United States: A Long Time Ago, In An On-Demand World Far, Far Away …

Last Updated: December 30 2015
Article by Robert S. Whitman and Adam J. Smiley

As this blog revels in the newest installment of the Star Wars saga, we remind you of our previous reports ( here and  here) regarding an equally enthralling (to your humble bloggers, anyway) legal showdown: the legal issues swirling around the "on-demand" workforce. Lawsuits by drivers for on-demand ride services have received the most publicity, but courts and state agencies are paying increasing attention to the question of whether on-demand workers are employees—and thus entitled to minimum wage, overtime pay, and other protections—or independent contractors in businesses for themselves.

While we are continuing to monitor these key lawsuits, several recent policy initiatives seek to clarify the classification of on-demand workers through means other than litigation.

DOL Symposium

On December 10, 2015, the U.S. Department of Labor held a "Future of Work" symposium. This full-day conference explored the trends associated with the on-demand economy and what they mean for the DOL in the future. The symposium addressed questions such as:

  • "How [does the DOL] ensure that enforcement of core worker protections within the [agency's] jurisdiction remain effective while allowing for, and encouraging, innovation?"
  • "How do we make it easier for new-model companies to do right by workers?"

Leading up to the conference, DOL Wage and Hour Administrator David Weil commented that, "the discussion of the gig economy is often couched as if it is the future of work ... . [It] is certainly an emerging issue ... but it is not the future of work. It is part of what is evolving." This sentiment is not surprising given Weil's view, as expressed in an Administrator's Interpretation last summer, that the existing legal framework used to evaluate independent contractor status, which was crafted decades before the on-demand economy could even be fathomed, is still applicable to the workforce in 2015 and beyond.

New Worker Classification?

Two former senior members of the Obama Administration, Seth Harris (former Acting Secretary of Labor) and Alan Kreuger (former Chairman of the Council of Economic Advisers), authored a report that proposed creating a third classification of worker in addition to "employee" and "independent contractor": the "independent worker." The report, issued December 7 by The Hamilton Project, a think tank affiliated with the Brookings Institution, aims to "modernize labor laws for the 21st century workforce." According to the proposal, this third category of workers would "occupy a specific part of the gray area" between employees and independent contractors, and would "enable businesses to provide benefits and protections that employees currently receive without fully assuming the legal costs and risks of becoming an employer."

The proposal would confer the following benefits on "independent workers":

  • The freedom to organize and collectively bargain;
  • The ability to pool benefits such as health insurance and retirement accounts or income and payroll tax withholding;
  • Civil rights protections; and
  • An opt-in program for workers' compensation insurance.

The proposal would treat "independent workers" similarly to independent contractors in other respects, and would not confer to them the following benefits:

  • Overtime benefits and protections;
  • Guaranteed minimum wage protections; and
  • Unemployment insurance.

We will monitor reactions to this proposal and other initiatives that would seek to create a new classification of on-demand workers.

New York City & Seattle Legislation

Also on December 7, a bill was introduced to the New York City Council that would establish certain protections for freelance workers, many of whom provide on-demand services. The "Freelance Isn't Free" bill would require any person or company who hires a freelance/on-demand worker to execute a written contract describing the work to be performed, rate, method of payment, and due date. The law would also require payment in full within 30 days after the completion of service, or the contractual due date. Penalties would include double damages, attorney's fees, and civil penalties.

While this bill does not directly address the worker classification issue, it seeks to address the perceived underpayment or non-payment of wages—a complaint often raised when discussing alleged misclassification. It is too early to speculate about whether this bill will pass, but if enacted it would impose important legal and administrative obligations on companies with an on-demand or freelance workforce.

On the other side of the country, Seattle's City Council unanimously passed a law on December 13 that would give Uber and Lyft drivers the right to form labor unions. Seattle Mayor Ed Murray refused to sign the bill, but it is still likely to become law because the City Council may override his decision with a 2/3 vote. In a statement explaining his disapproval, Mayor Murray noted "several flaws" in the legislation, including the "relatively unknown costs of administering the collective bargaining process and the burden of significant rulemaking the Council has placed on the City staff."

Assuming the City Council enacts the law, Seattle will become the first city to give on-demand drivers collective bargaining rights. However, the law will almost certainly be challenged in the courts on the basis that it is preempted by the National Labor Relations Act and violates antitrust law.

If this law is enacted and survives legal challenges, it may serve as a template for other cities to take similar action, and possibly for the expansion of such rights to all on-demand workers, not just drivers.

May the workforce be with you!

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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