rule to Simplify Analysis of Workers in Gig Economy | Cooley LLP

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A critical and growing issue facing gig economy platforms and other similar business models is the failure of existing laws to reflect the realities of a modern, adapting workforce. In response to calls for action, the United States Department of Labor recently published a final rule providing a simplified framework to determine if a worker is an “employee” or an “independent contractor” under the Fair Labor Standards Act (FLSA). The final rule, scheduled to take effect on March 8, represents the latest DOL endorsement of the gig economy platform model.

Background

In its final rule, the DOL observed that the FLSA does not define the term “independent contractor.” Instead, the DOL long ago adopted the economic realities test to determine proper worker classification. The economic realities test ultimately evaluates the extent of a worker’s economic dependence on the putative employer: the more dependent the worker is on the business, the more likely he or she could be considered an employee of that business.

The DOL noted that there has been significant confusion regarding the meaning of economic dependence and increasing legal uncertainty against the backdrop of increasingly flexible work arrangements. The DOL therefore promulgated the final rule to provide greater clarity on its own worker classification test under the FLSA.

DOL provides five factors to determine a worker’s ‘economic reality’

In its effort to clarify the confusion caused by the ever-changing meaning of the “economic reality” of a worker’s engagement, the DOL provided five factors to assess a worker’s economic dependence. Although the factors below are not exhaustive, and no single factor is dispositive, the DOL has clarified that the first two factors “are the most probative as to whether or not an individual is an economically dependent ‘employee.’” If these two factors point to the same conclusion, the remaining three factors need not be analyzed in making the classification determination.

  1. The nature and degree of the worker’s control over the work. This factor examines whether the worker exercises substantial control over key aspects of the performance of the work, such as scheduling the hours worked, selecting projects and/or being able to work for competing companies. The DOL noted, however, that even if a business required a worker to comply with specific legal obligations – such as satisfying health/safety standards and carrying proper insurance, or contractually agreed-upon deadlines or quality control standards – this alone would not constitute “control” for the purpose of this factor.
  2. The worker’s opportunity for profit or loss. This factor focuses on the extent of the worker’s opportunity to earn profits or incur losses based on (i) his or her own managerial skill, business acumen or judgment, and (ii) management of his or her investment in or capital expenditure on helpers or equipment or material to further his or her work. By contrast, if a worker “is unable to affect his or her earnings or is only able to do so by working more hours or faster,” the more likely he or she is classified as an employee under the FLSA.

If these first two factors conflict, however, the following three remaining factors can serve as further guideposts for proper classification.

  1. The amount of skill required for the work. This factor examines whether the individual’s work requires specialized training or skill that the business does not provide.
  2. The degree of permanence of the working relationship. This factor examines whether the relationship is impermanent (i.e., finite or sporadic) or permanent (i.e., indefinite or continuous). If a worker’s engagement falls into the former category, this would be indicative of an independent contractor relationship.
  3. Whether the work is part of an “integrated” unit of production. This factor focuses on the extent the work is a component of the business’s “integrated production process” for a good or service. Significantly, in incorporating this rule, the DOL rejected the prior test’s assessment of a worker’s “integrality” – which focused solely on a worker’s “importance” or “centrality” – because it found that identifying the “‘core or primary business purpose’ is not a useful inquiry in the modern economy.” Instead, under this factor, the worker is not likely to be found to be an employee if they are not “integrated” into the business’s production process, which is composed of operational subparts working in coordination towards a “specified unified purpose.”

Also noteworthy, the DOL announced that offering health, retirement and other benefits to independent contractors in and of itself is not “necessarily indicative of employment status.” However, the DOL cautioned that offering the same benefits to both independent contractors and employees poses misclassification risks.

Will the final rule take effect?

This remains to be seen. While the final rule is scheduled to go into effect on March 8, 2021, the future of the final rule remains uncertain because the incoming Biden administration is expected to issue a directive to all agencies to delay the effective date of any pending regulation that is not yet effective. Further, under the Congressional Review Act, the Democratic majority in the Senate and House could rescind the final rule with presidential approval.

What does this all mean?

Unlike the DOL’s 2019 Opinion Letter supporting the gig economy, if implemented, the final rule constitutes binding authority that stands to alter how the DOL and adjudicative bodies analyze and ultimately classify workers under the FLSA. Although its practical impact can be limited by state laws with different and potentially more rigorous standards, the final rule represents another positive development for gig economy platforms and others businesses hampered by worker classification tests that fail to reflect, as the DOL describes it, the modern economy.

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